UNIT 3- VOUCHING

Vouching:

Vouching is concerned with examining documentary evidence to ascertain the

authenticity of entries in the books of accounts. In other words it is an inspection by the
auditor of evidence supporting the transactions made in the books.

Some important definitions of vouching are:

“Vouching is an act of comparing entries in the books of accounts with documentary

evidence in support thereof.” - Dicksee

According to Rorlald A. Irish has defined vouching as a technical term which refers to the
inspection by the auditor of documentary evidence supporting and substantiating a
transaction.

Voucher:

A voucher is documentary evidence produced in support of each and every entry made
in the books of account. The vouchers constitute the main source of evidence available
to the auditor. The auditor has to rely upon the vouchers to a great extent in order to
form an opinion about the accuracy and authenticity of the entries made in the books of
accounts.
Thus, vouchers include lots of documents like purchase invoices, copies of sales invoices,
debit / credit notes, bills, cash memos, copies of cash memos, counter-foils of receipts,
paying-in-slips, cancelled cheques, receipts given by payees, agreements, minute's,
insurance policies, order book and all other documents which are created as and when
transactions take place.

Types of voucher:

Primary Vouchers: When written evidence is available in original, it is known as

primary voucher. For example: cash memo, purchase invoice.
Collateral Vouchers: In certain cases evidence in original is not available. Copies of
such evidences are made available for the purpose of audit. Aim is to satisfy the
auditor regarding the correctness of transaction recorded. For example: carbon
copies of sales invoices, copy of resolution passed at a meeting.

Following are the example of vouchers for various transactions:

For Gash Payments: Cash memos, pay sheet, receipt received, pay sheets
agreements, demand notes.
For Cash Received: Carbon copies of receipt, counterfoils of receipts issued,
contacts, correspondence.

Anitha. R 1
St. Anne’s degree college for women
 Auditing [VOUCHING]

For Purchases: Invoices, copies of orders and correspondence, goods inward register
etc.
For Sales: Goods outward register, order, copies of invoices, cash memos etc.
Opening Journal entries: Last year’s balance sheet entries, bills payable, bill
receivable etc.

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:

1. All the transactions which are connected with the business have been recorded in the
books of accounts properly.
2. To verify that all transactions recorded in the books of accounts are supported by
documentary evidence.
3. The vouchers which support the entries are legally valid from the view point that they
are authentic, addressed to the business and properly dated.
4. To verify that no fraud or error has been committed while recording the transaction
in books of accounts.
5. The vouchers have been processed carefully through various stages of internal check
system.
6. While recording the transaction whether distinction has been made between capital
and revenue items.
7. Whether accuracy has been observed while totalling, carrying forward and recording
an amount in the account.

Importance of vouching:

Vouching is the act of checking evidential documents to find out errors and frauds and
to know the authenticity, accuracy and reliability of books of accounts. Thus, it is
important for an auditor due to the following reasons:

1. Vouching is the backbone of auditing;

Main aim of auditing is to detect errors and frauds for proving the true and fairness of
results presented by income statement and balance sheet. Vouching is only the way of
detecting all sorts of errors and planned frauds. So, it is the backbone of auditing.

2. Vouching is the essence of auditing;

Auditing not only checks the accuracy of books of accounts but also checks whether the
transactions are related to business or not. All the transactions are performed after the
prior approval of concerned authority or not, transactions are real or not because an

Anitha. R 2
St. Anne’s degree college for women
 Auditing [VOUCHING]

accountant may include fictitious transactions to commit frauds. All these facts can be
found with the help of vouching.

3. Vouching is important to see whether evidences are correct or not;

An auditor checks the books of accounts to detect errors and frauds. Frauds may be
committed presenting duplicate vouchers. All the small and big amounts of frauds can
be detected with the help of vouching. So, all the evidential documents and records are
to be checked carefully and in detail by an auditor which is the scope of vouching.

Therefore, it can be said that vouching is the heart of auditing because without the work
of vouching, the work of auditing cannot be performed.

Principles or techniques of vouching:

At the time of vouching auditor should keep in view the following important principles in his mind:

1. Arranged vouchers- first of all auditors should check all the vouchers provided by the client are
properly arranged. These are in the same order as the entries are made in the books.

