VOUCHING

 A Voucher is a documentary evidence in support of a

transaction in the books of accounts. the act of establishing the accuracy and authenticity of entries in the accounts books is called vouching.

definitions
 according to R.B.Bose. “By vouching is meant the

verification of the authority and authenticity of transactions as recorded in the books of accounts”  “vouching is a technical term which refers to the inspection by the auditor of documentary evidence supporting and substantiating a transaction. Vouching is considered as the essence of auditing and therefore the auditor should be very careful while vouching.

Prerequisites for vouching
 All the vouchers are consecutively numbered and filed

in order of the entries.  He should pay attention to dates, which must correspond with the cash book, name of the party and the amount.  The voucher inspected should be cancelled by a stamp.  Special attention should be paid to those vouchers which are in the personal name of the partners, directors, managers etc.,

. He should see that every voucher is passed as in order by a       responsible officer. etc the audit clerk should note the period for which the payment has been made. If duplicate voucher for a missing one is produced it should be properly scrutinized to avoids any fraud. If the receipts is a printed one or it bears a rubber stamp of the name of the firm it should be taken as a genuine one. rent rates and taxes. The signature of the officer should be noted. While examining the vouchers for insurance. Attention to be paid to the amount both in words and figures. He should also find out the nature of payment He should see as to which account the payment is posted revenue or capital.

carry-forwards and other calculations in the books of original entry. .Routine checking and vouching  Routine checking includes checking of casts. postings.  The auditor uses distinct tick in routine checking and tries to establish genuineness of records.

 Vouching includes routine checking and it is a part of it. Hence there is nothing to distinguish one form the other.  Vouching is the checking of entries while routine checking is the checking of casting and postings. entries are to be checked with the help of documentary evidence. . arithmetical accuracy of the entries is to be verified and in vouching. Both are important in their own way.  However in routine checking.

Vouching is said to be the backbone of auditing. The fulfills the purpose of checking entries. .Importance of vouching  It is a sort of preliminary work which forms an     important part of audit work. The auditor after satisfying himself can say that the books of accounts are correct and the balance sheet and profit and loss account exhibit the true and correct state of the financial position. Since accounts of a business firm begin with the passing of entries it becomes a basis for further scrutiny to be made at a later stage.

 Collateral: when the original voucher is not available. . copies thereof are produced in support or subsidiary evidence is made available so as to remove suspicions and to satisfy the auditor.Types of voucher  Primary: a written evidence in original is said to be the primary voucher.

. To ensure that all entries made in the books are supported by documentary evidence. To confirm that all transactions concerned with business are recorded and no transaction pertaining to business is left unrecorded. To insure that transactions not pertaining to business have not been recorded Detection of frauds and errors of principle as well as clerical errors.Objectives of vouching  To ensure that transactions recorded in the books of     accounts are valid and correctly recorded.

minutes.  Sales: copies of invoice . correspondence. copies of order received.Examples of voucher  Cash receipts: carbon copies of receipts. goods inward book. bill wage sheet. order received. . contracts. goods outward book. contracts. correspondence atc.  Purchases-invoice.  Cash payment: invoice. salary register. correspondence.

 The auditor should ensure that no receipt or payment of cash is unrecorded in the cash book and no fictitious payment has been entered in it. the checking of cash receipts is more difficult than cash payments. .Vouching of cash book  Cash book is a very important financial book for a business concern.  Mostly errors and frauds arise in connection with receipts and payments of cash by making its misappropriation. wherever possible.  In vouching cash books.

Control over the use of receipt book  All receipts are on printed forms. 3. Comparison of the rough cash book with the cash book.Vouching of cash receipts 1. .  Counterfoil receipts are used for cash receipts or a system of carbon copies of receipt is in use. Internal check 2.

 Along with cash receipts. such a receipt should be properly signed before its return to the customer.  The used receipt books should be kept in safe custody  If there is a system under which a receipt accompanies the receipt of cash.  If there are certain entries in the cash book for which receipts have not been issued..  The receipts have to be signed by a responsible person. . the rules for granting discount should be examined. All receipts and receipts books should be separately and consecutively numbered. 4. name etc. they should be carefully checked.  The particulars as regards date. The method of depositing daily receipts into the bank should be examined. amount.

Teeming and lading method of fraud  Common method of committing fraud with respect to receipt of cash from debtors is known as teeming and lading or lapping.  Lapping refers to hiding of shortage by delaying the recording of cash receipts. a cash memo is issued and counterfoil of such a cash memo is retained as documentary evidence. .  When cash is received from customers. pass book record can be verified by the auditor. If the payment is received in the form of cheque.

