Vouching

Vouching means testing the truth of items appearing in the books of

original entry with documentary evidence. Vouching means the verification
of the authority & authenticity of transactions as recorded in the books of
accounts . In short , vouching means testing the truthness of items appearing
in the books of accounts .

Vouching refers to the examination of entries made in the authority &

authenticity of transactions as recorded in the books of accounts . Dicksee

Objects of Vouching
a) To verify that all transactions recorded in the books of accounts are
supported by documentary evidence .
b) To see that no fraud or errors has been committed while recording the
transactions .
c) No transaction has been recorded which does not relate to the business .
d) Every transaction recorded has been adequately authenticated by a
responsible person .
e) To see that the transactions are recorded on the proper date
f) While recording transactions proper distinction is made between capital &
revenue items .
g).Vouchers are processed carefully through various stages of internal audit

h).Every transaction is authenticated by authorized personnel

Importance of Vouching
1) Vouching is Essence of Auditing :- Vouching tests the truthness of the
transaction recorded in the account books . Therefore , it is said to the
essence of the auditing .Vouching is the essence of auditing and is also the
most important duty of an auditor. Examination of the vouchers is called
vouching. The term vouching means a careful examination of the original
documentary evidence, such as invoices, receipts, statements,
correspondence, minutes, contracts, etc, with a view to prove the accuracy of
the entries in the books of account and to ascertain as far as possible that no
transactions have been omitted from books. Vouching implies the
substantiation of the entries in the books by reference to any documentary or
other evidence of an authoritative nature offered in support of the
transactions. It is a method of verifying the accuracy and the authenticity of
the entries recorded in the books. To vouch a statement is to confirm it by
evidence. Vouching helps an auditor in establishing the truth of entries in the
books of account and completeness of the record.
The mere checking of the arithmetical accuracy of the postings and the totals
is no proof that the books contain true entries in respect of all transactions.
The book-keeper, for example, may pass an entry through the books in
respect of a purchase from A, but this entry alone does not prove that the
goods were, in fact, actually received; the purchase may be entirely
fictitious, it being arranged, in collusion with other members of the staff, to
misappropriate the amount of the cheque drawn in payment thereof. Again
goods may be sold to B, but no record thereof made in the books, cheque
later received from B, being misappropriated. In either case the books are
arithmetically correct, but are certainly not actually correct. Apparent
accuracy of the books may not be able to ensure their real accuracy, while
vouching an auditor will also see that no entries have been omitted from the
of account.

The duty of the auditor is to ascertain that the books are actually correct in
accordance with the best of his information and he obtains this information
from the documents from which the books have been written up, and any
other evidence or explanations he can obtain. His examination of the
evidence, as such, is termed vouching. It will not only be confined to the
receipts and payments of cash alone but will also extend to the purchase and
sale of goods and all other transactions of the business which involve, or
should involve entries in the books. He is not only to ascertain that every
transaction recorded in the books is supported by a voucher, but is also to
see that every transaction which should have been properly recorded in the
books of account, have in fact been properly recorded in the books.

Vouching is very much different from routine checking. It is much wider in

its scope than routine checking. In fact, routine checking is included in
vouching. Vouching differs from routine checking both in its meaning and
objects.

2) If Checking is Backbone of an Audit Vouching is its Brain:-Without a

vouching , audit will be like a man without brain . If vouching , the auditor
may not only see arithmetical accuracy but also ascertain that the
transactions entered in the books are for the purpose of the business.
Voucher

A voucher has been defined as any documentary evidence in support of a

transaction.
A.W.Holmes

A voucher is a documentary evidence by which the accuracy of the entire

book may be substantiated.

Types of Voucher

a) Receipt

b) Invoice

c) Agreement

d) Explanations

e) Reports

f) Minutes

g) Prospectus

Types of Voucher:

1.Primary Vouchers: written evidence in original eg, cash memo, purchase

invoice

2.Collateral Vouchers; Carbon copies, counterfoils

The following may be a few of the examples of vouchers for certain
transactions:

1) Cash Received Counterfoils of Receipts issued, Contracts, Minutes,

Correspondence, Confirmation of balances by Debtors etc,

2) Cash Paid Original receipts from Payees, Invoice Bills, Demand Notes,
Wages Books, Salaries Books, Contracts, Correspondence, Confirmation by
Creditors etc,

3) Purchases Invoices, Books, Copies of Orders, Correspondence etc.