2. Checking of date- the auditor should compare the date of the voucher with the date recorded in
the cash book.

3. Compare the words and figures- the auditor should satisfy himself amount written numbered
consecutively. All the vouchers should be properly filed. On the vouchers, its figures and words are
same or not.

4. Checking of authority- the auditor should examine that all the vouchers are passed by the
authorized officer. If the voucher is passed by unauthorized person it will not be correct.

5. Cutting or change- if there is any cutting or change on the receipts and vouchers figures it should
be signed by the authorized officer. The auditor should satisfy himself by inquiring about it.

6. Transaction must relate to business- the auditor should carefully examine that the entries must
relate to the business.

7. Case of personal vouchers- the auditor should not accept the voucher in personal name. There is a
chance that an officer of the company has purchased any item in his personal capacity.

8. Checking of account head- auditor must be satisfied about the head of account on which cash is
deposited and drawn. He should examine the documentary evidence in this regard.

9. Revenue stamp- the auditor should also check that voucher bears a required revenue stamp or
not?

10. Case of cancelled voucher- the auditor should not accept the cancelled voucher because it has
already served the purpose of payment. There will be a danger of double payment if it is accepted.

Anitha. R 3
St. Anne’s degree college for women
 Auditing [VOUCHING]

11. Important notes- the auditor should take some important notes about those items which need
further evidence or explanation.

12. Payment- the auditor should check that whether payment is described partially or for complete
transaction of sale.

13. Agreements- these provide the basic information to the auditor. He should check the
agreements, correspondence and other relevant papers.

14. Printer vouchers- printer vouchers are considered true and these are legally acceptable. If these
are not printed then these are useless.

15. List of missing vouchers- auditor should prepare the list of missing vouchers. This list will be
helpful in detecting the fraud and errors.

Routine Checking

Regular checking of all the daily transactions is known as Routine Checking. Routine
checking incorporates the following tasks:
Checking of record in primary books, costing, transfer etc..,
Checking transfer of transactions from original books of accounts to ledger account.
Checking debit and credit side of various accounts.
Checking transfer of balances of various accounts to other pages or accounts or
statements.

Various signs are used while conducting routine check. Such signs provide the proof of
routine checking of transactions. Signs which are used in audit should be small and
clear. Generally red or pink colour is used while conducting routine check. But green
colour is used while conducting final audit.

Advantages of Routine Checking

1. All the original entries will be checked; so all the errors and frauds can be detected
easily.
2. All the entries and posting will be tested.
3. Routine checking helps to conduct final audit because all the balancing and totals
have already been checked.
4. Separate and specific staffs are not needed because it is a regular process.

Disadvantages of Routine Checking

1. Routine checking is a mechanical test, so the staff who performs this work does not
have inspiration. So, there are chances of leaving errors and frauds.
2. Routine checking can only detect small errors and frauds but not the planned frauds.
3. Routine checking is not needed where self-balancing system is applied.

Anitha. R 4
St. Anne’s degree college for women
 Auditing [VOUCHING]

4. Routine checking cannot detect principle and compensating errors.

Points to be noted in a Voucher:

An auditor should bear in mind the following points while examining a voucher:

1. All the vouchers should be consecutively numbered and serially arranged. If the
client has not done so, the auditor himself is required to do so.
2. Vouchers which have been inspected by the auditor should be cancelled by a rubber
stamp to avoid the possibility of their being produced again. Cancellation can be
done with a special tick mark also.
3. The auditor should be careful about vouchers which are not in the name of the
business but in personal name of the partners, directors, manager, secretary or any
other official. It is possible that the expenses relate to that individual and not to the
business. For example, the partner may have purchased a suit length for himself and
shown it as uniform for the staff. The auditor should ensure that the goods
purchased. Should relate to the business and are duly entered in the stock register.
4. The auditor should ensure that every voucher has been certified as in order by a
responsible officer. If the voucher is in printed form or rubber stamped by suppliers
etc. these should, ordinarily be treated as genuine.
5. As far as possible, the work relating to a particular period or set of books should be
completed at a stretch or in one sitting.
6. The auditor should be very careful about missing vouchers and receipts. He should
make inquiries about their loss and ask for their duplicate copies.
7. The auditor should never take the help of clients' staff in the scrutiny and checking of
vouchers.
8. While examining the vouchers, the auditor should ensure that they are properly
entered in relevant financial books and see that capital and revenue items are
correctly recorded.
9. As far as possible, the auditor should check each and every voucher. Test-checking
should be resorted to only when internal check system in operation is reliable and
satisfactory.
10. The date, amount and name in whose favour it voucher has been issued should be
carefully examined. It should be ensured that no voucher which does not relate to
clients' business has been entered in the books.
11. It should be ensured that the voucher relates to the period under audit. .
12. The amount on all vouchers should be mentioned both in words and in figures.
13. All receipts in excess of Rs. 20/- must have a 20 paise revenue stamp affixed to them.
14. All vouchers should be signed by some responsible officer on behalf of the payee.
15. All alterations in vouchers should bear initials of the invoice clerk.

