Vouching, the Voucher, and Vouching of Specific Transactions

Vouching — Definition, Features, Objectives, Importance, and Factors

Definition. Vouching is the process of examining the documentary evidence (vouchers) that supports every entry recorded in the books of account, in order to satisfy the auditor that the transaction is genuine, has been properly authorised, correctly recorded as to nature, amount, account, and accounting period, and relates to the business being audited. In the language most commonly used in auditing texts: vouching is the "essence" or "backbone" of auditing — it is the technical process of substantiating an entry by producing authoritative documentary evidence.

Features of Vouching:

• It is concerned with examining documentary evidence — not merely the arithmetic accuracy of an entry (that is checking/routine checking's job), but whether the entry is SUPPORTED by a genuine, valid document.
• It goes beyond the entry itself to verify the entry's authority, accuracy, and validity — the auditor checks that the transaction was properly sanctioned, correctly classified to the right account and period, and free from any irregularity.
• It requires the exercise of professional judgement and skill, not merely mechanical comparison — an auditor must be alert to altered dates, unusual amounts, missing authorisation, and other red flags a purely clerical check would miss.
• It is applied not merely to the ORIGINAL entries, but auditors also examine whether the SUBSEQUENT postings and account classification arising from the transaction are correct.

Objectives of Vouching:

1. To verify that all transactions recorded in the books actually occurred and relate to the business (no fictitious entries).
2. To ensure every transaction has been recorded in the correct account, for the correct amount, and in the correct accounting period.
3. To verify that the transaction has been duly authorised by a person with the requisite authority.
4. To detect errors and frauds — both errors of principle/commission/omission and deliberate misstatements or misappropriations.
5. To confirm that a proper distinction has been made between capital and revenue items (an item wrongly classified between the two distorts both the Statement of Profit and Loss and the Balance Sheet).
6. To ensure that no transaction has been omitted from the books (this is checked by working, wherever practicable, from the source document TO the books, not only from the books back to the document).

Importance of Vouching. Vouching is often described as forming the very basis of an audit, because:

• The auditor's opinion on the truth and fairness of the financial statements ultimately rests on whether the underlying transactions are genuinely supported by evidence — vouching is the primary technique that provides that assurance.
• It is the most effective and direct method of detecting both errors and frauds that a purely arithmetical check of the books can never uncover (e.g. a fictitious purchase entry, correctly added and posted, is arithmetically perfect but substantively fraudulent — only vouching against a genuine supporting document exposes it).
• It safeguards against manipulation of accounts by verifying that recorded figures correspond to real, authorised, and correctly-classified underlying events.

Factors to be considered in Vouching:

• The date on the voucher should agree with (or fall within) the accounting period under audit.
• The voucher should be made out in the name of the business being audited, not a third party.
• The amount on the voucher should agree exactly with the amount recorded in the books.
• The voucher should bear proper authorisation/sanction by a person competent to approve that class of transaction.
• The transaction should be for a purpose that is genuinely a business transaction of the entity, not a personal expense of an owner/director wrongly charged to the business.
• Whether the account debited/credited is the correct account, and whether the item is correctly classified between capital and revenue.
• Whether an entry that appears in the voucher has actually been entered in the books (working forward from voucher to books catches OMITTED entries, which working backward from the books can never catch).
• Vouchers should be cancelled (e.g. stamped 'audited' or punched) once examined, to prevent the same voucher being presented again in support of a different entry.

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Voucher — Definition, Classification, and Features

Definition. A voucher is any documentary evidence in support of an entry appearing in the books of account — a receipt, invoice, cash memo, bank pay-in-slip, salary/wage sheet, agreement, minute of a meeting, correspondence, or any other written proof that a transaction actually took place as recorded.

Classification of Vouchers:

• Primary (original) vouchers — the original documentary evidence in its first form, e.g. a cash memo, purchase invoice, receipt actually issued/received by the business.
• Collateral (secondary) vouchers — a copy or a document of secondary standing, produced when the primary voucher is not available (e.g. a duplicate invoice, a photocopy, a certified extract) — these carry less evidential value than a primary voucher and should be examined with greater caution.
• Vouchers may also be classified as internal vouchers (created within the business itself, e.g. a wage sheet, a debit/credit note issued internally, a goods-received note) and external vouchers (received from an outside party, e.g. a supplier's invoice, a bank statement) — an external voucher generally carries greater evidential reliability than a purely internal one, because it originates independently of the business being audited.

Features of a Voucher:

• It must clearly identify the date, parties, nature, and amount of the transaction.
• It should be serially numbered (for internal vouchers) to allow easy tracing and to guard against duplication or omission.
• It should bear the signature/authorisation of the person(s) responsible for that class of transaction.
• It should be filed and preserved in an orderly manner, to allow it to be produced when required for audit.

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Routine Checking vs. Vouching

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Vouching of Specific Transactions

Cash Purchases. The auditor should examine: the supplier's original cash memo/invoice, the entry in the Cash Book/Purchases Book, and the corresponding Goods Received Note confirming the goods were actually received into stock. Key checks: the invoice is genuine and made out to the business; the goods purchased are genuinely required for the business (not a personal purchase wrongly routed through business cash); the amount, date, and quantity on the invoice match the books; and — since cash purchases carry a higher risk of a FICTITIOUS entry (no supplier ledger account exists to cross-check against, unlike a credit purchase) — the auditor should be alert to inflated quantities/prices or entirely fabricated cash-purchase entries used to siphon off cash.

Cash Sales. The auditor should examine the cash memos/sale bills issued, the cash register/till roll (where one is maintained), and the daily cash summary prepared by the cashier, cross-checked against the bank pay-in-slip for amounts actually banked. Key checks: every cash memo issued has a corresponding entry in the Cash Book (working forward from memo to book, to catch OMITTED sales — a favourite technique for suppressing/misappropriating cash sales receipts); cash memos are consecutively numbered, with no gaps or cancelled memos unaccounted for; the total of cash memos for the day agrees with the cash actually recorded as received and banked. …