Vouching is a technical term that refers to the inspection of
documentary evidence supporting and substantiating a
financial transaction, by an
auditor
An auditor is a person or a firm appointed by a company to execute an audit.Practical Auditing, Kul Narsingh Shrestha, 2012, Nabin Prakashan, Nepal To act as an auditor, a person should be certified by the regulatory authority of accounting and a ...
. It is the essence of
auditing
Vouching is the practice followed in an audit, with the objective of establishing the authenticity of the transactions recorded in the primary books of account. It essentially consists of verifying a transaction recorded in the
books of account with the relevant documentary evidence and the authority on the basis of which the entry has been made; also confirming that the amount mentioned in the
voucher
A voucher is a bond of the redeemable transaction type which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods. Examples include housing, travel, and food vouchers. The term voucher is also ...
has been posted to an appropriate account which would disclose the nature of the transaction on its inclusion in the final statements of account. Vouching does not include
valuation.
Vouching can be described as the essence or backbone of auditing. The success of an audit depends on the thoroughness with which vouching is done. After entering in all vouchers, only then can auditing start. Vouching is defined as the "verification of entries in the books of account by examination of documentary evidence or vouchers, such as
invoices
An invoice, bill or tab is a commercial document issued by a seller to a buyer relating to a sale transaction and indicating the products, quantities, and agreed-upon prices for products or services the seller had provided the buyer.
Payment ...
, debit and
credit notes, statements, receipts, etc.
The object of vouching is to establish that the transactions recorded in the books of accounts are (1) in order and have been properly authorized and (2) are correctly recorded. “Simple routine checking cannot establish the same accuracy that vouching can. In routine checking, entries recorded in the books only show what information the
bookkeeper chooses to disclose, however these entries can be fictitious without any vouching or vouchers. By using a vouching or a voucher system a company will have concrete and solid documentation and evidence of expenses,
capital, and written proof in audits.
Vouching is the essence or backbone of auditing because when performing an audit, an auditor must have proof of all transactions. Without the proof provided by vouching, the claims provided by the auditor are just that, only claims. In most cases, hard to detect
frauds can only be discovered through the use of vouching. This means that the auditor must conduct vouching with great importance, if not, he can be charged with
negligence
Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort law known as ''negligence'' involves harm caused by failing to act as a ...
which happened in the case of Armitage v. Brewer and Knott. Through this case, the importance of vouching was realized. In this case, the auditors were found to be guilty on negligence, because the auditors did not display enough reasonable care and skill in vouching the wage sheets and ended up failing to detect fraud in manipulation of these wage records and cash vouchers. When delivering the decision the Judge stated that "It was clear that a good many documents were suspicious on either face and called for Inquiry". It was declared that it was essential that due care and attention are to be given to vouching in auditing.
See also
*
Teeming and lading Teeming and lading is a bookkeeping fraud also known as short banking, delayed accounting, and lapping. It involves the allocation of one customer's payment to another customer's account to make the books balance, often to hide a shortfall or the ...
References
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* http://www.caclubindia.com/articles/vouching-is-the-essence-of-auditing-3563.asp#.ULexzKz7KYY
* http://www.enotes.com/business/q-and-a/vouching-said-back-bone-auditing-substantiate-132595
* Auditing: Principles and Practice By: Ravinder Kumar, Virender Sharma
Auditing terms