 Teeming and lading refers to postponing of entries to be made in the cash book.  Under this method whenever cash is received from the customer it is not recorded and when the amount is received from another customer entry is made in the name of first customer. This process continues and later on the cashier replaces the money he had used without any authority and credits the account of that debtor whose account had not been credited so far. .

 He should advice the cashier to enter the amount received on the day of the receipt itself in the rough cash book. .How an auditor should identify teeming and lading?  After evaluating the internal check system the auditor should vouch the cash received from debtors on the following grounds:  Auditor should verify amount received from debtors from the carbon copies of receipts issued to debtors and all receipts should be serially numbered.  Auditor should see details of cash and cheque deposited to the bank.

.  Auditors should check the debtors schedule to establish the genuiness or validity of a particular transaction.  Auditor should ask for a certificate from a responsible official with reference to the bad debts.  He should enquire about the rate of discount allowed to debtors and also ensure that discount allowed to the customers duly authorised by a responsible official. Auditor should compare the entries in the cash book with rough cash book entries.

(vouchers: carbon duplicates of cash memos. cashiers summaries) .CASH SALES  The auditor should examine the effectiveness of the system of internal check.  He can scrutinize the general cash book with the summaries prepared by the cashier. salesman’s abstracts.  he should thoroughly check the carbon duplicates of cash memos with the summaries of cash sales.

the counterfoil is the only proper documentary evidence available for the purpose.Receipts from debtors  The cash received from debtors can be vouched with reference to the counterfoils of the receipts issued to them. . Thus. But this is not reliable voucher as frauds are usually committed.

 The auditor should pay special attention to discount (vouchers – counterfoils.  By issuing a receipt from the unused books if these are not properly kept in safe custody. correspondence) .  By the process of ‘teeming and lading’. By inserting less amount in the counterfoil than what is actually received form a debtor.

pass book.  (vouchers – bills receivable book. cash book . Such bills might have been dishonoured or retired.) .Bills receivable  Receipts from bill discounted  receipts from bills matured.  Special enquiry should be made about bills which have matured but the amount in respect thereof has not been received.

 He must ensure that correct discount is recorded in profit and loss account.Receipts from discounting of bills receivable  The amount received on discounting of bills should be checked with a register called bills discounted register.  Auditor should check the rough cash book.  He should have a clear idea about the rate on discount allowed. .

Amounts received on maturity  He must compare the entry of cash book with the  bills receivable.  Special care should be taken for those bills which have matured but payment is not received. .  He must also ensure that the schedule of bills receivable is verified.

 If the interest comes from securities.counterfoils. then vouching of such income should be made from a schedule obtained from some responsible official. three vouchers …. such incomes should be vouched with bank pass book.  If an interest is receivable from a loan granted to a borrower the agreement should be referred.  For receipt of dividend. dividend warrants and letters received along with cheque. should be seen. .Income from interest and dividend  If interest is received on account of fixed deposit in the bank.

Sale of investment  Investment are usually sold through brokers.  If the sales has been affected through the bank. Hence the broker’s sold note should be examined. (vouchers – broker sold note. bank advice.) .  The brokers sold note contains details about the actual amount received on this account and the commission paid to the broker. the bank advice should be examined.

 The auditor has to keep in mind that the instalments includes instalment also.Receipts of hire purchaser  The hire purchase agreement should be examined in detail. (vouchers – hire purchase agreement. counterfoils of recipts) .  He should note that the whole amount of an instalment in not credited to sales account….

deed.auctioneer’s note brokers sold note.Proceeds from sale of fixed assets  Whenever fixed assets are sold correspondence is made     with the parties who are willing to purchase them. The auditor should see that the sales has been duly sanctioned. it may also be examined by the auditor. Fixed assets are sold through broker or an auctioneer. correspondence)  ( vouchers. Any profit so earned should be transferred to capital reserve account. If a sale deed has been executed. sales .

accounts.  (vouchers. correspondence) .Insurance claims  Insurance claim money received from an insurance company against a claim should be checked by making a reference to the correspondence between the company and the client and the amount rendered by the insurance company to the client.

.  Counterfoils of receipts should be compared with the particulars entered in the cash book.  If commission is received in respect of goods received on consignment. the amount of commission should be vouched with reference to the copy of the account sale sent to the consignor.Commission received  The agreement between the client and the parties from whom it is receivable should be examined.