4) Sales Copies of Invoices, Orders Record, Goods Outward Book,

Correspondence etc.
similarly, evidence can be had with regard to transactions like Purchases and
Sales Returns, Bills Receivable and Payable and Journal Entries.

All vouchers relating to business transactions should be carefully preserved

and properly filed.

Vouching and Routine checking;

Routine checking involves checking of cash, carry forward, posting to ledger

and transfer of balance.

Vouching is broader and includes routine checking, Routine checking is

mechanical and vouching is intelligent checking.etc

While examining vouchers the following points should be noted by the

auditor:

1. All vouchers have been properly filed, serially numbered and arranged in
order as it saves time in finding out a particular voucher in checking.

2. The voucher is properly stamped as normally every receipt for more than
five hundred rupees requires a revenue stamp unless legally exempted.
3. The date and the year of the receipt or the voucher corresponding with the
cash book. The name of the party to whom the voucher is issued, the name
of the party issuing voucher and the amount etc.are correct.

4. Those vouchers which have been inspected by him are stamped so as to

avoid the possibility of their being produced again.

5. Every voucher is passed "as in order" by some responsible person whose

signature should be noted.

6. Amount paid appears both in words and figures. If they differ, the matter
should be investigated.

7. For missing vouchers, the auditor should satisfy himself with regard to the
reasons of their being lost. If he is not satisfied with the explanations, he
should state this fact in his report.

8. No help from any member of the staff of the client has been taken while
vouching the entries and checking the vouchers.

9. Any alteration in the voucher is duly signed by the invoice clerk.

10. In case of vouchers for insurance, rent, rates and taxes etc., the period
for which the payment has been made should be noted.

11. Special attention should be paid to those vouchers which are in the
personal name of one of the partners, Directors, manager, Secretary or any
other official of a business and which may or may not relate to the business
itself. In case of purchase, original invoice, inward book and order book
etc.should be examined to ensure that the goods were purchased for the
business only.

Vouching of Cash transactions

Vouching of cash transactions is by far the most important job in every

business irrespective of its sizeand type of business etc. Before setting the
programme for vouching the cash book, an auditor should examine carefully
the whole system of internal check in operation in respect of cash
transactions.(Internal check has already been explained in detail previously).

Vouching of receipts of the debit side of the cash book

It is rather very difficult to vouch the receipt of cash than to vouch payments
as some entries might have been omitted altogether and therefore only an
indirect evidence like counterfoils of receipts issued, carbon copies of
receipts, contracts and letter from debtors etc. are available. He should check
a few items at random and if he finds them to be in order, he may
assume that the others will be correct but he must not forget to compare the
rough cash book or the diary with the cash book. If he fails to do so and later
on a fraud is detected, he might be held responsible. If he finds that there is a
time gap between the two dates, he should go deeper into the matter as it is
possible that money might have been received in between the two dates and
misappropriated.

Some of the important items which usually appear on the debit side of
the cash book and the duty of an auditor in that connection
are given below:
1. Opening balance: This can be vouched by comparing it with the balance
shown in the duly audited balance sheet of the previous year. By doing
this, it is verified that the actual balance has been brought down.

2. Cash sales: Under this head, the chances of fraud are comparatively
greater, for example the salesman may sell goods but may not record the
same in the cash book thus misappropriating the money. Therefore the
auditor should examine the effectiveness of the internal control system in
operation in regard to cash sales. Assuming an effective internal check
system in operation, the auditor should take the following steps to verify the
correctness of the amount of cash sales.

(a) Check the counterfoils of the cash sales books with the salesman's sun
maries or
abstracts.

(b) Note that each salesman's abstracts agrees with the analysis of the cash
received by the receiving cashier.

(c) Check the details of cash received with the cash sales counterfoils.

(d) Compare the daily totals of the receiving cashier's memorandum cash
books with their corresponding entries in the main cash book. If the auditor
fails to do so and later on fraud is discovered, he will be held liable.

