Last updated: September 26, 2022

What is vouching vs tracing in an audit?

0  comments

  • Home
  • /
  • What is vouching vs tracing in an audit?

What is vouching vs. tracing in an audit?

Vouching vs. tracing are key techniques applied during audits. Auditors apply these techniques to assess the strength of internal controls.

Assessing internal controls is an essential part of an internal audit process. Knowing how strong the internal controls are will help auditors in assessing accounting practices.

Both these techniques fulfill the same objectives for auditors. They just use different techniques to yield their results. Vouching is key for assessing accounting systems while tracing helps assess how comprehensive accounting records are.

Tracing and vouching offer similar results to auditors but through different techniques. Vouching is usually seen as the foundation of an accounting system. Tracing also plays a crucial role in evaluating the completeness of the accounting records.

Tracing is comparing source documents with their linked accounting records to make sure that accounting records are accurate. Auditors generally do a tracing process to test the completeness of accounting records. Vouching is the process of assessing the documentation of a transaction. These are discussed in more detail below:

What is vouching vs. tracing in an audit- vouching and tracing

What is Vouching in an audit?

Vouching is examining documents that support a recorded entry for a transaction or monetary amount. This document is usually known as a “voucher” in accounting, so the term vouching is used.

Vouching is a process that verifies that a transaction is properly documented, authorized and properly recorded. It meets all the financial statement audit requirements except for the completeness requirement, which is done through another approach.

What is Tracing in an audit?

Tracing is also a process of examining transaction documents. However, unlike vouching, tracing uses a process opposite to that of vouching in an audit.

In vouching, the process flow moves from the accounting records to the transaction base documents. In tracing, the process moves from the transaction base documents to the accounts entries.

While tracing transaction flow from the source documents to the accounting entries, auditors can cross-check if a transaction has been correctly recorded and report the figures that it should be according to the nature of the transaction.

By tracing a transaction from its source document to the reported entry, auditors can locate any error or internal control flaw or omission in their audit site.

What is vouching vs. tracing in an audit-Auditing

Example of a Tracing Audit

For example, in a revenue (sales) audit, auditors can test the completeness assertion by applying  tracing processes in the following manner:

  • Pick a sample of shipping documents
  • Trace the picked shipping documents to their linked sales invoice and sales journal entries to ensure that the entry is accurately recorded as sales revenue.
  • Other allied audit techniques like scanning the sequence of sales invoice numbers for missing numbers and cross checking for unrecorded sales are also done together with tracing to make sure that the sales revenue is completely recorded.

    What is Vouching in an audit?

    Auditors generally start their audit process by picking a group of transactions from the accounting records.

    These are then ‘vouched’. This means that the supporting documents or source documents for the selected transactions are examined to see if origin documents support the recorded transactions.

    While tracing examines the completeness assertion, auditors usually use vouching to test the existence assertion in an audit. This means that these two procedures examine entirely different evidence from different perspectives, i.e., the completeness vs occurrence or existence).

    Tracing is more effective in detecting the risks of understatements (which originates from a lack of completeness).

    Vouching is usually effective in detecting overstatements in transactions reported in the financial statements.

    What is vouching vs. tracing in an audit-Tracing

    Differences between Vouching vs Tracing in auditing

    Tracing helps auditors to filter out any understatement in a transaction’s records. While vouching investigates the risks of overstatement of recorded transactions.

    As we discussed earlier, tracing is the process of tracking a transaction in reverse to its source document. While vouching is the opposite, beginning with the initial documents (vouchers) of a transaction.

    Tracing helps auditors to assess the accuracy and completeness of financial statements. Vouching can be claimed to be more effective as it detects all financial statement assertions except for the completeness assertion.

    Vouching starts with the evaluation of the transaction value. It also helps auditors substantiate if a transaction reported on the vouchers has supporting documents. It helps to verify the happening of a transaction.

    While carrying out tracing, auditors can cross check the efficacy of an organization’s internal controls. At each step of tracing, auditors can assess for errors, oversights, or falsified activities.

    Similarly, vouchers supply journals and ledger books with accounting figures to record. The vouching technique logs transactions from their source documents to their vouchers. The objective Is to ensure that every transaction that occurs is recorded correctly considering accounting principles.

    The logic is simple, and if there are oversights or mistakes in vouchers, their linked journal entries would also have errors. The accuracy of financial statements will become affected, and the audit will discover issues with internal controls. Vouching, therefore, helps auditors build an accurate and unbiased opinion about a business's financial statements.

    You might also interested in What is Accounting for Spare Parts Inventory? and What is Product Level Activity in Accounting?



    Tags


    You may also like

    Leave a Reply

    Your email address will not be published. Required fields are marked

    {"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

    Get in touch

    Name*
    Email*
    Message
    0 of 350