Rent received  The auditor should examine the lease Deeds and     agreements to ascertain the amount of rent payable. If receipts are issued to the tenants for the rent paid. the due date and provisions regarding the repairs. the counterfoil of the receipts would be a good evidence. If rents are collected by agents their accounts must be examined. It is possible that rent might have been received but misappropriation while it may be shown as outstanding. . The auditor should get a list of unlet property duly signed by a responsible official. Particular attentions should be paid towards ‘rentoutstanding’.

pass book should be verified.Cash received from debtors  Auditor should vouch cash received from debtors to whom goods have been sold on credit and the documentary evidence available for vouching such receipts is the counterfoil of receipts issued to the debtors.  Auditor should verify the amount received and the amount entered on the debit side of cash book. .  Following points should be considered while vouching receipts from debtors:  If the payment is made in the form of cheque.

 The following types of errors are committed by the clerks at the time of recording cash received from debtors:  Entry of less amount in the counterfoil.  Showing the actual amount received as bad debt.  Showing actual receipts of cash as discount.  Issue of receipts from unused receipt book. .

.Have been sanctioned by a person holding some authority.Credit side or payment side of the cash book  Auditor should satisfy himself that the payment have been actually made: i. For the business itself. iii.Have been properly recorded in the books of accounts. ii. To the right persons. iv.

Payment to creditors  Money due the creditors can be compared with the accounts of the creditors and the actual invoice received. contracts and other evidences before he passes an entry.  He may refer to minutes.  The auditor should enquire whether periodical statements are submitted by the creditors. .

he should insist upon getting a duplicate copy of it. . In regard to cash purchases. cash memos and goods inward book should be compared with the entries in the cash book.  Special attention should be paid to trade discounts  If any voucher is missing.

.The names of the employees who have resigned.Conversion of unpaid wages. iii. Over-stating of rates of wages. vi. iv.Possibility of clerical errors. v. The inclusion of fictitious names ii. Errors or fraud in time and piece-work records.wages  The chances of fraud or errors are: i.Over-stating the hours of work or days of work vii.

He should check few items of the wages sheet here and there to see that calculations are correct He should check the total amount of wages payable He should check the names of some of the workers as mentioned in the wages sheet with the job cards ……. He should see that the wage sheet are properly initialised or signed by all the responsible persons.auditors’ duty as regards wages  He should see whether the internal check system is        satisfactory. The number of workers as recorded in the wage sheet should be compared with the employees state insurance cards . He should check the casts of the wages and wage book. He may pay a surprise visit on the day of payment of wages.

 The total wages of each department should be     compared with the original estimate made by the costing department. Leave register should be examined. Wage sheets of the previous months should be compared with current month. Test check the signatures and thumb impressions of some of the workers . Compare the signature of the workers of two or three periods.

Bills payable
 Returned bills duly cancelled should be examined.
 It would be a sufficient evidence of the amount having

been paid.  Reference may be made to the bank pass and bills payable books.

Capital expenditure
 Plant and machinery;

i. auditor can vouch the purchaser of plan and machinery with the invoice received form the supplier. ii. Expenses incurred for installation, import duty and clearing charges should be capitalised iii. If the plant and machinery is purchased through brokers the documentary evidence is brokers bought note. iv. In certain cases physical verifications can be done.

Patents and copy rights
 Acquisition copyrights and patents can be vouched

with the receipts issued by the seller or agent’s note  Commission paid on such acquisition should be capitalised.  If patents and copyrights are developed through R&D, all the expenses incurred on such experiments should be capitalised.  Renewal fees is treated as revenue expenditure.

the broker’s note should be examined. If the property is purchased through the broker. Auctioneer’s Note. If the property purchased is leasehold. brokerage. architect’s fee. Contract.Purchase of fixed assets (L&B)  If the purchase of freehold land or building is made. etc. (vouchers-Title Deed Lease. registration fee. The expenses incurred are: auctioneer’s commission. Broker’s Note. the     Title Deed should be examined.. Architect’s certificate) . Receipts. in which case the purchaser’s right over the property is for some period.

.Purchase of plant and machinery  A reference to the invoice and receipt obtained from the supplier can be vouched.

 In case of JSC auditor should see to it that investment in shares have been subject to the provision of AOA  If the investments are related to new issue of shares letter of allotment must be checked. should be vouches with the Brokers bought note.  According to sec 292 auditor should ensure that investments have been purchase by a resolution taken in the board meeting.Investments  Payments for purchase of shares . securities etc. .

 The invoices related to the purchases may be used as the documentary evidence.Purchase of furniture  Auditor must verify the furniture register where the purchase of furniture is recorded. .  Auditor can also physically verify the letter of sanction for the existence of furniture.  The expenses incurred on purchases should be capitalised.

together with the receipts issued by them. clearing agents. carriage and customs duty • The statements of accounts regarding the payment of freight and carriage submitted by the shippers.Freight. . should be examined • He should see that allowances in respect of rebates have been brought into account.