Cash received from debtors

The cash received from customers to whom good have been sold on credit in
the past can be vouchedwith the help of the counterfoils of the receipts
issued to them. But it is often noted that a smaller amount than actually
received is shown on the counterfoils or receipts are issued to the debtors
from old but unused counterfoil receipt books, the auditor should take the
following steps in vouching receipts from debtors :

1. Check the internal check system with regard to the sales as a whole.

2. Ensure that the unused counterfoil receipts are kept in safe custody.

3. See that all spoiled receipts are attached to the counterfoils and he has
cancelled them.

4. Verify the dates on the counterfoils with those in the cash book.

5. The practice being followed with regard to receipts through cheques

should be noted and if no official receipts are being issued, he should verify
the daily lists of such receipts with the entries in the cash book.

6. In respect of discount allowed to debtors, the auditor should ascertain the

terms on which discount is allowed and test check a certain number of
entries to ascertain whether the discount allowed is in order.

7. Special attention should also be paid to the amount shown as bad

debts written off as cash can bemisappropriated by writing off the whole or a
part of the debit balance as bad. He has to ascertain as to who is responsible
for writing off debts as bad. He should, with the permission of the
client,establish direct contracts with the debtors by sending them the
statements or verification slips from time to time and asking them to send
their confirmation directly to him.

With regard to receipts from debtors fraud may be committed by the

process of "teeming and lading",that is not entering cash in
the cash book received from a debtor and entering it only
when a similar amount is received from another debtor and so
on. Of course, no misappropriation is committed but the
practice should be checked because there is the loss of interest
for the period money is misappropriated and the cashier may
be tempted to commit such a fraud of bigger amount and may
not be able to replace the same. To detect such a fraud the
auditor should :-
1. examine the accounts of those debtors which show part payments from
time to time.

2. check the amount and date on the counterfoil receipts to compare it with
the date and
amount deposited in the bank.

3. should send verification slips to the debtor requesting them to send the
confirmation
directly to him.

4. Bills receivables :

All details about bills receivable can be made available in the Bills
receivable book. The auditor should take the following steps:

(i) Ascertain the due dates of the various bills.

(ii) Note that the amount due on bills was received on maturity. This can be
ascertained by comparing the bills receivable book with the cash book and
the pass book.

(iii) Special attention should be given to those bills which have been
matured but the amount in respect thereof has not been received. Such bills
might have been dishonoured or retired. But there is a possibility of their
proceeds being misappropriated by the cashier.

(iv) In case of discounted bills, the cash received should be properly

entered in the cash-book and the discount deducted should be separately
shown in the discount account.

(v) He should note that in case of bills discounted but not matured at the date
of the balance sheet,contingent liability has been shown in the balance sheet.

5. Rents Receivable :

The auditor should proceed keeping in view following points:

(i) examine the leases agreement with the tenants and ascertain the exact
amount receivable.

(ii) Check the amounts due with the rent-foil.

(iii) Compare the amounts as per rent roll with the cash book.

(iv) Check the counterfoils of rent receipt issued to tenants. If agents are
appointed to collect
rent, the accounts or statements submitted by them should be carefully
checked.

6. Interest and dividends :

Interest and dividends received from INVESTMENTS should be

vouched in the following manner:

(i) receipts on this account should be checked with the counterparts of the
interest and dividend warrants or the letters along with the cheques.

(ii) in case of bearer bonds the bonds themselves should be inspected

along with the torn off couponsto note as to what interest should have been
received.

(iii) If the banker is authorised to collect interests or dividends the entries in

the bank pass book or statement should be inspected.

(iv) In case of interest on fixed deposits, the bank pass book has to be
checked.

(v) In case of interest received on a loan granted to a borrower, the

agreement between the borrowerand the business should be referred to for
the rate of interest, date of payment etc.

(vi) The auditor should ensure that all dividends or interest in respect
of INVESTMENTS , deposits or lendings etc. have been received and
accounted for.

7. Sale of fixed assets :

The points to be considered are given below :

(i) It is possible in case of sale of fixed assets, the sale deed is not executed
for the full purchase consideration. To detect such a fraud, the auditor should
examine the correspondence made with the parties willing to purchase them.

(ii) In case, sale has been made through a broker, the broker's sold note
should be examined,
(iii) He should see that the sale has been duly sansctioned.

(iv) He should note that the profit earned on the sale of fixed assets should
be credited to the capital reserve account and not to the general profit & loss
account.

