What is Vouching?

Vouching is the act of reviewing documentary evidence to see if it properly supports entries made in the accounting records. For example, an auditor is engaged in vouching when examining a shipping document to see if it supports the amount of a sale recorded in the sales journal. Vouching can work in two directions. For example, an auditor can trace actual inventory items back to the accounting records to see if the items are properly documented, or start with the inventory records and trace back to the warehouse shelves to see if the inventory exists.

When engaged in vouching, an auditor is looking for any errors in the amount recorded in the accounting records, as well as ensuring that the transactions are recorded in the correct accounts. The auditor is also verifying that transactions have been properly authorized.

Why is Vouching Important?

Vouching is an essential part of the auditing process, for the following reasons:

Specifies record accuracy. Vouching informs auditors about the quality of the accounting records on which a client’s financial statements are based. If the vouching process reveals that the records are accurate, then the auditors can rely upon them to a greater extent. Vouching is also a useful way to determine whether a client has a robust system of internal controls.
Detects fraud. Vouching may uncover fraudulent transactions, such as improperly recorded or inflated transactions. It does this by looking for discrepancies between recorded transactions and supporting documents.
Identifies compliance level. Vouching identifies instances in which recorded transactions do or do not comply with the applicable accounting or regulatory requirements. This is useful for avoiding noncompliance penalties.
Enhances confidence in financial reports. Indirectly, a strong vouching result builds confidence in the users of a firm’s financial statements, since it leads to an unqualified auditor’s opinion regarding those statements.

In short, vouching is an essential activity that enhances the integrity of a reporting entity’s financial statements.

The Cost of Vouching

When vouching uncovers an error, the auditor may need to increase the sample size being audited in order to gain assurance that a system operates properly. An alternative is to engage in different auditing procedures. If the auditor elects to use different auditing procedures, there is a good chance that this will increase the cost of the audit. This is why it pays an audit client to have a properly functioning accounting system with strong controls - it reduces the amount of the auditors’ fee associated with the year-end audit.