Vouching

Chapter 8
 Routine Checking
• Routine checking means checking basic actions taken by
the auditor:
a. Checking the addition, subtraction, sub addition, carry
forwards, extensions and calculations in the books of
original entries.
b. Checking of posting from original entries in ledger
accounts.
c. Checking of ledger account with regard to addition,
balancing carrying down their balances and transfer of
that on the trial balance.
d. Casting the trial balance and confirming its agreement.
 Cont..
• Auditor for each of the routine work discussed uses
different kinds of tick marks to identify the work done.
• The objectives of routine checking are:
1. Verifying arithmetical accuracy for entries
2. Ascertains that the posting from the original entries
have been made to correct accounts in ledger.
3. Ensure that the ledger accounts have been correctly
balanced.
4. Ensure by means of special ticks used that no figures
are altered after it has been checked.
 Vouching
• Vouching is examination of every business
transaction with its supporting documentary
evidence, the checking of each enable the auditor
to satisfy that the transaction is in order , that it
has been properly authorized and that it has been
correctly allocated and recorded in the books.
• Vouching is a technical term, it refers to the
inspection by the auditor in terms of documentary
evidence in support a transaction .
 Cont..
• Vouching means to substantiate an entry in the
books of accounts not only with any documentary
evidence such as agreement, receipts, counter
file, pay-slips, contracts etc. but also to see that
the transaction have been properly authorized,
recorded and entered in the books.
• Vouching is testing the truth appearing in the
books of original entries.
• In broader sense vouching is the essence of the
auditing which includes routine checking as well.
 Objectives of Vouching
• Main objectives of vouching are as follows:
1. All transactions relating to business have been
properly recorded in the appropriate books.
2. Books do not contain fraudulent transactions.
3. Entries in the books are supported by necessary
documentary evidence.
4. Vouchers have been properly processed through
each stage of internal check.
5. Vouchers have been properly authorized.
Importance of Vouching in Auditing
• Vouching is the essence of auditing. Process of
vouching should be properly looked after so that
subsequent process may be applied. If the basis
that is vouching is wrong or defective further work
will be equally wrong and defective.
• The auditor throughout the process of vouching
assures that the entries recorded in the books are
supported by the proper evidence and are properly
accounted for, amounts are accurate and each
transaction is properly authorized by a proper
authority.
 Cont..
• The auditor through vouching can derive that
books of accounts are correct in the absence of
which financial statements can not be reliable.
• If vouching is not satisfactorily done then the
auditor cannot certify the books of accounts
which have been kept therefore the
importance of vouching in auditing is
immense.
 Cont..
• Vouching is back bone of the auditing process
as whole. The success of auditing depends
upon vouching. If vouching is done accurately
and imaginatively then the reliability of the
financial statements is established .
 Techniques of Vouching
• Techniques of vouching means precautions should be taken
before conducting vouching and during the course of
vouching. Followings are the techniques of vouching:
1. Vouchers be arranged, in the order of entries in books and
numbered serially by the client.
2. Auditor should note that dates on vouchers fall within the
accounting period
3. Ensure on the basis of evidence that each transaction has
been allocated to proper head of account.
4. Ensure that all transactions relate to the entity and any
transaction relating to directors, proprietor should be
charged to his personal account and settled in due course .
 Cont..
5. All vouchers are duly authorized by proper officials.
6. Verify that each voucher bears proper stamp as
required by the law.
7. Make note of all vouchers which requires further
classification, proof and support on authorization.
8. Ensure that amounts in words and in figures are
same.
9. Advance payment should be allocated for future
payments for example, insurance, rent, taxes etc.
10. Ensure that all cutting and alterations in vouchers
are authorized.
 Cut-off Procedure
• Cut-off procedure can be defined as an audit
technique whereby arrangement are made by mutual
consultation between auditor and client to fix the
particular point.
• 31th December or 30th June for the purpose of
ascertaining the quality of goods, raw-material, semi-
finished good, finished goods, work-in process as well
as their value for the financial statements at the end
of accounting period. A cut-off point indicate precise
point of time at which the year audit has ended.
 Objectives of Cut-off Point
1. Avoid recording of transactions belonging to a year
under audit in a subsequent period or vice versa.
2. Control intentional manipulation with a view to
window dressing the financial position of the entity
by improving working capital ratio, inflating sales.
3. Ensure that all purchases for the year under audit
are included in the stock and corresponding
liabilities are shown in the balance sheet.
