What are the Objectives of Vouching? How does it help?
Objectives of vouching
You’re probably aware that an auditor is supposed to certify that the financial statements generated by an accountant present an accurate and fair picture of the business’s operating results and state of affairs. If the auditor does not seek to verify the accuracy and validity of all transactions recorded in the books of account, he would be failing in his duties. This is where the role of vouching comes into play. Vouching is the backbone of any audit process which helps an auditor to arrive at conclusive views about the client and his business.
What is vouching?
The auditing process begins with gathering and examination of evidence in support of the entries made in the books in order to confirm their accuracy and validity. An auditor must be satisfied with the sufficiency and dependability of such evidence. Therefore, the tasks that an auditor undertakes in confirming the accuracy and authenticity of accounting entries passed in the books of account with reference to acceptable and reliable evidence are technically referred to as ‘vouching’.
In other words, vouching in its real sense entails verifying the accuracy of all entries made in the books of account by comparing them to documentary proof. It is a process of examination used to not only support an entry in the books of account with documented evidence, but also to ensure that such evidence is adequate, dependable, and truly related to the client’s business. For all of this, the auditor must go beyond the books of account, i.e., he needs to go to the source of the transaction to ensure that it is related to the business and is duly authorized.
What is a voucher?
It won’t be wrong to say that the act of examining vouchers is known as vouching. But what is a voucher? A voucher is nothing but any documentary evidence that supports the entries in the accounting system. It is any document that validates the entries in the books of accounts and helps to establish arithmetical accuracy.
A bill, an invoice, a receipt, goods received note (GRN), goods inward and outward register, stores records, counterfoil of a Cheque Book, salaries and wages sheets, counterfoil of pay-in-slip book, bank statement, delivery challans, legal agreements, bank passbook, a material requisition slip, copy of purchase order, minute book, partnership deed, trust deed, memorandum and articles of association, prospectus. etc. are all examples of vouchers.
The Objectives of Vouching
Vouching is a practice followed in audit to determine the extent to which entries recorded in the books are authentic. But its scope is not only just limited to checking a transaction with reference to supporting documents. In addition to verifying that all transactions are properly backed by supporting vouchers, it also checks the authority on the basis of which an entry is recorded in the books. During vouching process, an auditor also checks that the transactions are properly authorized by a designated individual before they are recorded in the books. Not only this, but vouching also confirms that the amount of the voucher has been posted to the appropriate account with the correct amount. Correct posting of a transaction to the right account will ensure that the nature of the transaction would be correctly disclosed on its inclusion in final accounts. Taking these points into consideration, the following are the primary objectives of vouching:
- To examine the accounting transactions recorded in the books of accounts by using documentary proof known as vouchers
- To assess the sufficiency and dependability of such documentary evidence
- To investigate the truthfulness of the transactions reported in the books of account
- To ensure that all transactions are correctly documented in the books of accounts
- To verify that all of the transactions & entries are supported by valid evidence
- To ensure that no fraudulent transactions are documented in the books of accounts
- To check that all transactions relating to the business are recorded in the books
- To confirm that all transactions are properly authenticated by a responsible individual
The need for vouching
Because the concept of evidence is fundamental to auditing and all audit techniques and processes are drawn from it, vouching is seen as the very basis of auditing. It aids the auditor in understanding the many types of evidence available, in gathering it using various audit techniques, and in assessing its sufficiency and reliability to substantiate accounting entries. In vouching, an auditor’s success is heavily reliant on his competence, intelligence, critical thinking, observation, the strength of judging, and tactfulness with which he must manage his work.
It should be noted that no amount of routine checking can uncover severe frauds, errors of principle, or well-planned scams. Only clerical and small errors can be detected by this type of examination. There’s no denying that severe discrepancies, errors of principle, or well-planned scams can only be uncovered through proper vouching. That is why it is extremely critical that an auditor must carefully vouch for each item appearing in the books of accounts. Only by vouching can the auditor be satisfied as to the accuracy, authenticity, and completeness of transactions recorded in the books, and only then can he certify that the financial statements reflect a fair picture of the business’s operating results & its state of affairs.
If the auditor is negligent in performing his duties, he will be held liable, as decided in the case of Armitage vs. Brewer & Knott (1932). In this instance, it was determined that an auditor was liable for damages since he failed to notice anomalies and frauds that were visible on the face of the vouchers.
Essential considerations in vouching
To do vouching, a transaction is selected from an account and then the auditor goes backward through the accounting processing system to find out the source which supports that transaction. For instance, to vouch for sales, the auditor would see whether entries made in the sales book can be traced back to copies of sales invoices and whether sales invoices are arithmetically correct. Further, he would check whether the transaction has actually occurred in the period under audit and whether it is duly authorized.
The following are the most important considerations to keep in mind when reviewing a voucher:
- Ensure the date of the voucher corresponds to the accounting period (i.e., falls within the period)
- Ensure that the voucher is made out in the name of the client
- Ensure that the voucher is duly authorized
- Ensure that the voucher included all necessary papers that may have been expected to be received or created as a result of the events/transactions, i.e., that the voucher is comprehensive in all aspects
- Ensure that the account to which the amount of the voucher is charged is one that will clearly reflect the nature of the receipts or payments posted therein upon inclusion in the final accounts
After the evaluation, each voucher should be either stamped with a rubber stamp or initialed so that it cannot be used to support another entry in the future.
Takeaway – Objectives of vouching
Vouching has a key role in auditing and serves many objectives. With vouching, an auditor looks for documentary evidence which is available to prove that the entries recorded in the client’s books are authentic.
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