Vouching, Verification and Valuation of Assets and Liabilities
Vouching, Verification and Valuation of Assets and Liabilities tests evidence gathering for transactions and balance-sheet items.
Core rules
- Vouching checks entries in the books against supporting documents: receipts, invoices, bank statements, counterfoils. It tests occurrence, accuracy and authorisation.
- Verification confirms existence, ownership and title of assets; valuation confirms the amount at which an asset is carried. Vouching is book-based; verification is asset-based.
- Assets are usually valued at cost less depreciation; stock at lower of cost and net realisable value; investments at cost unless permanent diminution; liabilities are verified from agreements, confirmations and after-date payments.
Worked example
To verify machinery, the auditor inspects the purchase invoice (cost), the supplier's delivery note, the fixed asset register, physical inspection and title documents; checks depreciation policy and calculation; and confirms that the asset is used in the business. For a bank loan, the auditor examines the loan agreement, confirms the balance with the bank and checks interest and security.
Traps
Do not confuse vouching with verification; do not accept a management certificate alone for physical assets; be alert to window dressing near year-end; do not value stock at selling price when it is above cost; fictitious assets are written off, not verified as real assets.