4. Ascertain that all sales for the year under review
are excluded from the stock and the sales value
debited to customer account.
 Cont..
• For the purpose of cut-off procedure following steps are
taken:
1. Goods belonging to others and held on their behalf
should be identified and separated from company
stock.
2. Sales and purchase invoices for the last month of the
current year and the first month of the following year
should be reviewed that:
• Invoice entered in the current year but belongs to next
year.
• Invoice entered in next year but belongs to current year.
 Cont..
3. Goods purchase and included in purchases but
not received should be shown as stock in transit.
4.Goods sold but not yet delivered should be
excluded from the stock.
Since sales and purchases are included after the
close of financial year, while the physical stock
taking is in progress, the moment of goods in
and out should be carefully noted and adjusted.
 Voucher
• A voucher is a document which proves a
transaction or an entry in books of accounts. It
is a documentary evidence which proves the
accuracy of a transaction appearing in the
records. For example invoice, statements,
receipts correspondence ,minutes, contracts,
agreement, regulation, pay slip, budget note,
wages book, order book etc.
 Definitions of Voucher
• “Voucher means any documentary evidence by which
accuracy of a entry may be substantiated”. Given by
Langster
• “Voucher is a documentary evidence in support of an
entry appearing in the books of accounts”. Given by
Datliboe
• “Voucher may be a receipt, invoice, agreement, a
written registration slip or in short any written evidence,
which confirms a written transaction”. Given by Irish
• “ Voucher is any documentary evidence in support of a
transaction”. Given by Halmes
 Characteristics of Voucher
1. Voucher is documentary evidence.
2. Voucher may be from external sources or may
be produced internally.
3. Voucher support an entry in financial records.
4. Voucher presents a complete description of a
transaction.
5. Voucher substantiate the accuracy of records.
 Vouching of Cash Book
1. Vouching Receipt side of Cash Book:
• from auditor’s point of view the vouching of receipt
side is more difficult than vouching of payment side,
because in respect of receipt only indirect audit
evidence is available.
Procedure:
• The general procedure to be followed by an auditor in
vouching receipts are as under:
1. Evaluate the system of internal control and direct
special attention to any part concerned inadequate.
 Cont..
2. Compare entries in cash book with cash dairy if
maintained to ensure that no receipt is omitted and cash
misappropriated.
3. Ascertain that:
a. All receipts issued are serially numbered and also
entered in cash book serially.
b. All unused receipt book are in the possession of
some responsible person.
c. Any lost receipt book whether used or unused should
be investigated and reported.
 Vouching Payment Side of Cash Book
• The second stage in vouching in cash book is
the vouching of payments. the audit steps in
vouching payments are:
1. Enquire from the client whether the payment
vouchers are serially numbered and filled in
the order of entries in the cash book.
2. Evaluate the system of internal control.
3. While examining the voucher the auditor
should see that:
 Cont..
a. Payments are for the business purpose.
b. Payments are paid to the right person.
c. Amount are properly recorded both in vouchers and in
the cash book.
d. Payments are properly debited to a particular accounts.
e. Payments are dully sectioned by an authorized person.
4. When a voucher is passed the auditor should cancel by
his official rubber stamp to prevent the same being
produced in the subsequent actions.
5. All subsidiary documents like invoices, statements etc.
relating to voucher should also be cancelled
 Cont..
6. When any payment is properly chargeable to
any individual account, the auditor should
ensure that such individual account is debited.
7. Auditor should question any apparent
failures of his client to take advantage of
discounts, the cross amount may be paid and
the discount shared among the employees.
 Vouching of Bad-debt
• Following steps are important while vouching:
1. Ascertain that no further amount would be
received from officials .
2. Verify entry for write-off of amount not
receivable for as bad debt.
3. Incase of bad debt ensure that the client had
taken reasonable steps to recover that debt
but failed.
 Vouching of cash Sales
1. Check all available evidence exhaustively.
2. Check cash memos and daily sale summary.
3. Check entries in cash book from daily sales
summary.
4. Check that cash memos are serially used
5. Check any other record maintained in the
entity in respect of cash sales.
 Vouching of Commission Earned
1. Make a list of the parties from whom
commission is receivable.
2. Examine the agreement with the parties to
ascertain that the rate of commission and the
amount which is due.
