Vouching Vs. Tracing in Auditing – Key Differences and Similarities


Vouching and tracing are two important auditing techniques. Auditors use these techniques to verify the effectiveness of internal controls put in place for the accounting standards followed by an entity.

Tracing and vouching serve similar objectives to auditors with different approaches. Vouching is often considered the foundation of an accounting system. Tracing also plays a key role in evaluating the completeness of the accounting records.

Let us discuss the definitions, working approach, similarities, and some key differences between vouching and tracing.

What is Vouching in Auditing?

Vouching refers to the examination of documents that support the recorded transactions and/or amounts. These documents are often called “vouchers” in accounting terms, hence the terminology vouching.

Vouching is the process that ensures the transactions are recorded properly, in order, and properly authorized. It fulfills most of the financial statement auditing assertions except for the completeness that requires a different approach.

By definition, vouching is an auditing technique that evaluates the recording of transactions in the record books of an entity with the help of available evidence.

Key points to remember with vouching include:

  • The transaction date, authorization, and client credentials are recorded properly.
  • The voucher under examination belongs to the same accounting period.
  • The voucher carries all the relevant supporting documents necessary to complete the transaction.
  • The transaction account clearly distinguishes the receipt or payment nature of the transaction.

What is Tracing in Auditing?

Tracing is an auditing technique that refers to the following a transaction from its report to the source document. It is the process of identifying a transaction from its inception in the record books of an organization.

Tracing is performed to verify the accuracy of the transaction and accounting records. Tracing is often performed to validate the completeness assertion of the financial statements.

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Apart from completeness, auditors can validate the accuracy, valuation, allocation, and disclosure assertions of the transactions as well. Thus, tracing is also an important technique in the auditing process.

Vouching Approach

Vouching can be a time-consuming and costly technique to apply. Hence, auditors should carefully evaluate the implementation of the vouching method while auditing.

If there are no internal controls for a specific segment or procedure, then the record-keeping relies on the choice of the record-keeper. It means the accountant or other staff will record as and when they deem appropriate.

Therefore, auditors need to consider the external vouchers as well as internal vouchers of the entity. For efficient results, auditors should restrict the use of vouching for weaker circumstances and carefully evaluating the objectives of the vouching practice.

Vouching Objectives

Vouching sets the foundation of auditing work in any organization. Though it is a time-consuming practice, but audit work will be incomplete without vouching.

Here are a few key objectives of vouching technique in an auditing process.

  • It verifies the documentary support for every transaction performed and recorded in record books.
  • It examines whether there are any omissions, errors, or frauds committed while recording the transactions.
  • It aims to increase the accuracy of financial statements.
  • It verifies that all transactions make a distinction between the revenue and capital accounts.
  • All transactions are accurate in aggregate terms and for carrying forward purposes for the next accounting periods.

Importance of Vouching in Auditing

Vouching is an essential auditing technique. Although auditors cannot perform vouching extensively, they can use sampling techniques to apply vouching.

The purpose of vouching is to ensure the accuracy of accounting records in the record books essentially.

Vouchers are the primary accounting records for any organization. Thus, examining vouchers means setting the foundations strong for the accounting function of the organization.

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Journal and ledger books record accounting figures from vouchers. The vouching technique follows transactions from their source documents to the vouchers. Their aim is to ensure each transaction that has occurred has been recorded accurately.

If there are any omissions or errors in vouchers, journal entries would contain errors too. It means the accuracy of the financial statements will be compromised. Thus, vouching helps auditors in forming their true and fair opinion about the audited financial statements of an organization.

Tracing Approach

Since it is practically impossible to trace every transaction individually, auditors use the sampling method to form their opinion about the accuracy and correctness of the financial statements.

The tracing technique also uses the sampling method. Auditors can choose a transaction to trace it back to its source document. For instance, an auditing team can choose an inwards payment from a client to trace back to the order creation and recording revenues in the ledger.

The tracing approach follows a similar pattern to vouching with a key difference in the sequence of steps being carried out in a reverse direction.

Tracing Objectives

Tracing is performed to evaluate the accuracy and completeness of transactions recorded in the financial statements of the organization.

Since the tracing method traces a transaction back to its document of origin, it is an essential tool to verify the completeness assertion of transactions. Apart from completeness, auditors can evaluate the understatements of transaction recorded in the journal or ledger books.

Tracing also applies similar objectives as a walkthrough testing technique in auditing. The purpose is to verify the effectiveness of the controls put in place to ensure the accuracy of the records.

Importance of Tracing in Auditing

Tracing is an important auditing tool. It helps auditors identify the correctness and completeness of the transactions recorded in the financial statements of an organization.

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While conducting tracing, auditors can also verify the effectiveness of internal controls put in place. At each tracing step, auditors can analyze any errors, omissions, or fraudulent activities.

Tracing helps auditors to verify whether the transactions that occurred have been recorded accurately. Thus, to some extent, it helps in evaluating the accuracy assertion of transactions as well.

Vouching v Tracing – Key Differences

Tracing helps auditors to identify any understatements in the transaction records. While vouching analyzes the risk of overstatement of transactions recorded.

Tracing is the method of following a transaction back to its source document. While vouching takes an opposite route that begins with the source document (voucher) of the transaction.

Tracing helps auditors to examine the accuracy and completeness assertions of financial statements. On the other hand, vouching essentially detects all financial statement assertions apart from the completeness assertion.

Vouching begins with the evaluation of the value of the transaction. It then helps auditors to verify whether the transactions recorded on the vouchers have supporting documents. It means verifying the occurrence of the transaction.

Vouching v Tracing – Similarities in Objectives

Both the vouching and tracing techniques are applied by auditors to achieve similar auditing objectives of testing the internal controls of an entity.

Tracing follows a step-back approach where auditors can verify the implantation of internal controls at each step. Vouching begins with the source document and helps identify the loopholes in the procedures and processes of the internal controls.

Since vouching evaluates transactions from their source documents, it can be used to identify the authorization, controls, and governance structure of an entity. Tracing can also analyze the same aspects while using a different approach.