Definition: Vouching, widely recognized as “the backbone of auditing,” is a component of an audit seeking to authenticate the transactions recorded in a firm’s book of accounts. When an accounting transaction is vouched, it is tested and verified by presenting relevant documentary evidence.
What Does Vouching Mean?
What is the definition of vouching? Seeking to establish the accuracy of recorded transactions, vouching ensures that all the entries in the books of accounts come with the relevant evidence, including invoices, receipts, and others. Vouching does not take into account the non-business transactions, thus helping auditors to ensure that all transactions in a firm’s book of accounts are business-related. Auditors confirm that the amounts mentioned in each transaction are truthful, disclosing the nature of a transaction, and its authorization.
Let’s look at an example.
Example
A manufacturing company submits its financial statements and book of accounts to a leading auditing firm for vouching. The auditor who undertakes the project seeks to verify that the company’s transactions are valid, business-related and properly authorized.
In the company’s cash book, the auditor identifies entries of cash sales, receipts from creditors, interest income, dividend income, mortgage payments, fixed asset sales and accounts receivable. By using this technique, the auditor reviews all the entries and seeks for the relevant documentary evidence that supports and verifies each transaction.
The auditor finds documentation of receipts, capital expenses, and others that pertain to the recorded transactions in the book of accounts. With the proof of being vouched, the auditor ensures that the claims provided in the book of accounts are justified, and the company does not engage in any type of fraud.
If the auditor didn’t vouch, he might have incurred control risk by neglecting some important information and failing to display appropriate due diligence in reviewing the company’s books. Often, auditors are guilty of fraud by presenting a company’s financial statements as valid. With the use of technique, the auditing process is accurate and transparent.
Summary Definition
Define Vouching: To vouch means to search for evidence and verify a claim asserted.