8. Insurance Claims :

Amounts received under an insurance policy should be verified by means of

the correspondence withand accounts rendered by the insurance companies.

9. Sale of INVESTMENTS :

In this connection, the auditor should consider the following points:

(i) As INVESTMENTS are usually sold through brokers, so the broker's

sold note should be examined to note the date of sale, the amount
received and the commission changed.

(ii) In case the sale has been made through the bank, the bank advice should
be examined.

(iii) He should note as to whether the sale has been cum-dividend and if
so, the dividend has subsequently been received and the sale proceeds have
been proportioned between capital and revenue. If INVESTMENTS are
sold ex-dividend, he has to see that the dividend has been received if
declared.

10. Subscriptions :

Subscriptions received by a club or society should be checked with counter-

foils of receipt books and with the published list of subscribers.

11. Commission received :

For this, the agreements between the client and the parties from when it is
receivable should be examined to verify the terms of commission, its rate
etc. Counter-foils of receipts should be compared with the particulars
entered in the cash bank. In case of goods received on consignment, the
amount of commission should be vouched with reference to the copy of the
account sent to the consignor or the auditor should calculate the amount
himself, if necessary.
12. Receipts from hire purchase :

The hire purchase agreement should be checked in order to ascertain the

duration of the agreement,the amount of instalments, total number of
instalments, payment by the close of period the accounts ofwhich are under
audit. He should also note that the instalment includes interest also and also
the whole amount of an instalment is properly apportioned between
sales and interest.

Vouching of Cash Payments

The object of vouching the credit side of cash or bank of cash payments is
not merely to ascertain that money has been paid away but to ensure that the
payments have been made :

(a) to the proper and right party,

(b) on behalf of the business for a proper purpose,

(c) for the accounting period under audit,

(d) after proper authorisation,

(e) against a proper voucher, and

(f) correctly recorded in the books of account.

Some of the important items on the credit side of the cash book and the duty
of an auditor in that connection are given below:

(A) Capital Expenditure :

According to Spicer and Pegler "Capital expenditure is all expenditure

incurred for the purpose of acquiring, extending or improving assets of a
permanent nature, by means of which the business may be carried on or for
the purpose of increasing the earning capacity of the business". Such
expenditure is normally heavy and therefore require special attention. The
type of documents required depends upon the nature of the payment. Some
of the items of capital nature and the duties of an auditor in each case are
given below :

1. Land & Building : The auditor should take the following steps :

(i) The documents of title of the property purchased should be examined.

(ii) The auditor should find out as to whether land or buildings purchased are
on freehold or leasehold basis. In latter case, he should examine the terms of
the lease.

(iii) If the properties are purchased through an auctioneer, the account

submitted by the auctioneer should be checked.

(iv) In case the property has been purchased through the broker, the broker's
note should be examined.

(v) Where the property is got erected through a contractor, he should

examine the receipts issued by the contractor, for payments made. If the
buildings have been constructed by engaging labour, he should vouch the
expenditure on building materials purchased, cartage paid, wages paid to the
workers etc. and also see that the expenditure has been properly capitalised.

(vi) The expenses incurred, for example, auctioneer's

commission, brokerage, architect's fee,registration fee etc. can be
vouched with the help of the receipts obtained and it should be seen that they
are capitalised.

2. Plant, Machinery, Furniture, Fixtures etc.

In this connection, the auditor should take the following steps :

(i) examine the invoices and the receipts obtained from the supplier and
see that the items have been properly authorised.

(ii) In case, machinery has been purchased on hire-purchase basis the

auditor should examine the contract of hire-purchase with the vendors to
find out the purchase price, the amount of instalmentand interest. Here, he
should note that only the principal amount has been capitalised.

3. INVESTMENTS :

INVESTMENTS should be vouched in the following manner:

(i) In case, these have been purchased though a stock-broker, payments

should be vouched with reference to the brokers sold note.

(ii) In case of a new issue for which application has been made and if the
share certificates have not yet been received, the allotment letter and
banker's receipts for the instalments paid should be inspected. But if share
certificates or debentures have been received, they should be examined.

(iii) The actual investments should be examined.

(iv) In case of cum-dividend purchase, he should see that the expenditure has
been properly apportioned between capital and revenue.

