Shamim Shaikh, DBC

Auditing Techniques: Vouching

& Verification
CHAPTER 4
 VOUCHERS
► Meaning:

Shamim Shaikh, DBC

Entries in the books of accounts are made on the basis of various documents. These documents include Bills, Receipts, Pay- in-
slips, Cheques, Counter-foils etc. These documents are called "VOUCHERS".
⮚ Essentials of Voucher:
(1) Name of the concern indicating that the transactions pertain to the client and not to any other concern.
(2) Date of the voucher indicating the period to which the transaction pertains.
(3) Serial number of the voucher to ensure that there are no missing vouchers and that all transactions are recorded.
(4) Accounting head- auditor should ensure that transaction has been debited/credited to appropriate accounting head.
(5) Description of the transaction so as to understand the nature of the transaction undertaken.
(6) Amount in figures and in words so as to avoid any alteration of figures.
(7) Name of the parties involved.
(8) Signature of the authorized officer so as to ensure the validity of the transaction.
(9) Signature of the person preparing the voucher in order to fix the responsibility for any errors in the voucher.
(10) Signature of the payee - it works as a proof that the amount has actually been received by the payee. Payee should sign on
revenue stamp if the payment exceeds Rs. 5,000. This helps in preventing misappropriation of cash.
POINTS TO BE CONSIDERED IN THE COURSE OF VOUCHING
(1) Date of Voucher: Auditor should check that date of voucher falls in the accounting period under audit.
(2) Name of the client: Voucher should be made only in the name of the client and not in the name of any
officer or employee of the client. Voucher should be made only for business transactions and not for any
personal transactions.
(3) Cancellation of voucher: Once a voucher is checked by the auditor, it should be cancelled by putting a
rubber stamp or signature of the concerned officer. This ensures that same voucher is not checked again. This
also helps in preventing reproduction of same vouchers for bogus entries.
(4) Signature of authorized officer; Each and every voucher has to be authorized by some responsible officer.
(5) Revenue stamp: If amount of voucher is more than Rs. 5,000 a revenue stamp of Re. 1 has to be put on the

Shamim Shaikh, DBC

voucher. Therefore, auditor should check whether it bears revenue stamp in such condition.
(6) Amounts in words and figures: Each voucher bears amount in words as well as in figures. Auditor should
check whether these amounts tally with each other.
(7) Account head: Auditor should check that particular voucher is posted under correct account head.
(8) Signature of person preparing the voucher: Voucher should bear signature of the person preparing it.
(9) Amount: Auditor should carefully check that amount of voucher is correctly entered in the books of
account.
 Shamim Shaikh, DBC
AUDIT OF SPECIFIC CASH RECEIPTS:
 Shamim Shaikh, DBC
1) Cash Sales:
1. Auditor should examine the internal controls so as to ensure that there are no loopholes in the
system whereby cash sales could be misappropriated.
2. Auditor should verify the carbon copies of cash memo and check the quantity, amount and
signature of authorized person.
3. Auditor should particularly ensure that the date on cash memo tallies with that in the cash
book.
4. If cash sales are voluminous, auditor should check the cash sales summary book. Cash memos
should be traced in to it and the daily totals of the summary book should be tallied with the
entry in the cash book.
5. Auditor should ensure that amount received has been promptly deposited into the bank.
6. If cash memo has been cancelled, its original copy should be inspected.
 Receipts from Debtors:

Shamim Shaikh, DBC

(1) Auditor should examine the internal controls so as to ensure that are no loopholes in the system
whereby cash collected from customers could be misappropriated.
(2) Auditor should verify the counterfoils of the receipts issued to the customers who have made
payments.
(3) Auditor should ensure that amount received has been promptly deposited into the bank.
Sale of Assets:

