What is the Importance of Vouching? Discuss the points which must be taken care of while vouching the transactions?
Importance of Vouching:
The importance of vouching can be ascertained, because it:
Serves as a basis to express an opinion about truthfulness and fairness of financial statement: The auditor satisfies himself with regard to accuracy, authority and authenticity of transactions recorded in books of account by reference to appropriate documentary evidence through the process of vouching.
After being satisfied, he can say emphatically whether books of account of the business are correct and are maintained in a proper mariner. If so, only then the balance sheet and profit and loss account
drawn from the books can give a true and fair view of the business.
Helps in detection and prevention of frauds and errors : Vouching not only entails comparison of a recorded transaction with documentary evidence but also lays emphasis on ascertaining the genuineness, validity and proper recording of each transaction. This helps in detecting most of the errors and frauds, howsoever, cleverly committed.,
Forms the basis for successful conduct and completion of audit work: The success of audit process depends on the care and caution with which the auditor carries on vouching. If the auditor goes about vouching in a haphazard and reckless manner and does not examine the authenticity of vouchers, he may be held liable for not detecting errors and frauds.
Reliance by Auditor : In cases of organizations having a sound internal control system, the auditor might reduce the extent of vouching. But reliance on such a system would not curtail the responsibility of the auditor in any manner.
Thus, vouching is fundamental to all audit procedures and success of an audit depends upon the efficiency and effectiveness with which vouching is accomplished. Vouching is considered to be an essence of auditing. It is the foundation and the first step auditing. It is therefore essential that due care should be given to vouching function of auditing.
Points to be noted while vouching:
The main points which must be taken care of while vouching the transactions are as follows:
While vouching a transaction, auditor must verify the authenticity of transaction, accuracy of amount recorded and proper classification of account.
Auditor should see that all the vouchers are numbered serially and dated. If these are not arranged serially, first of all they should be serially arranged, otherwise the auditor will be wasting his time in locating a voucher.
The voucher, which has been checked by the auditor, should be stamped or tick, marked with a special sign, so that it may not be used again for a fictitious transaction.
The amount in the receipt must be shown in words and figures. If the two differ, then it should be investigated.
The receipt should indicate the period for which the payment has been made.
If the voucher is in the personal name of the partners, manager, director or any other person, it should be seen that proper treatment for such transaction has been provided in the books.
If any voucher is doubtful, the auditor should proceed cautiously and use special ticks for such vouchers.
It should be seen that every voucher is certified by a responsible officer of the business.
For missing vouchers, auditor should ask for explanation from the concerned official. If no satisfactory reply is received then it should be further investigated.
While vouching, the auditor should not take any help from client’s staff.
All vouchers must relate to the business.
Voucher is properly affixed with a revenue stamp as per the requirement of law.
While vouching transaction auditor should keep in mind that distinction is made between capital and revenue items.
For certain transactions, auditor may refer the resolutions passed at the meeting of shareholders or Directors. Sometimes the agreement made with a party may serve as documentary evidence for the transactions arising out of this agreement.
Auditor shall not resort to test checking unless a satisfactory internal control system exists in the organisation.
As far as possible vouching of a book of accounts of a particular period must be completed in one continuous sitting.
Alterations in the vouchers must be supported by concerned officer’s initials.