(v) He should see that the INVESTMENTS have been made in

accordance with the provisions of the Companies Act and INVESTMENTS
are registered in the name of the company required under section 49 of
the Companies Act.

4. Loans :

In order to vouch the figure of loans, the auditor should :

(i) inspect the loan agreement, the security held if any, receipt given by the
borrower etc.

(ii) examine that the loan has been properly authorised.

(iii) If the loan has been advanced against mortgage he should examine the
receipt mortgage, the receipt from the borrower, the mortgage, deed, title
deeds and other documents.

(iv) In case of loans to directors, the managing directors and other officials
of a company, he must seethat the provisions of the companies act are
followed.

(B) Revenue Expenditure :

(i) Wages: In case of concerns employing a considerable number of

workers, vouching of wages forms a very important part of the auditor's
job. He should first of all satisfy himself in regard to the efficiency
of internal check system so far as it relates to the maintaining of wage
records, preparation of wages sheets and payment of wages. Besides this, he
should note the following points:

(i) the totals and calculations involved in the wage sheets should be checked.

(ii) He should check a few items, for example, deductions in the form of
rent, fire insurance,providend fund, etc. and the method of deducting them
should also be examined.
(iii) He should see that the amount of the cheque drawn for payment of
wages tallies with the net amount as shown in the wages sheets.

(iv) Names of workers given in the wages sheets should be well

compared with those given in the wages record like job cards, foremen's
register, etc.

(v) He should see that the wages sheets have been properly initialled by
those responsible for their preparation.

(vi) He should carefully check the payments made to the casual labour.

2. Salaries :
For this, salaries book containing the details of the employee's salary should
be maintained. The auditor should take the following steps :

(i) He should compare the cheques drawn with the salaries book.

(ii) Any change in the salary list should be verified with an official source.

(iii) Special attention should be paid to the deductions in respect of

provident fund, life insurance premium, income tax, etc.

(iv) Independent information as regards employees leaving the service of the

concern should be obtained from the staff departments and compared
with the salaries book to find out persons alreadyleft being included in the
salaries book.

(v) He should ensure that the payment has been made to the correct
person. This he can do bycomparing the signature on the salaries book
with the specimen signature of the employees.

3. Petty Cash :

Vouching petty cash is another problem for the auditor as normally there are
no proper vouchers and therefore chances of misappropriation of cash
exist. As a first step, the auditor should examine the soundness of internal
check system in this regard and in case he finds it to be satisfactory, he
should take the following steps :

(i) He should see that imprest system is being followed and if not he should
recommend the same to the client.
(ii) He should check the payments made to the petty cashier with the
entries in the cash book.

(iii) For those expense for which vouchers are not available he should ask
the petty cashier to give a summary which should be duly signed by a
responsible officer.

(iv) He should examine the totals and balances of the petty cash book.

(v) He should see that the petty cash book is periodically checked and
initialled by some responsible official.

(vi) The auditor should, without notice and occasionally, count the cash in
hand and agree it with the balances shown by the petty cash book.

4. Travelling expenses

These are paid for the travel in connection with the business. Where a fixed
amount is payable, there is no difficulty in checking it. But in other
cases, the auditor has to check very carefully. His duty in vouching such
payments shall consist of:

(i) Vouching the cheque drawn according to the cash-book with the
traveller's receipts.

(ii) Checking the figures in some of the traveller's accounts with the
vouchers submitted by them.

(iii) Seeing that all unpaid commissions and expenses have been brought
into account at the end of the financial period.

5. Insurance premiums

In case of new policies, the auditor should inspect the cover note or the
receipt from the insurance company and in case the policy has
been received, it should be examined. In case of renewals, the
renewal receipt should be checked. If the number of policies is
large, he should require a schedule of various particulars like
number of the policy, the amount, the date of maturity, the
amount of the premium payable etc. He should examine these
particulars. In case some policy has lapsed, he should find out
as to under whose authority it has been allowed to lapse.
stamps in hand. He should see that postage includes only the postal expenses

96. Cash Purchases

In vouching this item, the auditor should take the following steps :

(i) Test the entries in the cash book with the cash memos.

(ii) See that the goods paid for have actually been received which can be
done by checking the entries in the goods inward book or purchases book.

(iii) See that only net amounts, that is, purchases minus trade discount, has
been carried to the books of account.

