Vouching in accounting is a technique used by an auditor to establish the authenticity of transactions mentioned in the primary books of account. It does not take note of non-business transactions. This helps the auditors ensure that all business-related transactions are recorded in the books of accounts. The auditors check and verify if all the transaction amounts are genuine and confirm the nature of a transaction. The article will provide information regarding accounting vouchers in-depth.
The Concept of Vouching in Accounting
Cash memos, payslips, receipts, and counterfoils are vouchers that document the transactions in the books of accounts. These transactions are recorded if substantial evidence is available, and accountants need several documents to prepare a voucher, used as an evidentiary document.
The following documents should be available to prepare the voucher in order to record a purchase transaction:
- Purchase order
- Requisition slip
- Entry gate pass (when receiving the goods)
Types of Vouching in Auditing
There are two types of vouchers:
- Primary Vouchers:
Documents and bills present in the original form are referred to as primary vouchers.
- Collateral Vouchers:
The bills that are available as duplicates are known as collateral vouchers.
Sources of Vouchers
The sources of the voucher are:
- Internal Vouchers
A company makes the internal vouchers—for example, a sales invoice.
- External Vouchers
External vouchers like a bank statement are prepared outside the organisation.
Examples of Vouching in Accounting
Some vouching examples are:
- Cash Payments
- Cash Receipts
Vouchers relating to cash payments include - Invoices, demand notes, bills, wage sheets, salary registers, counterfoils, agreements and others.
The cash receipt vouchers include - carbon copies of contracts, receipts, correspondences, minutes, and counterfoils.
The sales vouchers include copies of the invoice, goods outward book, orders received, and correspondence.
Examples of purchase vouchers are invoices, copies of orders placed, goods inward book, and correspondence.
The Objectives of Vouching in Auditing
Auditors vouch to ensure the authenticity of transactions recorded in the statement. The procedure followed during vouching and the accuracy adopted are important as they will decide whether the audit is successful or otherwise. The objectives of vouching are:
- To ascertain all the transactions mentioned in the books (during a financial year) were carried out for a business purpose and not for individual requirements. Also, they are truthfully recorded with genuine and relevant documented evidence.
- To make sure the totalling and carrying forward amount recorded in the statement have no discrepancies.
- To see if the records of the business are verified.
- To remove any traces of malpractices from the financial statements.
- To ensure the financial records are prepared lawfully.
Importance of Vouching in Accounting
An audit is based on the documents made available to an auditor by the business owner or an authorised person. The documents provided must be related to the organisation's business activity for the financial year. If any bills related to purchasing, sales, telephone, electricity, and others not associated with the business are not attached, they indicate that vouching is done accurately. Vouching must be performed efficiently and effectively to detect frauds (if any).
It is the auditor's responsibility to ensure the records are accurate with accurate calculations. Vouching should be done accurately and strictly while preparing the balance sheet and profit and loss statement. If the primary documents contain discrepancies, the final records will display a wrong result, and the audit will not be successful.
Characteristics of Vouching Accounting
Following are the characteristics of vouching:
Imperative Aspect of Auditing
Vouching is a necessary part of auditing, and it makes the auditor's job simpler, and detected discrepancies (if any) come to light.
The Basis of Auditing
Vouching is the base of the auditing process. Correct vouching of the provided documents is necessary to ascertain the accuracy of further accounts maintained by the auditor.
Vouchers are documented evidence showing that transactions occurred during the company's business activities.
Disclosure of Extortion
Vouchers also aid in disclosing any fraud recorded in the books of account.
Report on Business Activities Only
Vouchers provide information that makes it easy to differentiate between personal and business transactions. The auditor only considers the business transaction vouchers while preparing the profit and loss statement.
No Secret Transactions
An auditor can identify any transaction besides business transactions and eliminate them.
Course of Voucher
The date mentioned in the voucher shows the timeline of a transaction.
Procedures for Vouching Accounting
The steps involved in vouching procedure are given below:
Step 1 - Reading Out
During the auditing process, the junior auditor can read aloud the voucher number, amount and other details, which will speed up the process, making it easier and quicker.
Step 2 - Comparison
Comparison is a part of the vouching process. The senior auditor tallies the items mentioned in the voucher with the entries mentioned in the books of account.
Step 3 - Ticking
Ticking is used to mark the items which have already been checked. They can be in the form of abbreviations or symbols.
Step 4 - Stamping
Instead of signatures or initials to check the vouchers, the senior auditor can use rubber stamps mentioning the words checking, cancelled and other instructions.
Step 5 - Signatures
The entries can be vouched for by the senior auditor signing the vouchers. The signed vouchers cannot be presented or used again for another entry.
Step 6 - Query
When a voucher is missing, or the entries in a voucher raise a question due to overwriting, the audit team can mark each entry with a “q”. This is recorded in the working papers.
Step 7 - Management
The team hands over doubtful entries to the management. The management can examine the record in detail and clear the objections.
Step 8 - Reply
The management may take a couple of days to reply. The auditor can then decide if the explanation is valid.
Step 9 - Clearance
In case the answer is satisfactory, the query is cleared. If the auditor is dissatisfied with the answer, they can inform the management about the same.
Step 10 – Unsatisfactory Explanation
The auditor can reject an explanation and try further to find out the truth. The query is noted in the working papers as poor clarification.
Step 11 - Objections
After the audit is completed, any objections mentioned in the working papers are discussed with the management. The auditor can form his opinion based on this and submit his audit report.
We hope this article has helped provide information about vouching for accounting. Vouching is an important part of accounting. The auditor inspects vouchers or documented information to verify the credibility of transactions. The accuracy of the audit report depends on the accuracy of vouching.
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