Shamim Shaikh, DBC

1. Auditor should obtain schedule of assets and ensure that entries in respect of sale of any
asset has been properly recorded in it.
2. Auditor should ensure that assets are sold only by person having authority e.g. in case of
company, board of directors can sell assets.
3. Auditor should verify the sales agreement. He should confirm as to whether assets were
sold by auction or by negotiation in order to ensure that asset was sold at maximum
possible price.
4. Auditor should ensure that sales proceeds have been fully accounted for, in the books of
accounts.
5. Auditor should ensure that profit/loss on such sale has been properly calculated and
recorded in the books.
 Miscellaneous Receipts:

Shamim Shaikh, DBC

(a) Auditor should obtain details of miscellaneous receipts recorded by the client.
(b) Miscellaneous receipts should not include any entry which is to be disclosed separately as per
the requirements of Schedule VI.
(c) Auditor should verify documentary evidence available like vouchers, copy of receipts, bank
statement etc.
(d) Auditor should compare the amount in the current year with that of the previous year and
verify significant deviations.
 Shamim Shaikh, DBC
AUDIT OF PAYMENTS OF SPECIFIC TRANSACTIONS:
 Purchases:

Shamim Shaikh, DBC

Audit of purchases should be done in the following manner.
(1) Supporting Documents: Purchases can be either in cash or on credit. Cash purchases should be verified with (a) cash memos or
(b) Invoices received from suppliers.
Credit purchases should be checked with invoices received from suppliers and credit to their account in the Purchase Day Book on the
basis of invoices.
(2) Name of the Client: Name of the client i.e. name of the concern from whom purchases are made should be same on Invoices,
Purchase Day Book as well as on any other supporting document.
(3) Date: Like the name, date on Invoices, Purchase Day Book and any other supporting document should be same.
(4) Serial Number: Serial Numbers on the purchase vouchers should be continuous and should tally with those entered in Purchase
Register.
(5) Amounts: Amounts written on vouchers, in words and figures should match. They should also tally with amount entered in the
books of account as well as with any other supporting document.
(6) Quantity: Quantity entered in the Purchase Book should tally with supporting documents i.e. delivery challan, transporter's bill,
octroi receipt, entry in the Stock Books etc.
(7) Signatures on Vouchers: The purchase voucher must be signed by,
(a) Authorized officer of the client.
(b) Person who prepares the voucher and
(c) Person making entry in the Purchase Day Book. This will help in recognizing at what point and by whom error or fraud is made.
(7) Signature and stamp of the Client: The purchase bill received from the client should have signature and stamp or seal of the
client i.e. the supplier. Other supporting documents like transportation bill, Octroi Receipt etc. should also be signed.
 Shamim Shaikh, DBC
Salaries and Wages
(1) Checking of Supporting Documents: Auditor should check supporting documents to confirm the payment. He
can check Pay Sheets, Attendance Records, Statutory Returns filed with Provident Fund, Income Tax, cheque
counterfoils, etc.
(2) Period: Auditor should check that the payments are related to current accounting year only.
(3) Details of Payment: Amount paid towards salaries and wages can be checked against cheque counterfoils or pay
sheets. Computation of salary should also be checked. It should be calculated as per the attendance record.
He should also check the computations of statutory deductions in respect of Provident Fund, Income Tax etc. Net
amount after deducting these amounts should be paid to the employee.
Auditor should check the signature of the employee in the pay sheet as the acknowledgement of receipt of salary.
(4) Accounting Principles and Practice: Auditor should check whether basic principles of accounting are followed
while making payment towards salaries and wages. He should also check that the normal practices adopted by the
company are followed or not.
(5) Disclosure as per Schedule VI: Proper disclosure as required by Schedule VI of Companies Act should be made
in the financial statements. Salaries and wages should be disclosed separately in the Profit & Loss Account.
Rent Paid:
(1) Auditor should check the agreement made with the landlord and note its important terms

