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VOUCHING IS THE ESSENCE OF AUDITING
Vouching is said to be the very essence of auditing. The whole success of an audit depends on the intelligence and thoroughness with which this part of the work is done.
Vouching means the verification of entries in the books of account by examination of documentary evidence or vouchers, such as invoices, debit and credit notes, statements, receipts, etc. The object of vouching is to establish that the transactions recorded in the books of accounts (1) are in order, (2) have been properly authorised, and (3) are correctly recorded. Mere routine checking cannot achieve this purpose. Routine checking establishes the arithmetical accuracy of the books, but it can never establish that the entries made in the books of accounts for the period under audit are a true and complete record of all the transactions carried out in that period. With a view to achieving this objective the auditor must go behind the books of account and go to the source of a transaction. It is in this way alone that he can ascertain the full meaning and circumstances of the various transactions.
If, on the other hand, he confines himself to the entries as they appear in the books of accounts, his information will be incomplete, and he may pass matters of the utmost importance which affect the accounts materially. The entries in the books show only such information as the book-keeper chooses to disclose; such information may be purposely or unintentionally contrary to the true facts. The book-keeper, for example, may pass an entry through the books in respect of a purchase from X, but this entry alone does not prove that the goods were, in fact, actually received. The purchase may be entirely fictitious; the book-keeper may have arranged, in collusion with members of the staff, to misappropriate the money paid therefor. Again, goods may be sold to Y, but no record in this respect may be in the books, the cheque received from Y being misappropriated. In both these cases the books are “arithmetically” correct, but are certainly not “actually” correct.
It is the duty of an auditor to ascertain that the books are actually correct in accordance with the best of his information. He can obtain this information from examination of the documents from which the books have been written up and any other evidence or explanation he can obtain. Therefore, an auditor can possibly ascertain the real state of affairs only by examining external evidences. It is by doing so that the auditor can satisfy himself that the books themselves reveal the true position – an indispensable preliminary to the task of satisfying himself that the Profit and Loss Account and Balance Sheet are true and fair.
This means that an audit must be based on thorough and efficient vouching. In most cases clever frauds can only be discovered by vouching. Hence an auditor must conduct vouching with great care and intelligence. In case he is negligent, he will be held guilty as was decided in the case of Armitage v. Brewer and Knott. Thus vouching may be described as the very essence of auditing.