Anitha. R 5
St. Anne’s degree college for women
 Auditing [VOUCHING]

Procedures of vouching:

1. Reading out- the vouching is a task of the auditor. The junior audit can read out the
contents of the vouchers. He can inform the senior auditor about the data name of
organization, number of voucher and amount of vouchers.

2. Comparison- the senior can head the contents called out by junior auditor. He tally
each and every item stated in the voucher with entries in the books of accounts. Thus
comparison is a part of vouching procedure.

3. Ticking- the senior auditor can use various ticks or symbols to clear the items checked.
The ticks may be an abbreviation of words. Such ticks or symbols may differ from auditor
to auditor because these are code words.

4. Stamping- the senior auditor instead of signature or initials he can use stamps for
checking the vouchers can use the rubber stamps. The rubber stamp may have the
wording checking and cancelled on it.

5. Signatures- the senior auditor can vouch the entries with the help of vouchers. He can
put his signature or initials on every voucher for safety measures. The signed vouchers
cannot be presented again for another entry.

6. Query- the voucher may be missing. The entries may be doubtful due to over writing
and erasing. The audit staff can make the word “q” against such entry. This entry is
recorded in working papers.

7. Management- the audit staff can be giving sometime to the management for clearing
the objections. The doubtful entries are handed over in written form. The management
can examine the record in detail.

8. Reply- the management may reply after one or two days about the doubtful entries.
The auditor can examine the reply of the managers. The auditor can judge whether the
reply is right or wrong.

9. Clearance- the audit staff can clear the query for which proper answer is made
available. The auditor may not be satisfied with the answer of objections. He can inform
the management about this query.

10. No satisfactory- the auditor may reject the unsatisfactory reply. He has skill, training
and experience. He can use all available means to test the truth. He can note down poor
clarification in working papers.

11. Objections- the objection stated in the working papers can be discussed with the

Anitha. R 6
St. Anne’s degree college for women
 Auditing [VOUCHING]

management at the end of audit. He can form an opinion on the basis of such
objections. He can submit his report either clear or qualified.

Vouching of Cash Receipts and Cash Payments

Vouching of cash receipts and cash payments involve scrutiny of the debit and credit
side of the Cash Book. Before commencing the work of vouching Cash Book, the auditor
should satisfy himself about the existence of a reliable system of internal check as
regards receipt and payment of cash. Most of the errors and frauds are committed in
receipts and payments of cash.

a. Vouching Of Cash Receipts / Debit side of Cash book:

Following points should be noted by an auditor while vouching cash receipts:

1) Existence of internal check:

The auditor should study the system of internal check in operation. If there is a good
system of internal check, the work of the auditor becomes easy. The auditor, in such
circumstances can depend on test checking i.e. checking entries for selected months or a
few selected transactions at random. If he finds them in order, he can presume that
others are also being correct.

2) Comparing rough cash book or diary with the cash book:

Generally, there is a convention in all business houses to record all cash receipts first in a
diary or rough cash book and then enter them in cash book proper. An auditor should
compare the diary or the rough cash book with the cash book proper. He should ensure
that all receipts noted in diary or rough cash book are promptly recorded in cash book
and that there is not much time lag. If rough cash book or diary happens to be the part
of accounting system in a business, the auditor can be held guilty of negligence if he fails
to make the comparisons and if any fraud is detected later on.

