Audit Procedure Vouching Bcom Notes

Audit Procedure Vouching Bcom Notes:-

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Audit Procedure: Vouching

Meaning and Definitions of Vouching

The act of examining documentary evidence in order to ascertain the accuracy and authenticity of entries in the accounts books is called ‘vouching.’ Thus, vouching is a technique in which an auditor verifies the authenticity and authority of transactions recorded in the books. In simple words, it refers a careful examination of all original evidence i.e. invoices, statements, receipts, correspondence, minutes and contracts etc. with a view to ascertain the accuracy of the entries in the books of accounts and also to find out, as far as possible, that no entries have been omitted in the books of accounts.

According to J. R. Batliboi, “Vouching means testing the truth of items appearing in the books of original entry.”

According to Dicksee, “Vouching is an act of comparing entries in the books of accounts with documentary evidence in support thereof.”

Audit Procedure Vouching Bcom Notes

According to Ronald A. Irish, “Vouching is a technical term which refers to the inspection by the auditor of documentary evidence supporting and substantiating a transaction.”

In essence, vouching is the process of auditing whereby the auditor ensures that all transactions recorded in the books of accounts are supported by proper documentary evidences or proofs and they are in order in respect of their correctness, genuineness and acceptability. (Audit Procedure Vouching Bcom Notes) Once vouching of transaction is completed, the auditor can be sure of the arithmetical accuracy and proper recording of the transactions. He can be sure of the fact that the transactions are executed under proper sanction and authority and the transactions relate to the business and supported by proper evidence.

Audit Procedure Vouching Bcom Notes

Vouching and Routine Checking

Routine checking is a simple checking which involves checking of casts, carry forward, posting to ledger, balancing of accounts and transfer of balance to trial balance. Different types of tick marks are used for routine checking.

Vouching is a broader term and it includes routine checking also. In routine checking, it is the arithmetical accuracy of entries that is verified whereas in vouching, entries are to be checked with the help of documentary evidences. Thus, in vouching, checking goes beyond arithmetical accuracy. It concerns itself with the authenticity and completeness of the transactions. Routine checking is a mechanical device whereas in vouching an intelligent checking of various transactions is made with the help of the documentary evidence. As a matter of fact, routine checking is a means of test checking and is done by the junior audit clerks, but work of vouching is done by the experienced audit clerks.

Audit Procedure Vouching Bcom Notes

Objects of Vouching

The objects of vouching are the following:

(1) To ensure that all the transactions which are connected with the business have been recorded in the books of accounts properly.

(2) To verify that all transactions recorded in the books of accounts are supported by a documentary evidence.

(3) The vouchers which support the entries are legally valid from the view point that they are authentic, addressed to the business and properly dated.

(4) To verify that no fraud or error has been committed while recording transactions in books of accounts.

(5) To verify that every transaction recorded in the books has been adequately authenticated by a responsible person.

(6) Whether accuracy has been observed while totalling, carrying forward and recording an amount in the account. (Audit Procedure Vouching Bcom Notes)

(7) Ensuring that the expenditure has been correctly allocated and distinction has been made between capital and revenue items.

Importance of Vouching

Vouching is the Essence of Auditing

Vouching is Backbone of Auditing

Mr. F.R.M. De Paula has described vouching as the very essence of auditing. According to him, the whole success of an audit depends upon the intelligence and thoroughness, with which this part of the work is done. Vouching is an important tool in the hands of an auditor and the success of an auditor in vouching depends upon his intelligence, commonsense, observation and tact with which he handles his work. An auditor should not merely check the arithmetical accuracy of the books or compare the entries with the available documentary evidence, but he should go to the source of a transaction.

Vouching tests the truth of the transactions recorded in the accounts books. Therefore, it is said to be the essence of auditing. The auditor has to apply his tacts to carry out his work in a proper manner. He can find out the frauds only when he conducts vouching in a proper manner. It is through vouching that he can satisfy himself about the authenticity and proper record of transactions in the accounts book. If he shows negligence he will be held guilty for it. (Audit Procedure Vouching Bcom Notes)

The importance of proper vouching was emphasised in the case of Armitage Vs. Brewer & Knott. In this case, auditors were found guilty of negligence because of their failure to detect defalcations perpetrated by manipulations of wage records and petty cash vouchers. The auditors were held guilty for being careless in vouching. It was the opinion, that auditors have not made a reasonable extent of enquiry and that the excuse “this or that was a small matter” was not accepted and the client was granted damages.

Audit Procedure Vouching Bcom Notes

It ald be noted that various frauds can be detected only if vouching is conducted in an intelligent and searching manner. Whenever an auditor doubts a fraud, he should also verify the source of documentary evidence. Sometimes fictitious bills of expenses and purchases may be procured.

Payments made against these bills may be misappropriated. This type of fraud can be detected by the careful vouching. For example a purchase of an office table may be recorded in the books, but this record by itself does not show that the purchase of the office table was actually authorized. It may be a fictitious purchase with an object to misappropriate the cash payment made for it. In such a case, books of accounts would be arithmetically correct, but otherwise they are not so.

Audit Procedure Vouching Bcom Notes

Vouching: A Backbone of Auditing

Some people have compared vouching with the backbone of a human structure. This is quite true on account of the following reasons:

(1) In the physical structure of the human being backbone has a sufficient importance, same thing is found in the case of vouching in auditing. As the human structure is affected with the weakening of the backbone, imilarly the structure of auditing is adversely affected in the absence of proper vouching. The more the auditor is careful while vouching, the more he makes his audit work simple, facilitating and trustworthy. (Audit Procedure Vouching Bcom Notes)

(2) The backbone of the human structure is quite hard. Similarly, the work of vouching is very tedious and hard.

