Page 179 - DCOM204_AUDITING_THEORY

Unit 9: Vouching

3. have been sanctioned by a person holding some authority; and Notes

4. have been properly recorded in the books of account.
The detection of misappropriation of money depends largely upon an intelligent and careful
vouching of this side of the cash book. Some of the important items which usually appear on the
credit side of the cash book and the duties of an auditor thereto are given below:
Payments to Creditors: Money paid to creditors on open accounts can be vouched with the
receipts issued by the creditors acknowledging the receipt of money. Money due to them can be
compared with the accounts of the creditors and the actual invoices received form the suppliers
of the goods. The auditor should examine whether periodical statements are submitted by the
creditors and are compared with the creditor’s accounts. He may have to refer to minutes,
contracts, and other evidences before he passes an entry. If any voucher is missing, he should
insist upon getting a duplicate copy of it. He should vouch such an item with any other possible
documentary evidence.
Wages: Another important entry, which is usually a big one, is that of wages. There are many
chances of misappropriation of cash under this head. Before the auditor proceeds with his work,
he should make a through investigation regarding the internal check system which is in operation.
The chances of fraud or errors are:
1. The inclusion of fictitious names of dummy workers in the wages book;
2. Errors or fraud at time and piece-work records;
3. Possibility of clerical errors;
4. Overstating of rates of wages;

5. Overstating the hours of work or days of work put in by the workers;
6. Conversion of unpaid wages.

9.2.4 Understatement of deductions

The following internal check for the payment of wages is, however, suggested to avoid fraud.
The system will be of great help to the auditor.
1. Time records: If the wages are to be paid according to the time spent by the workers,
correct record of the time spent by them in the factory should be recorded.

2. Piecework Records: Where the wages are to be paid according to piece-wage system, each
worker should be given a card which should record the amount of work done by the
worker.
3. Preparation of Wages sheets: Worker’s number. Name, occupation and rate of wages per
day or month, time – ordinary and overtime, Gross amount payable, any deduction, any
advance payment of wages, Net wages payable, and signature of the workers must be
mentioned in the Wages sheet.

4. Payment of Wages: Wages may be paid by cash or Bank cheque. Related cash book and
Bank book must be examined by the auditor.

Task Make list of items to be included under internal test checks for vouching cash
transactions.

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