What is Vouching
Notes on the Audit Procedure Vouching Bcom ( What is Vouching ): In this article, I am providing you the Bcom 3rd Year auditing notes, which will be extremely helpful in your test, and you should share this post with all of your friends and groups so that they can read it as well. Could. Notes on the Audit Procedure Vouching
Vouching is the process of analyzing documentary evidence to determine the correctness and validity of entries in the accounting books. As a result, vouching is a method through which an auditor checks the legitimacy and validity of transactions recorded in the books. In simple terms, it refers to a thorough examination of all original evidence, such as invoices, statements, receipts, correspondence, minutes, and contracts, to determine the accuracy of the entries in the books of accounts and, to the extent possible, to determine whether any entries have been omitted from the books of accounts.
“Vouching” implies “testing the veracity of things appearing in the books of original entry,” according to J. R. Batliboi.
“Vouching is the act of comparing entries in books of accounts with documented evidence in support thereof,” Dicksee says.
“Vouching is a technical word that relates to the auditor’s examination of documented evidence supporting and substantiating a transaction,” says Ronald A. Irish.
In essence, vouching is the process of auditing in which the auditor verifies that all transactions recorded in the books of accounts are backed by appropriate documented evidence or proofs and that they are accurate, authentic, and acceptable. The auditor may be confident in the arithmetical correctness and accurate documentation of transactions after the vouching of transactions is finished. He can be certain that the transactions are carried out with appropriate authorization and authority, that they are related to the company, and that they are backed by sufficient documentation.
Routine checking is a basic procedure that includes casting checks, carry forward, posting to ledger, account balancing, and balance transfer to trial balance. Tick marks of various kinds are used for regular inspection.
Vouching is a wide word that also include regular checks. The arithmetical correctness of entries is confirmed in routine checking, while entries must be examined with the aid of documented evidences in vouching. As a result, vouching extends beyond arithmetical precision. It is concerned with the transactions’ legitimacy and thoroughness. Routine checking is a mechanical instrument, while vouching is an intellectual examination of different transactions using documented proof. In reality, routine checking is a kind of test checking that is performed by young audit clerks, while vouching is performed by experienced audit clerks.
Vouching Objects (Vouching Objects)
The following are the vouching objects:
(1) To verify that all transactions relating to the company have been correctly documented in the books of accounts.
To ensure that all transactions in the books of accounts are backed up by documented proof.
(3) The entries are legally legitimate since the vouchers supporting them are genuine, addressed to the company, and correctly dated.
(4) To ensure that there has been no fraud or mistake in the recording of transactions in books of accounts.
To ensure that each transaction entered in the books has been properly verified by a competent party.
(6) Is precision observed while totaling, carrying forward, and recording an amount in the account?
(7) Ensuring that expenditures are properly allocated and that capital and revenue items are distinguished.
Vouching is Backbone of Auditing
Vouching, according to Mr. F.R.M. De Paula, is the core of auditing. According to him, the intelligence and completeness with which this portion of the job is completed determines the audit’s overall success. In the hands of an auditor, vouching is an essential instrument, and an auditor’s effectiveness in vouching is determined by his intellect, common sense, observation, and tact with which he conducts his job. An auditor should get to the source of a transaction rather than just checking the books’ arithmetical correctness or comparing the entries to the available documentary evidence.
Vouching verifies the accuracy of the transactions recorded in the ledger. As a result, it is considered the essence of auditing. In order to do his job properly, the auditor must use tact. Only by properly doing vouching would he be able to uncover the scams. He may satisfy himself of the validity and correct documentation of transactions in the accounting book by vouching. He will be held responsible if he displays carelessness.
In the case of Armitage vs. Brewer & Knott, the significance of appropriate vouching was emphasized. The failure of auditors to detect defalcations perpetrated by manipulations of wage records and petty cash vouchers was found to be negligent in this case. The auditors were found to be negligent in their vouching. The client was awarded damages because the auditors did not conduct a reasonable investigation and the explanation “this or that was a minor issue” was not accepted.
It should be emphasized that different scams can only be identified if vouching is done intelligently and thoroughly. When an auditor has concerns about a fraud, he should double-check the documentation evidence’s source. It is possible to obtain fake invoices of expenditures and purchases. It is possible that payments paid to these bills may be misused. The thorough vouching may identify this kind of scam. A purchase of an office table, for example, may be documented in the books, but this record does not demonstrate that the transaction was really approved. It may be a fake purchase made with the intent of stealing the money paid for it. The books of accounts would be arithmetically accurate in this instance, but not otherwise.
Auditing’s Backbone: Vouching
Vouching has been likened to the backbone of a human structure by some. This is correct because of the following factors:
(1) The backbone of a human person is of adequate significance; similarly, vouching in auditing is of sufficient relevance. The structure of auditing is negatively impacted in the lack of appropriate vouching, much as the human structure is damaged by the weakening of the backbone. The more cautious the auditor is while vouching, the easier, more convenient, and more reliable his audit job becomes.
(2) The human structure’s backbone is very tough. Similarly, vouching is a time-consuming and difficult task.
A person with a fractured backbone is unable to stand or walk correctly. The auditor cannot check the truth and propriety of the transactions recorded in the accounting books, just as he or she cannot examine the truth and propriety of the defective vouching. Audit will be like a structure without a strong foundation if it does not have a vouching.