Shamim Shaikh, DBC

and conditions.
(2) Auditor should ensure that payments are made as per the agreement. Any excess or less
payments should be enquired into.
(3) TDS if any should be deducted and paid to the IT department within the prescribed time
frame.
(4) Auditor should compare the amount of rent paid/payable with that of the previous year and
verify any major deviations.
(5) Auditor should ensure that rented premises are not shown as assets of the company.
(6) Auditor should ensure that rent paid/payable is properly accounted for.
(7) In case of any legal dispute, auditor should verify the legal papers
 Shamim Shaikh, DBC
Payment of Dividends:
Audit of payment of Dividend should be done in the foll manner:
(1) Provisions of Articles of Association: Provisions regarding payment of dividend are contained in the Articles of Association.
Therefore, auditor has to check the terms and conditions given in the Articles.
(2) Approval of Board of Directors and Shareholders: Board resolution has to be passed in a Board Meeting recommending the
rate of dividend. The recommended rate is then approved by the shareholders in the Annual General Meeting (AGM). Auditor should
check the copy of the resolutions and the minute book.
(3) Legal requirements: Dividend is paid out profits of the company. But it cannot be paid out of any profit. Auditor should see that
amount of dividend is within the limits laid down by Companies Act.
(a) Section 123 says that dividend can be paid out of:
(i) profits of the current year
(ii) past reserves as per the rules of the Central Govt.
(iii) money received from Central or State Government.
(b) Dividend should be paid only in cash or by cheque.
(c) It can be paid only to registered shareholders.
(d) Amount of Unpaid dividend should be transferred to a special bank account called 'Investors 'Protection and Education Fund.'
(4) Register of Members and Names of Members: Dividend should be paid only to those shareholders whose name appear in the
register of members on the Record Date or during Book Closure. Therefore the auditor should check the Register of Members and
Names of members appearing in the register.
VERIFICATION & VALUATION OF TANGIBLE

Shamim Shaikh, DBC

ASSETS
Step 1: Review of Internal Control

Step 2: Verification of records and

other documentary evidence

Step 3: Valuation of Asset

Step 4: Compliance of
reporting and other Disclosure
requirements
 Plant & Machinery
1) Review of Internal Control: The auditor should examine the Internal Control system regarding the purchase , sale and accounting of
the said asset so that no purchase/sale of it remains unaccounted.
2) Verification of Records:
i. Auditor should verify the plant register. Its total is then reconciled with the balance in the general ledger.
ii. Management of the concern is bound to physically verify its plant and machinery. Auditor should inspect working papers related to
such physical verification.
iii. Any additions during the year should be verified with reference to purchase invoices and other appropriate documents.
iv. If any machinery has been manufactured by the concern, auditor should verify the costs incurred so as to ensure that the
manufactured machinery is properly valued.
v. In case any item of machinery has been scrapped, destroyed or sold the auditor should ascertain that the profit or loss arising thereon
has been correctly determined which has either been disclosed in the profit and loss account or credited to the capital reserve.
3) Valuation:

Shamim Shaikh, DBC

- As indicated above, any machinery purchased during the year should be valued at its cost plus cost of installation including other
incidental expenses.
- When an asset has been revalued, depreciation should be provided on revised values and not on historical values.
4) Disclosure and Reporting Requirements:
- Auditor should verify that the plant and machinery has been properly shown under fixed assets in the Balance sheet.
- Auditor should comply the requirements of CARO, 2016
 Furniture and Fixtures:
1) Review of Internal Control: The auditor should examine the Internal Control system regarding the purchase , sale and
accounting of the said asset so that no purchase/sale of it remains unaccounted.
2) Verification of Records:
i. Auditor should verify the register of furniture, Its total is then reconciled with the balance in the general ledger.
ii. Management of the concern is bound to physically verify assets at regular intervals. Auditor should inspect working papers
related to such physical verification.
iii. Any additions during the year should be verified with reference to purchase invoices and other appropriate documents.
iv. If any furniture has been sold during the year, ascertain that the profit or loss on such sale has been correctly auditor should
calculated and is disclosed in the profit and loss account or credited to the capital reserve.
3) Valuation:
- Any furniture purchased during the year should be valued at its cost plus incidental expenses incurred in connection with such
purchase.

