Vouching is checking the authenticity of recorded transactions. It is proving that the transactions occurred, they are complete correctly measured and they relate to the correct period if they are of a revenue or expense nature.
Usage of vouching:
- In very small audits when the number of transactions are not too large.
- In audits whose internal control is weak or non-existent.
- In certain types of specialized audits such as that of trusts or estates
- The vouching audit involves a consideration of each entry in the books and vouching the available evidence to support each entry. The evidence usually consists of documents and papers and should satisfy the auditor that:
- The transaction was authorised by management
- The transaction came within the aims and objects of the organisation
- The transaction was correctly and adequately described by the entry in the books.
- The entry is correctly incorporated in the final accounts
NOTE: The above is the guideline for all vouching procedures
1. Ensure that transaction was authorized
- The authority for payment of interest should be obtained prior to payment This stems from the authority to acquire the loan.
- The auditor should examine the minutes of Board of Directors (BOD) or the Minutes of Annual General Meeting (AGM) for proper authorisation to obtain the loan and to service it.
The authorisation should be expressly indicated and it should refer to the loan in question and differentiate it from any other.
2.Ensure that the transaction came within the aims and the objects of the organisation
The auditor should check the reason for obtaining the loan(s) and ensure that they are in accordance with the aims of the organisation.
Obtain the loan agreement and check for:
- Period for interest to be paid
- Any other matters of default
None should be prejudicial to the shareholders interest.
3 .Ensure the transaction was correctly and adequately described by the entry in the books.
- Recompute the interest and ensure it is correctly calculated.
- Check the recording of this interest in the ledger
- Obtain the couterfoils of the cheques paid for this interest
- Trace the item in the bank statement.
4.Ensure entry is correctly incorporated in the Final accounts
- Check the amount recorded in the profit and loss account to ensure that this item is properly recorded as an expense and it relates to the correct period.
- Check that the amount and date are the correct ones.
1.The auditor should check the investment which has borne such an interest and check the authority for its acquisition. This can be found in the minutes of the BOD or the AGM.
(This is similar to number one of interest paid.)
2.The auditor should obtain the investment contract and check.
- The amount invested
- The interest or that particular investment
- The period of investment
- Any other matters.
3.Ensure that this transaction was properly recorded.
- Compute the interest or the investment
- Check the recording in the ledgers
- Check the mode of payment; cash or cheque
- Trace item to the bank statement and cashbook
4.Ensure that the item is properly reflected in the profit and loss account i.e. that the amount is correct and it relates to the correct period.
- 1.Check authority for purchasing the shares because the dividend is received on shares owned. This should be in accordance with the investment policy of the organisation
- 2.Obtain the registrar of investment check for:
- Number of shares owned
- Rate of dividend
- Types of shares owned
- Date of acquisition
- The auditor can also check press reports that have news on declaration of dividends and their payments.
- 3. Ensure dividends received are properly reflected in the accounts and in particular check the cut-off for dividends received.
- Dividends may relate to the current period but may be received in another financial period so the auditor should ensure that they are recorded in the period they relate to.
- Check the recording of shares bought or sold cum-div (with dividend) or ex-div (without dividend) and ensure that it is properly recorded in the ledgers.
- Check the mode of payment of dividend and ensure proper recording. Compare the cash book and the bank statement.
- Check the recording of this item in the profit and loss account.
- Check the minutes of the BOD and or AGM to ascertain authority for obtaining the property and for renting the property out.
- Obtain the lease agreement to check for:
- Property rented and the amount of rent
- The rental period e.g. 10yrs, 20yrs
- Frequency of obtaining rental payments eg monthly, quarterly
- Terms of maintenance of the property could be maintained by the landlord or tenant
- Ensure that these are in agreement with the organisations objects.
- Check the ledgers for proper recording of the rent this refers to both the amount received and the period to which it relatesThe auditor should also check the reasonableness of the rent on the rented property. He could do this by getting an opinion of an expert ie a valuer.Trace the item to the cash book and bank statement
- Ensure that the profit and loss account has the correct amount and item is for the correct period.