(3) With a broken backbone a human being can neither stand, nor can walk properly. In the same way with the faulty vouching, the auditor cannot examine the truth and propriety of the transactions recorded in the accounts books. Without a vouching, audit will be like a building without solid foundation.

In vouching, the auditor does not merely seek arithmetical accuracy but has to ascertain that the transactions entered are for the purpose of the business, duly authorised and properly recorded in the books of the firm.

Thus, truely vouching is said to be essence of auditing since it is vouching that an auditor can satisfy himself as to authenticity and completeness of the transactions recorded in the books.

Audit Procedure Vouching Bcom Notes

“In Vouching Payments the Auditor does not merely seek that Money has been Paid Away.”

Vouching of payment side of cash book is as important as vouching of receipt side of cash book. An auditor should take utmost care while vouching payment side as chances of frauds and misappropriation also lies there. The frauds and misappropriation may be done by showing excess payments, making payments to the improper person, showing fictitious payments, unauthorised payments etc. Generally a question arises regarding vouching of payment side that, “In vouching payments the auditor does not that money has been paid away.” merely seek proof.

Audit Procedure Vouching Bcom Notes

It is generally thought that vouching of payment side of the cash book is completed only by checking the receipts obtained against cash payments. But this is not a right notion. Receipt obtained against payment is only one evidence. Besides this, the auditor has to examine many other things which will confirm that the payment made is proper, correct, according to rules and has been recorded correctly. While vouching the payment side of cash book, the auditor should give proper attention to the following points:

Proper Evidence: There must have proper evidence (vouchers) like a receipt, purchase bill etc. to justify the payment.
Reality of Payment: The auditor must confirm that the payment has actually been made. It is also possible that fictitious payment has been recorded for the purpose of committing a fraud. (Audit Procedure Vouching Bcom Notes)
Payment to the right person: The auditor should confirm that the payment has been made to the right person. It means that the payment has been made to the person to whom the payment was to be made.
Payment of the actual amount: The auditor should see that the amount recorded in the cash book is the amount appearing in the voucher and that this amount has actually been paid. The date on which the payment was made should also be checked.
Properly Sanctioned: The auditor should see that the payment is duly sanctioned by the authorised person.
Relating to the period under audit: The auditor should see that the payment relates to the period for which he is conducting the audit. If expenses of some other period have been recorded in this period, the profit and loss account will not show the correct and actual profit or loss.
Payment must relates to the business: The auditor has to see that payment must relates to the business. Payment made for the personal expenses of an employee or the owner has not been entered as an expenditure of the organisation. (Audit Procedure Vouching Bcom Notes)
Stampted: All payments should be accompanied by receipts, if possible. Auditor should also see that the receipts for cash payment over Rs. 5,000 is stamped with Re. 1.
Payment must be according to rules: Under the Indian Companies Act, some payments are not allowed, e.g., A director has no right to spend the company’s money for his personal use. Although the company may be provided with a proper voucher for it and such a payment may be justified from some other considerations. (Audit Procedure Vouching Bcom Notes) But this is against the rules. So, the auditor must mention such type of payment in his report for the knowledge of the shareholders.
Payment should be properly recorded: While vouching payments, the auditor must see that each payment has been recorded correctly and properly. He must see that the proper account has been debited with the payment. e.g. Capital expenditure and Revenue expenditure have been entered separately. Amounts given in advance for expenses have not been entered in the Expenses Account, but in the Prepaid Expenses Account. If an error has been committed in writing payments, it will affect the truth of the Profit and Loss Account and the Balance Sheet.

Audit Procedure Vouching Bcom Notes

Meaning of Vouchers

A voucher is a written document to be used in support of an entry made in the accounts books. It is a documentary evidence. It may be a receipt, counterfoil or a receipt book, an agreement, resolutions passed by the Board of Directors or Shareholders duly recorded in the minute books, an invoice, pay-in-slip of the bank, bought and sold ledgers/notes, correspondence relating to the transactions etc. Vouching is done with the help of vouchers. According to Joseph Lancaster, “A voucher may be defined as any documentary evidence by which the accuracy of books entries may be substantiated.” (Audit Procedure Vouching Bcom Notes)

According to Ronald A. Irish, “A voucher may be a receipt, invoice, an agreement, a written requisition slip or in short any suitable written evidence which confirms a written transaction.”

According to J.R. Batliboi, “A voucher may be defined as a documentary evidence in support of an entry appearing in books of accounts.”

According to Arthur W. Halmes, “A voucher is any documentary evidence in support of a transaction.”

Types of Vouchers

Primary Vouchers: An original written evidence supporting a transaction e.g., invoice for a purchase is termed as primary voucher. Fin
Collateral Vouchers: When some original evidence is lost or destroyed, duplicate copies thereof are produced in support as subsidiary evidence to remove suspicious from the mind of the auditor, these are termed as collateral vouchers.

Audit Procedure Vouching Bcom Notes

Point should be considered by an auditor while Vouching

The auditor should examine the vouchers presented to him carefully with special reference to the following points:

Numbered and Filed
In the name of the organisation
Certified by an authorised person
Properly stampted and dated
Use of special tick-marks
Authenticity of transaction
No help from the client’s staff
Completion of work
List of missing vouchers
If any alteration is made in the vouchers then it must be supported by the signatures of the concerned officer. (Audit Procedure Vouching Bcom Notes)
Auditor shall not resort to test cheching unless a satisfactory internal control system exists in the organisation. If the auditor has a must be full.
Distinction between Capital and Revenue items
The auditor should ensure that every voucher relates to the period under audit.
The auditor should compare the date, name and amount of each voucher with the corresponding date appearing in the original accounting record. This will ensure that no voucher which is unrelated to business has been entered in the books.