7. Payments to Creditors

(i) The receipts issued by the creditors acknowledging the receipt of money
should be checked.

(ii) The money paid should be compared with the money due as per the
accounts of the
creditors and the invoices received from them.

(iii) He should scrutinize the method of comparing the statement of

accounts with their actual accounts.

(iv) Before passing an entry in this regard, he should refer to

minutes, contracts and other documentary evidence in support of it.

by the agents should also be seen.

Vouching of Trading Transactions

Here, the auditor is concerned with the checking of the Purchases Book and
Sales Book in order to prevent misappropriation of goods.

1. Purcahse Book or Bought Day Book : This book is used for recording
the credit purchases of the business only. First of all, an auditor should
satisfy with the internal check system in operation with regard to
purchases. If the system of internal check is efficient and effective, the
auditor can conveniently proceed with the vouching of purchases book in the
following manner:
1. He should check the invoices and compare them with entries in the day
book. When examining an invoice, special attention should be paid to the
following points :

(a) The name of the creditor agrees with the entry in the day book.

(b) The invoices are made cut in the name of the auditor's client and appear
to be of a nature relating to the business carried on.

(c) Each invoice relating to goods has a memorandum, signed by the gate
keeper acknowledging receipt of the goods attached to it. Alternatively, it
may bear a reference to a goods inward book. The auditor should examine
these order to see that the goods stated in the invoice have actually been
received.

(d) The date agrees with that in the day book and falls within the period
under audit.

(e) The trade discount has been deducted from the amount of the
invoice, then only net amount has been entered.

(f) Any invoice charged to capital is a proper capital charge and is debited to
the correct account.

(g) In case the staff member's accounts are passed through the day
book, they are charged to their personal accounts.

2. At the end of the financial period, the auditor should compare the
goods inward book and the stock sheets with the purchases
book in order to ensure that all goods taken into stock have
been entered in the purchases book. In case there is no goods
inward book, he should check the suppliers advice notes
received with the goods as it is possible that towards the close
of the financial year, goods have been received and included
in that closing stock but not recorded in the purchases
books which will inflate profits.3. The auditor should ask his
clients to send notice to every supplier requesting him to
furnish a statement showing the balance due on the balance
sheet date. Then he should examine these statements and
compare them with the ledger accounts. If they agree, it will
mean that no invoiceswith regard to these accounts have been
omitted.
4. The auditor should see that no invoice has been entered twice in the books
as fraud may be committed by such a practice. In order to prevent it, he must
compare invoices and the goods inward book in few cases as test checking.

5. As invoice may be post dated to provide a fictitious period of credit to the

purchaser the auditor must see that entries are made in the purchases
book only if the goods have been actually receivedduring the financial
year under audit.

6. In case of duplicate invoices, the auditor should satisfy himself that they
were obtained in respect of only these invoices which have been actually
lost.

7. He should check totals, sub-totals, carry-forwards, calculations in the

purchase books and postingsfrom the purchases book to the ledger accounts.

2. Purchases Returns Book

Sometimes goods purchased are rejected or returned to the supplier or seller

for various reasons. In this connection the auditor should satisfy
himself with the efficiency of internal check system and if satisfied should
proceed in the following manner.

1. He should compare the credit notes sent by the creditors with the
entries in the purchases returns book and the goods outward book.

2. He should see that proper deduction has been made on account of goods
returned before the payment is made. In case the payment has already been
made, he should ensure that full credit has been received subsequently.

3. He should pay particular attention to the heavy returns made at the close
of the year and in thebeginning of the year as the entries might have been
passed to adjust fictitions purchases of theprevious months.

4. He should check castings and postings of the purchases returns book to

the ledger accounts.

3. Sales Book (Credit Sales)

The vouching of the sales book is a much more difficult task then that of the
purchase book because the only documentary evidence available is in the
form of duplicates or invoices which are not completely reliable. Therefore
the auditor has to be very careful in this regard. Firstly, he should examine
the system of internal check in this respect and if satisfied with the
system, proceed as follow:

1. He should compare the various particulars like the name, date, amount
etc. on the copy of the invoice with those given in the sales book.

2. In case some distinction is made in granting trade discount to two

different customers, he should enquire into the reasons for the same.

3. The sales book should be vouched with the help of the orders received
book and the goods outward book to ensure that no sales have been omitted
from recording.