3) Proper control over use of receipt book:

The auditor should ensure that receipt books are kept under the control of some
responsible officer. All receipts should be issued on printed forms bearing serial
numbers and a carbon copy of the same should be retained in the office. The auditor
should compare the name of the party, the date and the amount mentioned in the
receipt with those in the cash book. If there are some entries in the cash book for which
receipts have not been issued, the auditor should make detailed investigations. The
receipts should be signed by some responsible officer. Auditor should also see that the
rate of discount allowed, if any, is uniform. He should also see whether all cash receipts
are deposited in the bank daily and supported by bank pay-in-slips.

Anitha. R 7
St. Anne’s degree college for women
 Auditing [VOUCHING]

Following points need to be considered for different types of cash receipt

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 Sales
Chances of fraud are more in case of cash sales since the salesman may sell the goods
and pocket the money. In the absence of efficient system of internal check, it is rather
impossible to detect frauds of cash sales.

Internal check regarding cash sales should provide for the following:
1) Salesman should not be allowed to deliver the goods or receive payments for the
goods sold.
2) Salesman should prepare three copies of the cash memo. One copy should be
retained in the booklet, one copy should be handed over to the customer and one copy
should be attached to the packet of the sold goods.
3) The customer should be asked to present his copy to the Cashier and make the
payment to him. The cashier should put the stamp "payment received" and sign the cash
memo.
4) The customer should be asked to present his copy of the cash memo at the delivery
counter. The delivery man should keep this copy with him, put the stamp "delivered" on
the third copy attached with the goods sold and deliver it to the customers.

After satisfying himself about the existence of an effective system of internal check
about cash sales, the auditor should take the following steps to vouch cash sales;

1) Check the counterfoils of cash sales book with salesman's summaries or abstracts and
ensure that salesman's abstracts tally with the cash receipts of the cashier.
2) Check details of cash received with cash memo booklets.
3) Compare the daily totals of the cashier's sheets of cash receipts with corresponding
entries in the main cash book. Where mechanical or electronic cash registers are used,
the daily totals entered in the cash book should be checked with the till rolls.

Vouching Receipt from Debtors:

It is quite difficult to vouch cash receipts from debtors. The only evidence for cash
received from them is the counter-foil of receipts issued to them. But this evidence is
not very reliable. Fraud may be committed by entering lesser amount in the counterfoil,
or by issuing receipts to debtors from the unused receipt book, or by entering fewer
amounts in the debit side of the cash book.
In vouching receipts from debtors an auditor should take the following steps:
1) Examine the internal check system in operation in this regard.
2) Ensure that unused receipt books are kept in the custody and control of some
responsible officer.

Anitha. R 8
St. Anne’s degree college for women
 Auditing [VOUCHING]

3) Ensure that original copies of all the spoilt receipt forms are attached with the
duplicate copies in the receipt book.
4) Tally dates and amounts on the counterfoils with those in the cash book.
5) Ensure that payments received through cheques are entered in the cash book. If there
is a practise of not issuing receipts in printed form for cheques received, the auditor
should check daily lists of cheques received with entries in the cash book.
6) Proper scrutiny should be made about discount allowed to customers. The auditors
should enquire about the terms and conditions of allowing discounts and adopt test-
checking to ensure whether discount allowed is in order. In many cases
misappropriations take place by inflating the discount amount or by inserting fictitious
entries of discount.

Vouching Sale of Investments

Usually, investments are sold through brokers. The brokers issue a note giving details
about the nature of investment sold, the term of sales, mode of payment etc., it is called
the Brokers’ sold note.
Role of an Auditor in vouching sale of investments
1. If the sale proceeds of the sale of investments are received through bank, then bank
advice should be verified.
2. The auditor should also find out whether the investments are sold at ex-
dividend/interest or cum dividend/interest. He should ensure that the sale proceeds are
appropriately bifurcated into capital and revenue.
3. The commission paid/payable to the brokers is to be verified.
4. If the organization has sold quoted shares/stock, the auditor should verify whether
the investments are sold at the quoted prices or not.
5. The auditor should examine whether the investments are long-term or short-term
investments. He should also ensure that the income tax liabilities relating to capital gain
on sale of investments are included in the return of income filed with the Income tax
authorities.

b. Vouching of Credit Side of Cash Book (or) Cash Payments

The auditor vouches cash payments with an objective to ensure that all cash payments
pertaining to business activities are genuine and properly authorized. The auditor in
vouching cash payments or credit side of Cash Book should ensure that payments are
made for the purpose of business, payment relates to the period under audit, payment
is properly sanctioned and recorded, payment has been made to the right person, and
payment is properly supported by a voucher and same as entered in Cash Book.