Such an expenditure is called DFE. though of revenue nature. is spread over a number of years because its benefit is derived during those years.  Expenditure which. .Deferred Revenue Expenditure  It is basically a revenue expenditure.  Professor Arnold Johnson defines Deferred charges as “ nonrecurring expenditures which are expected to be of financial benefit to several accounting period in determinate total length..

Experimental expenditure Research expenditure Discount allowed on the issue of debenture. Expenditure incurred in launching and advertisement     campaign. Development expenditure in the case of mines. .

..• Advertising • Preliminary expenses • Alterations and Heavy Repairs to plant etc.

the P. .Preliminary expenses  Expenses which are incurred in connection with the     promotion and formation of a new company are called P. Cost of printing application forms. fees payable on their filling with the office of the registrar. Stamp duty on legal documents.E the following items are generally included under this head: Cost of drafting and printing of various legal documents. allotment forms. share and other legal certificate. Cost of advertising and distributing company’s prospectus.E should be written off against profit and loss account over a period of 3 to 5 years.

Vouch the entries in the cash book for calls received from the counterfoils of the receipts issued. The most important duty of an auditor. He should ensure that the requirements as laid down in this connection have been complied with. He should see that the share capital has been shown in the balance sheet . in the first year’s audit of a newly formed public company is the verification of share capital transactions.Cost of issue of shares and debentures  Section 85 to 90 make provision in respect of various     kind of share capital of a company. .

Debentures  Under sec 292(1) the board of Directors of a company shall     exercise the power to issue debenture only by means of a resolution passed at the meeting of the board. He study the terms and conditions in the issue and repayment of debentures as contained in the prospect6us and ensure that all the terms and conditions are strictly adhered to. He should study the company in order to find out the borrowing powers of the company. The procedure of vouching the receipts of cash in connection with the issue of debentures is the same like vouch the entries in the cash books for calls received from the counterfoils of the receipts used. . The auditor of the company should study the AOA and the MOA of the company.

the auditor should see whether the underwriter has discharged his liability before the commission is paid. This is essential as sometimes the commission is paid even before the full subscription has been met with.C is concerned.  He should find out whether the commission is paid only on marked applications.Underwriting commission  As for U. .  If the issue is not fully subscribed. the auditor should look into the agreement between the company and the underwriters regarding the commission payable.  Auditor should also ascertain whether the commission calculation has been properly made.

attendance register.)  Commission (Agreement. Director’s fees ( minute book.. statement of accounts) . AOA. Resolution of share holders)  Dividend ( Dividend Warrants. Pass book etc.

the gatekeeper or store keeper should make a record in the goods inward book. . When the goods are received.Internal check as regards purchases  The system of internal check will depend upon the size of      the business the staff available . The invoice should be checked with goods inward book Another clerk should check the invoice regarding calculations etc. Purchase requisition All the orders sent out should be recorded in the purchase order book which should have two carbon copies..

 The departmental head will then pass over the invoices to the clerk who will record the same in the purchase book. After this the invoice should be sent to the head of the department. .  Every person who has to deal with the invoice and the goods should initial the book.

4. 3. The invoice is entered in the name of supplier in the purchase book. The trade discount has been deducted. . Invoices is initialled by some responsible person. He should keep in mind the following: 1. The invoice is in the name of his client 2. 6. The invoice relates to the business in which the concern deals. 5. The date given in the invoices relate to the period under audit.

Goods inward book-avoid the inclusion of fictitious invoices . Any purchase made not for the business purpose must not be debited to the purchase account. . The totaling of the purchases book should be verified and all taxes.2. It should be seen that no invoices has been entered twice in the books.If proper voucher is not available is should ask for duplicate. It has to be examined that capital purchases have not been written as revenue expenditure. 7. freight charges have already been recorded. 8.He should verify whether the price charged by the supplier tallies with the quotation. 6. 5. 4. 3.

return outwards register.  Check casting and posting of the PRB  The quantity returned as per the return note should correspond with the store keepers record . .Purchase Return book  He should examine the credit notes with the purchase book and goods outward book.

It should be seen that capital sales are not treated as revenue sales. The auditor should especially examine the sales relating to the beginning or at the close of the financial year. . the date.  If some distinction is made granting trade discounts to two      different customers. Sales is vouched with the help of Orders received book and goods outward book. the amount. Cancelled sales invoices hould be kept together. the reasons should be enquired.Sales Book  He should compare the names. He should check the casting and posting of the sales book.

Sales return book  Check sales return book with the help of copies of notes      maintain in the goods inward book. corresponding entries He should also ensure that the closing stock is valued at cost or market price whichever is less. date. stores records. He should analyze the reasons for the goods being returned. The quantity and quality of goods returned must be verified. . Credit note should be issued only if he has returned the goods. return inward register. gate keeper receipt book.

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