4. Where goods have been supplied on `approval' or `goods on sale or

return' basis, he should see that they are not treated as sales
till the letter of acceptance has been received. At the same time
he should ensure that the goods with customers are included in
the stock.5. The auditor should specially examine the sales
relating the sales relating to the periods in the beginning or at
the close of the financial year in order to ensure that no
manipulation has been made in accounts. He may check such
sales with the goods outward book.
6. He should see that capital sales have not been treated as revenue sales.

7. He should check the castings of the sales book and the posting to the
ledger accounts.

8. He should set that the goods sent on consignment are not included in the
figure of sales. They shall be treated as sales only when they have been
actually sold by the consignee and the `Account Sale' is received by the
consignor. Till then, such goods are to be treated as stock with the agent. So
he should check such entries with the consignment note, account
sale, vouchers for the expenses and cash-book.Entries for sale-
proceeds, expenses incurred by the consignee, his commission, etc. should
be vouchedwith the help of account sale as sent by the consignee. He should
also see that the stock remaining unsold with the consignee is shown in the
balance sheet at cost or market price whichever in lower.

3. Bills Receivable Book

Entries for bills receivable are passed in this book. Auditor's duty in regard
to different types of bills is as follows:
(a) In case of bills matured for which payments have been received, the
receipt of money may be checked by reference to the cash book or bank pass
book as the case may be.

(b) For bills discounted, the cash book and the pass book entries should be
checked.

(c) There may be bills in-hand which are not matured. If such bills are with
the client,, personal verification should be done by the auditor. If they are
deposited with the bank, the auditor should check the certificate to that effect
obtained from the bank.

(d) In case of bills dishonoured, he should see that the proper entries
have been passed in the financial books. He should also check
the castings of the bills receivable book and their postings to
the ledger accounts. The liability for bills discounted should
be properly shown on the liability side of the balance sheet.
4. Bills Payable Book

The auditor's duty in connection with bills accepted and entered in this book
is as follows :

(a) In case of those bills for which payment has been made by the client on
maturity, the auditor should vouch them with the entries in the cash book or
bank pass book and the returned bills.

(b) For those bills which have not yet mature, he should vouch them with the
help of counterfoils or copies of such bills, bills payable book and if
necessary, the statements of account submitted by creditors.

(c) He should also examine the castings of this book and their postings into
theledger accounts.

5. Bought Ledger or Purchase Ledger

This ledger contains accounts relating to creditors. The auditor should take
the following steps:

1. He should check the opening balances of different accounts with the

audited balance sheet of the previous year.
2. He should examine all supporting books like purchases book, goods
inwards book, cash book, discount register, goods outward book etc.

3. If the self- balancing system is in use, he should ask his client for a
schedule of creditors and total of the schedule should be tallied with the
creditor's ledger adjustment account.

4. The auditor should examine all the creditors statements and with their
help, the purchase ledger balances should be checked.

5. He should see that the balances in the purchases ledger whether debit or
credit are shown on the proper side of the balance sheet.

6. He should ensure that provision for reserve for discount on creditors, if

made, is not excessive.

6. Sales Ledger or Debtors Ledger

This contains accounts relating to debtors. The following points should be
noted while vouching sales ledger:

1. The auditor should check the opening balances with the audited balance-
sheet of the previous year.

2. He should examine supporting book like bills receivable book, cash-

book, goods out ward book, sales returns book etc.

3. Where self-balancing system is in use, the total of the balance as per

the schedule of debtors shouldbe verified with the total of the balance shown
in the debtors ledger adjustment account.

4. He should test check postings to this ledger from various books of first
entry. He should give special attention to credit postings, as any attempt to
conceal defalcations will more usually take the form of fictious credit
entries.

5. He should also check the castings and balances with the list of debtors. If
there is any credit balance in the sales ledger, he should see that it is shown
on the liabilities side of the balance sheet alongwith sundry creditors.

6. While examining the accounts the auditor should ascertain the

composition of each balance. In particular he should note whether it
represents specific items of goods or is an accumulated balance. In the latter
case, he should ensure that it does not represent doubtful for bad debt.

7. He should call for a list of bad and doubtful debts and verify them
thoroughly as there is quite possibility of the figure being understated and
misappropriated.