Vouching of Cash Transactions
All transactions whether it is cash receipts or payments should be accounted in the cash book. It is an important financial book of a business concern. While vouching, the auditor should verify and satisfy himself that vouchers in the form of receipts, bills, invoices, cash memos etc., correspond with the entries in the cash book. Further, he must go behind the books and establish accuracy and correctness of the entries after thoroughly examining all the original documentary evidences. Therefore, the auditor should ensure that all receipts have been recorded in cash book and no fictitious payments appear on the payment side of cash book.
The procedures in regard to vouching the transactions of various items which appear in the debit side of the cash book are discussed below:
1. Auditor should see that all the vouchers are properly filed, serially numbered and arranged date wise. He should also obtain duplicates of lost or missing vouchers.
2. He should pay attention to the dates, which must correspond with the cash book, name of the party to whom the voucher is issued, the name of the party issuing the voucher and the amount, etc.
3. The transactions must be in conformity with the nature of the client’s business. All unusual transactions must be carefully enquired into.
4. Missing vouchers should be carefully noted and brought to the knowledge of the owner of the business.
5. All vouchers must be checked and passed for payment by some responsible official. Similarly any alteration in the vouchers must also be supported by a responsible official.
6. All the receipts of the day should be deposited in the bank at the end of the day or the next morning.
7. Bank reconciliation statement should be prepared frequently by the cashier to verify the bank balance with cash book and pass book. He should also examine the reasons for the difference between the bank balance as per pass book and that in the cash book.
8. All payments as far as possible, except for petty cash, should be made by cheques or online. If large amounts appear to have been paid in cash, contrary to the usual practice of the business, auditor must ascertain the circumstances in which it was considered necessary.
9. Auditor should ascertain that the vouchers have been correctly posted to the appropriate accounts and distinction has thoroughly been observed between capital and revenue expenditure.
10. Auditor should ascertain that the cashier do not sanction any payments of special nature without proper approval from the directors.
· In a case between Leeds Estate Building & Investment Co. Vs. Shepher, it was held that the auditor was liable for negligence for not verifying the true and fair view of Balance Sheet and accurate representation of affairs of the company.
· In a case between London Oil Storage Co. Ltd. Vs. Sears, Hasluck & Co., it was held that the auditor is liable for any damage sustained because of his omission to verify the existence of assets stated in the Balance Sheet of a company.