Vouching and Verification of Assets and Liabilities
What the domain tests
This domain tests vouching of transactions and verification of assets and liabilities, including the difference between verification and valuation. Expect practical questions on documents to examine for cash, purchases, sales and fixed assets.
Core rules
- Vouching examines documentary evidence supporting entries in the books to confirm genuineness, accuracy and proper authorisation.
- Vouch cash receipts with cash memos, counterfoils and bank deposit slips; cash payments with invoices, receipts, vouchers and approvals.
- Vouch purchases with purchase orders, goods received notes, invoices and ledger; sales with sales orders, dispatch documents, invoices and ledger.
- Verification confirms existence, ownership, title and physical condition of assets and completeness of liabilities. Valuation determines the correct carrying amount.
- Methods include physical inspection, confirmation, title deeds, statements of account and analytical review.
- Capital expenditure must not be treated as revenue, and revenue must not be deferred to manage profit.
Worked example
Cash sales of Rs. 80,000 are recorded. The voucher package should contain cash memos, a daily sales summary, the bank deposit slip and the cashier's reconciliation. If the deposit slip shows only Rs. 60,000 and no explanation exists, the auditor cannot vouch the full amount. The auditor inquires, tests subsequent deposits and considers whether the difference is a timing item or a fraud. For a fixed asset, inspecting the asset and examining the title deed is verification, while checking the depreciation charge is valuation.
Traps
Do not treat vouching as verification; do not accept a photocopy without checking the original; do not ignore authorisation; and do not confirm a liability only from the client's ledger without external evidence.