Definition: Vouching is a procedure followed in the auditing process to authorize the credibility of the entries entered in the books of accounts. In simple and easier words, it can be understood as an investigation by an auditor of the documents presented by the firm to check the correctness of such documents.
- Concept of voucher
- Types of vouchers
- Sources of Vouchers
- Objectives of Vouching
- Importance of vouching
- Difference between Vouching and Verification
- Characteristics of Vouching
- Vouching of cash transactions
- Key points to remember
Concept of voucher
The documentary evidence such as counterfoil, cash memo, receipts, pay-in-slips, for recording transactions in books of accounts is defined as a voucher. The transactions supposed to be recorded only if the evidence is available.
Example– Purchase transaction should have these supporting documents for preparing voucher:
- Invoice bill
- Purchase order
- Requisition slip
- Entry gate pass (while receiving goods)
Types of vouchers
In general, vouchers are majorly divided into two parts
- Primary Vouchers: The bills or the documents that are available in the original copy are known as primary vouchers.
- Collateral vouchers: These are the bills that are available in a duplicate copy.
Sources of Vouchers
There are two sources of vouchers.
- Internal vouchers: The vouchers prepared by the company itself are termed as internal vouchers, such as sales invoices.
- External vouchers: The vouchers created outside the organization are termed as external vouchers such as bank statements.
Objectives of Vouching
It is the technique used by the auditors to judge the authenticity of the entries appearing in the financial statement. Procedure and accuracy followed for performing vouching decide’s the success and failure of the auditing.
The following are the objectives of the vouching:
- To ensure that all the transactions took place during the financial year for the business only (not for personal use) appropriately recorded in the books of accounts with true and fair evidence.
- To check the accuracy of the totalling and carrying forward amount recorded in the books.
- To ensure that the person responsible for the business has verified his records or not.
- To make the financial records free from malpractices.
- To make sure that law has been followed while preparing financial records.
Importance of vouching
While performing an audit, the auditor is totally dependent on the documents presented by the responsible person for the business during the whole financial year.
If any bill related to sales, purchase, electricity, telephone, that are not associated with the business is presented, it can only be detected with fair vouching.
Various frauds can be detected while doing vouching if it is done in an intelligent manner.
For preparing reliable profit and loss a/c, Balance sheet, the vouching should be done accurately. It’s an ethical duty of an auditor not only to check the arithmetical accuracy of records but to see its substantial accuracy as well because if the primary document is wrong, the whole financial statement will show the wrong and unfair result.
Difference between Vouching and Verification
|Introduction||Vouching is a process of |
examining the evidences
|Verification is a process to
verify the assets and liabilities of the business
|Basis||Vouching is concluded based on the feasible|
like invoice receipts
|Verification is concluded based on information
counting the observation.
|Examination||Examining of profit and loss accounts is done in vouching process.||Balance sheet is examined in
|Time of conduct||Vouching is a never ending process |
through out the financial year.
|Verification is done at the end of the financial year.|
|Purpose||Vouching is done to check the|
accuracy of the evidences provided by the party.
|Verification is done to check out the existence of the assets
and liabilities appearing in the balance sheet.
Characteristics of Vouching
Imperative aspect of auditing: Vouching is a necessary part of the auditing procedure, which makes the auditor more positive about the veracity of the transactions emerging in the records.
Basis of Auditing: Before regulating the further process, the vouching should be carried out to assure the further process is fair and correct.
Drafted Evidence: Vouchers are the recorded form of evidence which proves that the transactions have genuinely occurred for the business during the current financial year.
Disclosure of extortion: Though vouchers are the recorded evidence signed by the owner, it helps in disclosing any fraudulent transactions documented in the books of accounts.
Report of business activities only: Vouchers are the detailed description of the transactions took place during the year.
No secret transactions: Vouchers should not confine any secret transaction of the owner or the accountable individual for the business as the business has its independent existence.
Course of voucher: The date quoted in the voucher defines that the transaction has arisen currently.
Vouching of cash transactions
Here, we will review some entries of the cash book
Recorded in Debit side (Cash Receipts)
- Opening balance: The closing balance for the last financial year will be the opening balance or cash-in-hand for the current financial year.
- Cash received from debtors: Points to be considered for verification of cash received:
- The actual date and time of cash received should be entered.
- The responsible authority should accredit any discount allowed to the customers.
- Loan repayment: It can be verified in the following steps:
- Interest received on loan should be credited to interest received account.
- Substantiation of bank statement: party can directly deposit amount in the bank; therefore, verification of bank statement is necessary.
- Rent received: It can be verified in the following steps:
- Records of the different rental properties should be maintained separately to record the rental income earned from various properties.
- Tax deducted at source should be properly accounted for if deducted by the party.
- Commission received: It can be vouched as follows:
- Agreement verification of the commission being received.
- Computation of commission receivable.
Recorded in Credit side (Cash payments)
- Opening balance: Credit opening balance represents a bank overdraft because the cash-in-hand of a company can never be negative.
- Payment to Creditors: Examining creditors payment can be done in the following ways:
- The creditor’s account statement should be inspected.
Issue of receipt by creditors.
- Any advance payment should be evidently quoted.
- The creditor’s account statement should be inspected.
- Payment of salaries: It can be examined in the following ways-
- The salary register of the employees should be managed month wise.
- Amendments in the amount of TDS, advance payment, insurance, funds should be noted.
- Purchase of Plant and Machinery: It can be vouched as follows-
- Excise duty treatment, according to excise rules.
- Go thoroughly to the purchase invoice or receipt of the machinery.
- All the charged incurred along with purchase such as freight inward, commission charges should take advantage of.
- Income tax: Following points should be considered for income verification-
- All the tax challans, whether it is of advance tax or self -assessment tax.
- Check if any demand notices from the income tax department.
- Check if any assessment orders by the income tax department.
Key points to remember
- Transactions credibility.
- The Veracity of the transactions.
- Progression of the vouchers should adequately categorize.
- The span of payment must be there on the receipt.
- Every checked voucher should be marked.
In brief, an inspection of vouchers or chronicle information is known as vouching. It is an imperative part of an auditing process. Accuracy of the report prepared by the auditor is eminently dependent on the accuracy of the vouching process.