When vouching, the auditor must ensure that the transactions entered are for the purpose of the business, that they are legally authorized, and that they are correctly documented in the firm’s records.
Thus, the essence of auditing is said to be vouching, since it is via vouching that an auditor may satisfy himself as to the validity and completeness of the transactions recorded in the books.
“The Auditor does not just seek that money has been sent away while vouching payments.”
The vouching of the payment side of the cash book is just as essential as the vouching of the receipt side. While vouching the payment side, an auditor should exercise extreme caution because there is a risk of fraud and theft. Excess payments, payments to the wrong person, fake payments, and illegal payments are all examples of scams and misappropriation. “When vouching payments, the auditor does not know that money has been sent away,” a common issue about payment vouching occurs. simply look for evidence
It is often assumed that the payment side of the cash book’s vouching is done only by comparing receipts to cash payments. However, this is an incorrect assumption. A receipt received in exchange for payment is just one piece of proof. Aside from that, the auditor must check a number of other factors to ensure that the payment made is appropriate, accurate, and has been documented properly. The auditor should pay special attention to the following issues while vouching the payment side of the cash book:
1. Suitable Proof: To support the payment, proper evidence (vouchers) such as a receipt, purchase bill, and so on must be provided.
2. Payment Reality: The auditor must verify that the payment has been made. It’s also conceivable that a fake payment was made with the intention of committing fraud.
3. Payment to the correct individual: The auditor should certify that the payment was paid to the correct individual. It indicates that the money was made to the individual who was supposed to receive it.
Payment of the real amount: The auditor should verify that the amount entered in the cash book corresponds to the amount shown on the voucher, and that the amount has been paid. It’s also a good idea to double-check the payment’s date.
5. Appropriately Sanctioned: The auditor must ensure that the payment has been properly sanctioned by the authorized person.
Payment must be related to the audit period: The auditor must ensure that the payment is related to the audit period. If expenditures from a previous period are included in current period’s expenses, the profit and loss statement will not reflect the accurate and real profit or loss.
7. Payment must be related to the business: The auditor must determine whether or not the payment is related to the company. Payments made for an employee’s or the owner’s personal expenditures have not been recorded as a business expense.
8. Stamped: If at all feasible, all payments should be accompanied with receipts. The auditor should also check that any cash receipts above Rs. 5,000 are marked with Re. 1.
9. Payment must follow the rules: Some payments are prohibited by the Indian Companies Act, such as a director’s authority to utilize the company’s funds for personal gain. Despite the fact that the business may be supplied with a valid voucher for it and that such a payment may be justified by other factors. However, this is against the law. As a result, the auditor must disclose this kind of payment in his report so that the shareholders are aware of it.
10. Payments must be properly documented: When vouching payments, the auditor must ensure that each payment is properly recorded. He must ensure that the money has been credited to the correct account. Capital and revenue expenditures, for example, have been recorded separately. The Prepaid Expenditures Account has been used to record amounts provided in advance for expenses rather than the Expenses Account. The veracity of the Profit and Loss Account and the Balance Sheet would be impacted if a mistake was made in writing payments.
Notes on the Audit Procedure Vouching
Vouchers and their Meaning
A voucher is a written document that is used to substantiate an entry in the books of accounts. It is proof in the form of a document. It may be a receipt, counterfoil, or receipt book, an agreement, Board of Directors or Shareholders decisions properly documented in minute books, an invoice, bank pay-in-slip, purchased and sold ledgers/notes, correspondence related to the transactions, and so on. Vouchers are used to perform the vouching. “A voucher may be defined as any documented proof through which the correctness of books entries may be verified,” writes Joseph Lancaster.
“A voucher may be a receipt, invoice, agreement, written requisition sheet, or in short any appropriate written proof which verifies a written transaction,” says Ronald A. Irish.
“A voucher may be described as documented proof in support of an entry appearing in books of accounts,” writes J.R. Batliboi.
“A voucher is any documented proof in support of a transaction,” says Arthur W. Halmes.
Vouchers come in a variety of shapes and sizes.
1. Primary Vouchers: A primary voucher is an original written document that supports a transaction, such as an invoice for a purchase. Fin
2. Collateral Vouchers: When original evidence is lost or destroyed, duplicate copies are created as secondary evidence to eliminate suspicion from the auditor’s mind. These are referred to as collateral vouchers.
Notes on the Audit Procedure Vouching
While vouching, an auditor should consider the following points.
The auditor should carefully study the vouchers that have been given to him, paying particular attention to the following points:
1. Filed and numbered
2. In the organization’s name
3. An approved person must certify it.
4. Stamped and dated correctly
5. The use of unique tick-marks
6. Transaction trustworthiness
7. No assistance from the client’s personnel
8. Work completion
9. A list of vouchers that have gone missing
10. Any changes to the vouchers must be backed up by the signatures of the officers involved.
11. The auditor will not conduct a test check unless the organization has a sufficient internal control system in place. If the auditor has a, it must be completely filled.
12. What is the difference between capital and revenue items?
13. The auditor should double-check that each voucher corresponds to the audited period.
14. The auditor should check the date, name, and value of each voucher to the original accounting record’s corresponding date. This will guarantee that no non-business-related vouchers are recorded in the records.