3. Calculate the amount of commission receivable.
4. Check receipt of commission in the cash book
5. Reconcile commission amount with the total.
 Vouching of Credit Payment
• Having examined the system of internal control
enforced, the auditor should proceed as under:
1. Ensure that the supplier invoices have been internally
checked and payment is authorized.
2. Check that payees acknowledge receipts are on record.
3. Scrutinize creditor statements receipt
4. Check that payment were made by the cross-cheque.
5. Check that amount paid is debited to correct account.
 Vouching of Director’s Fee
1. Examine the articles of association to ascertain the
amount payable .
2. Examine minutes, all director’s attendance
registered to ascertain authority for payment.
3. Ensure that the director’s fee paid is adequately or
appropriately disclosed in the financial statements,
as recognized by the companies Ordinance 1984.
4. If a director has withdrawn his fee, examine the
written authority.
Vouching of Dividend/ Interest Receivable

1. Check cash book interest account card,

personal account.
2. Check investment ledger if any maintained.
3. Examine that all interest and dividend have
been received on due date and accounted for.
4. Check calculation of interest.
5. Where interest and dividend are collected
through banks, check entries in bank
statement.
Vouching of Fixed Assets(Purchase)
• Examine the title deed of the property purchased,
ascertain that whether freehold or lease.
• Examine sale agreement with the vendor and check
that correct amount has been paid.
• Check payment of a broker agent and its commission.
• Vouch payment of various charges, transfer duty.
• Check receipts or money paid.
• Where building has been constructed examine
contractor agreement, process payment, deductions
and completion certificate from local authority.
 Vouching of Fixed Asset(sold)
1. When fixed assets are sold auction examine
correspondence with the auctioneer or buyer.
2. Examine sale agreement with the buyer on other cases
examine sales contract.
3. Examine that relevant assets has been created with the
written down value appearing in such account.
4. The difference of sale proceeds and written down value
reported profit, which should be taken to the value to the
capital reserve account.
5. Loss on sale should be taken to profit and loss account.
6. Refund of premium receipts in respect of assets disposed
off should be credited to insurance expense account.
 Vouching of Insurance Claim
1. Examine carefully insurance policies to
ascertain the term of claim
2. Recheck recording in the claim register if any
mentioned by the client.
3. Check receipts of claim in the cash book and
claim register.
4. Check correspondence with the insurance
company.
Vouching of Investment(Purchase)
1. Examine brokers bought note and receipts
2. Verify securities physically and make note important
facts.
3. When securities have been deposited with bank for
safe custody obtain certificate from the bank.
4. Verify payment with bank statements.
5. Examine the terms of purchase whether cum-interest
cum-dividend.
6. Verify correct collection between capital and revenue
when terms are cum-interest cum-dividend.
 Vouching of Investment(Sales)
• Examine brokers sold note to vouch the sale
proceeds of investment.
• Examine bank advise where investments have
been sold through bank.
• Where investment have been sold, cum
interest cum dividend, ensure that the sale
proceeds has appropriately approved.
 Vouching of Petty Cash Book
• Vouch petty cash payment on test basis.
• Check posting to ledger account
• Ensure that petty cash vouchers are properly
authorized.
• Advise that cash book should be maintained
on imprest basis.
• Physical count of petty cash on last day of
accounting period.
Vouching of Plant and Machinery
1. Plant and machinery may be acquired in
different ways namely:
a. Under contract with manufacturer
b. Erected within enterprise
c. Imported
d. When acquired under lease
 Cont..
a. Under contract with manufacturer:
1. Examine relevant contract
2. Check payment with manufacturer.
3. Acknowledgment of payment from supplier.
4. Verify allocation to correct head of account.
b. Erected within Enterprise:
5. Check proper allocation of material, labor and
FOH.
6. Verify charge to verify head of account
 Cont..
c. Imported:
1. Examine document relating to the opening
of letter of credit.
2. Examine import documents received
through bank.
3. Examine import license
4. Examine custom documents.
5. Examine clearing agent documents.
 Cont..
d. When Acquired Under Lease:
1. Examine contract with leasing company.
2. Verify documents and security provided.
3. Verify whether, lease installments have been
paid regularly.
 Vouching of Wages
1. Check cost and cross cost of wage sheet and that
cheques have been drawn for the net amount payable.
2. Check wages of new appointment with the relevant
record available.
3. Check increment with the record available.
4. Check time keeping record with the wage sheet.
5. Check the subsequent payment of unclaimed wages
that they are properly authorized.
6. Make a surprise check of attendance of wages payment.