Explain The Methods And Challenges Of Vouching The Books Of Original Entry Such As The Cash Book Purchase Book Sales Book And Journal AIOU 5417 481
Vouching is the fundamental process of verifying the authenticity and accuracy of transactions recorded in the books of original entry by examining supporting documentary evidence, known as vouchers. It ensures that transactions are genuine, properly authorized, and correctly recorded.
Methods of Vouching by Book
- Cash Book
Vouching the cash book involves examining both receipts (debit side) and payments (credit side).
- Receipts: Auditors verify entries against carbon copies or counterfoils of receipts, bank pay-in-slips, and contracts.
- Payments: These are checked against original invoices, salary sheets, and payment vouchers.
- Internal Controls: A strong internal check system is vital; for instance, the person receiving cash should not be the one recording it.
- Purchase Book
The primary goal is to ensure only genuine credit purchases for the business are recorded.
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- Supporting Evidence: Auditors compare entries with original purchase invoices, purchase orders, and Goods Inward Books.
- Trade Discounts: They verify that only the net amount (after deducting trade discounts) is entered.
- Cut-off Testing: Auditors pay close attention to purchases in the first and last months of the period to ensure they are recorded in the correct financial year.
- Sales Book
This verifies credit sales recorded throughout the period.
- Documentation: Auditors cross-check entries with carbon copies of sales invoices, customer orders, and Goods Outward Books.
- Authorization: All cancelled sales invoices must be inspected to prevent the misappropriation of funds.
- Price Verification: Unit prices on invoices are compared against authorized price lists.
- Journal (General Journal)
Vouching the journal involves checking non-cash transactions like depreciation, opening entries, and correcting errors.
- Evidence: Entries are vouched using correspondence, board resolutions, and legal agreements.
- Classification: Auditors ensure proper distinction is made between capital and revenue items.
Challenges in Vouching
- Missing or Fraudulent Documents: Original vouchers may be lost, or fictitious/duplicate invoices may be used to inflate expenses.
- Omission of Transactions: It is harder to detect receipts that were never recorded than it is to verify existing ones.
- Teeming and Lading: This is a common fraud where a cashier misappropriates cash from one customer and covers it using a subsequent payment from another.
- High Volume: In large organizations, the sheer number of transactions makes checking every single voucher time-consuming, necessitating the use of test checking.
- Errors of Principle: Clerical errors are easier to spot than errors of principle, such as incorrectly classifying a capital purchase as a revenue expense.