Anitha. R 9
St. Anne’s degree college for women
 Auditing [VOUCHING]

Auditors Duty in Vouching Cash Payments

The auditor should pay special attention to the following points while vouching cash
payments.
1. The auditor should evaluate the effectiveness of internal check and control system
for cash payments.
2. He should ensure that all the vouchers are made in the name of the business concern
and payments are made pertaining to business.
3. He should ensure that vouchers have been correctly posted to the appropriate
accounts and properly distinguished between capital and revenue expenditure.
4. He should ensure that all cash payments are within the period under audit.
5. When cash payments are made in excess of Rs.10,000 the auditor should enquire the
circumstances for making such a payment.
6. He should also compare the rough cash book with the cash book to identify the
fictitious payments.

Following points need to be considered for different types of cash payment −

Opening Balance
The opening balance of cash book can never be credited because cash of company
cannot be in negative but the credit bank balance represents the overdraft account from
bank or utilization of cash credit limit as sanctioned from bank.

Cash Purchases
While vouching cash purchases, the auditor should see that the goods for which
payment has been made are really received in the business. For this, he should:

1. Verify entries in the goods Inward book ;

2. Compare entries in the cash book with cash memos :
3. Check that only the net amount i.e., the cost of goods purchased minus trade
discount if any, has been paid.

Payment to Creditors
Payment to creditors may be examined by the following −
1. Receipt issued by the creditors.
2. If the creditor is paid amount as full and final settlement, the balance amount, if any
stands in the ledger account of the creditor; this amount should be credited to
discount received.
3. If any advance payment is made to creditor that should be clearly mention
Statement of account of creditor.

Anitha. R 10
St. Anne’s degree college for women
 Auditing [VOUCHING]

Deferred Revenue Expenditure

The examples of deferred revenue expenditure have been described below −

1. Preliminary Expenditure
Preliminary expenditure is incurred at the time of incorporation of a new company.
These expenses are of heavy amount and are incurred mainly for promotional reasons.
Nature of these expenses are capital but not actually represent any asset, hence should
be written off from profit and loss account over a period of 3 to 10 years in equal
instalments.
2. Advertising and Sales Promotion
These expenses are incurred at the time of establishing new business or at the time of
introduction of any new product in the market. These expenses are shown as assets in
Balance sheet and should be written off in profit and Loss account over a numbers of
accounting periods.
3. Heavy Repairs
Expenses of heavy repairs of fixed assets shall not be debited to profit and loss account
of year in which these expenses incurred but it should be spread to number of years like
other deferred revenue expenses. Heavy amount of expenses is incurred on repair of
Plant & Machinery due to increased production capacity of the plant or to maintain
current production capacity of machine which is very old and need some heavy
overhauling or repairing to increase it life.
4. Other examples of deferred revenue expenses are:
Discount allowed on debentures
Experimental expenditure
Research & development expenses
Development expenses on mines

Conclusion:

In brief, in this chapter, 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.

************************

Anitha. R 11
St. Anne’s degree college for women
 Auditing [VOUCHING]

ASSIGNMENT QUESTIONS

1) What is meant by Vouching? What are its objectives? (6 marks)

2) "Vouching is the essence of audit". Explain the statement and discuss the importance
of vouching. (6 marks)

3) What is a voucher? How would you classify it? What are the special points an auditor
should bear in mind while examining a voucher? (14 marks)

4) How would you vouch the following items: (6 & 14 marks)

(a) Cash Sales

(b) Receipts from Debtors
(c) Sale of Investments.

5) "In vouching payments, the auditor does not merely seek proof that money has been
paid away". Discuss and explain the general considerations to be borne in mind by the
auditor while vouching cash transactions. (14 marks)

6) How would you vouch the following items (6 & 14 marks)

(a) Cash purchases

(b) Payments to Creditors
(c) Deferred revenue expenses

**********************************

Anitha. R 12
St. Anne’s degree college for women