29 Aug Vouching
What is Vouching?
Definition: Vouching is an essential part of the audit process. It involves checking the entries in the books of account with the supporting documentary evidence.
What does vouching mean?
The vouching exercise allows the auditor to confirm that a company’s financial transactions are correctly recorded. What does the auditor check during the vouching process? Here is a list of the issues that an auditor looks out for:
⇨ Are there invoices and receipts for all the purchases that the company has made during the period under review? Are the figures correctly reflected in the books of account? Have the purchases been approved at the appropriate management level?
⇨ Are the company’s sales substantiated by copies of the sales invoices? Are the figures in the sales invoices and the sales account the same?
⇨ Do the sales and purchase invoices pertain to the period under review?
⇨ Have capital and revenue items been correctly recognized? If a company capitalizes its revenue expenditure, it could lead to inflating the profits for the year.
⇨ Do the company’s expenses pertain to its business activities? Have personal expenses been paid out of the firm’s cash?
An auditor need not inspect all the vouchers for the period under review. A random sample of transactions could be selected and reviewed carefully. If errors or incorrect entries are found, the sample size could be increased.
Example of vouching
Grant & Co., the auditors for Centurion Builders, initiates the audit by reviewing the company’s vouchers. It finds that many of the expense vouchers are not available with the accountant.
The auditor is informed that these are with the company’s CEO who also happens to be the company’s largest shareholder.
When these expense vouchers are provided to the auditor, it turns out that the CEO has been charging personal expenses to the company’s account. At the insistence of the auditor, Centurion Builders’ CEO repays this money to the company.
Vouching is the act of verifying that the company’s financial records can be substantiated with the appropriate documentary evidence.