Shamim Shaikh, DBC

- When an asset has been revalued, depreciation should be provided on revised values and not on historical values.
4) Disclosure and Reporting Requirements:
- Auditor should verify that the furniture has been properly shown under fixed assets in the Balance sheet.
- Auditor should comply the requirements of CARO, 2016.
 Buildings:
1) Review of Internal Control: The auditor should examine the Internal Control system regarding the purchase , sale and accounting of
the said asset so that no purchase/sale of it remains unaccounted.
2) Verification of Records:
i. Auditor should verify the property register. Its total is then reconciled with the balance in the general ledger.
ii. Management of the concern is bound to physically verify assets at regular intervals. Auditor should inspect working papers related
to such physical verification.
iii. Any additions during the year should be verified with reference to purchase invoices and other appropriate documents.
iv. In case building has been sold the auditor should ascertain that the profit or loss arising thereon has been correctly determined which
has either been disclosed in the profit and loss account or credited to the capital reserve.
3) Valuation:
- As indicated above, any building purchased during the year should be valued at its cost plus incidental expenses likebrokerage, stamp
duty etc.

Shamim Shaikh, DBC

- Auditor should ensure that adequate depreciation has been provided during the year.
- When an asset has been revalued, depreciation should be provided on revised values and not on historical values.
4) Disclosure and Reporting Requirements:
- Auditor should verify that the furniture has been properly shown under fixed assets in the Balance sheet.
- Auditor should comply the requirements of CARO, 2016.
 Shamim Shaikh, DBC
Audit of Intangible Assets
Patent:

Shamim Shaikh, DBC

► Patent is an official document which provides the investor the exclusive right to make, use or
sell his invention.
Verification and valuation of patent involves consideration of the following points:
(1) Auditor should examine the patents so as to ensure that the company concerned is the
registered owner of the patent.
(2) Auditor should check the entries made in patent register.
(3) Auditor should ensure that the legal life of the patent has not yet been expired.
(4) Latest renewal certificate should be obtained from the client and verified.
(5) If the patent is subject to litigation about its title, auditor should obtain necessary documentary
evidence to examine the status of such litigation.
Goodwill:

Shamim Shaikh, DBC

► Goodwill is considered as an intangible fixed asset.
Its verification and valuation involves the following points:
(1) Auditor should confirm that goodwill appearing in the balance sheet has not been shown in
excess of its cost price i.e. it should be recorded in the books only when some amount is paid
for it. Self- - generated goodwill should not be recorded in the books.
(2) Auditor should see that goodwill is never appreciated in the books of the company.
(3) If goodwill is created on account of purchasing the running business, auditor should verify the
contract with the vendor. Also auditor should check the accounting entries passed for goodwill.
(4) Auditor should ensure that goodwill is written off over a reasonable period of time.
(5) Cost of goodwill is not allowed as deduction as per the provisions of Income tax Act. Auditor
should consider this provision while verifying income tax provision for the year.
 Shamim Shaikh, DBC
Audit of LIABILITIES
 VERIFICATION OF LIABILITIES:

Shamim Shaikh, DBC

► The verification of liabilities is of equal importance as that of anasset. The auditor has to satisfy himself
that all liabilities whether existing or contingent have been properly determined and disclosed in the
balance sheet.
Therefore, the auditor should ensure the following:
(1) The liabilities shown in the balance sheet are actually payable.
(2) That all liabilities are properly recorded in the books.
(3) That the recorded liabilities are payable for the legitimate operations of the business, and
(4) That contingent liabilities has been disclosed in the balance sheet by way of a note.
Auditor should obtain certificate from the client that all liabilities which had accrued due till the close of the
year have been taken into account and contingent liabilities, if any, been fully disclosed.
It should be verified that liabilities have been appropriately grouped under different heads for disclosure in the
balance sheet