Vouching | UGC NET Commerce Preparation Course PDF Download

Vouching

Vouching is the act of checking or examining the entries made in the books of account with the supporting the documentary evidences or vouchers.

In the words of L.R DICKSEE ,”Vouching is an act of comparing entries in the books of account with the documentary evidence in support thereof”.

Objectives of vouching:-

1. The principal objective of vouching is to ensure that the transactions, as recorded in the books of accounts, are acceptable, genuine, properly authorised and correctly recorded.
2. Another objective of vouching is to ensure that all the entries made in the books are supported by necessary documentary evidence.
3. To see that all the transactions connected with the business have been recorded in the appropriate books of account.
4. To ensure that no transactions, which is not connected with the business, has been recorded in the books of accounts.
5. Detection of errors and frauds. 

Importance of Vouching

Vouching constitutes the foundation upon which the super structure of auditing is erected. It is the back born of auditing. In the words of F.R.M De Paula, vouching is the essence of audit.

Vouching can be regarded as the essence or back bone of auditing for the following reasons.

1. The success of an audit largely depends upon the care and attention with which vouching is accomplished.
2. Vouching is the most potent tool in the hands of an auditor to ascertain the accuracy of the transactions recorded in the books of account.
3. To see that all the transactions connected with the business have been recorded in the appropriate books of account.
4. To ensure that there are no transactions, which are not connected with the business, has been recorded in the books of accounts.
5. Detection of errors and frauds
6. Vouching ensures the arithmetical accuracy of the books of account.
7. If vouching is done with care and caution, the auditor can smoothly proceed further in his work.

Vouchers

A voucher is the documentary evidence in support of a transaction recorded in the books of account. It is a documentary evidence of an entry in a book of account. The following are the some of the examples of vouchers:

1. Receipt obtained from a payee.
2. Counter foil of a receipt.
3. Purchase invoice.
4. Sales invoice.
5. Cash memo.
6. Bank pay-in-slip.
7. A contract or an agreement.
8. A resolution passed at the meeting of the board of directors.
9. Minutes of a meeting.
10. Bought notes.
11. Sold notes.
12. Debt note.
13. Credit note.
14. Wages sheet.
15. Salary register
16. Goods inward book.
17. Goods outward book. 

Types of Vouchers

1. Primary vouchers:- a primary voucher is written evident in original. Purchase invoice, cash memos for goods purchased etc. are examples.
2. Collateral or secondary vouchers:- even evidences in original are not available, copies of the evidences are produced in support. Again, sometimes, subsidiary evidences are also provided for the purpose of audit. Such vouchers are usually known as collateral or secondary vouchers.

Essentials of vouchers or points to be noted by the auditor while vouching the vouchers:- 

1. Vouchers are consecutively numbered, arranged serially in the order of the entries and are properly filed.
2. Vouchers are in the name of the client.
3. See the teach voucher is genuine on its face.
4. Voucher is certified as correct by a responsible official.
5. The amount of each voucher is written in words and figures.
6. Every voucher, which is a receipt for cash payment over Rs 5000, bears a revenue stamp of Rs 1.
7. Alteration made in a voucher is properly signed by the maker and approved by a responsible official.
8. Any explanation is desired with to any voucher, the same should be noted in the audit note book.
9. Missing vouchers produced, the auditor should do,
   • Prepare a list of all such missing vouchers
   • Call for explanation from the concerned official from the loss of original vouchers 
10. If any voucher requires a special scrutiny, the auditor should proceed cautiously and use special ticks for checking.
11. As far as possible the auditor should complete the vouching work relating to a particular period in continuous sitting.
12. The auditor should not take the help of any staff while vouching the vouchers.
13. Test checking may be resorted only in exceptional circumstances.

Guidelines for Auditors in examination of vouchers

While vouching the transactions, the auditor should first of all examine the various vouchers keeping the following points in mind:

1. Made in the Name of the Employer: The auditor should see whether the voucher is made in the name of the employer of the concern.
2. Printed Form: He should see whether the voucher is on a printed form.
3. Serial Number: He should see whether all vouchers are consecutively numbered and filed in order of the entries in the various books.
4. Date, Name, Amount, etc.: The auditor should check date, name of the party to whom the voucher is issued, the name of the party issuing the voucher, and the amounts, etc.
5. Cancelled by Stamp: The vouchers, which are inspected by the auditor, should be cancelled by a stamp so that it cannot be produced again.
6. Related to the Firm: The auditor should also see that all the vouchers are related with the business or not and see whether the payments made by the concern relate to the business or not. The auditor should pay special attention to those vouchers, which are in the personal name of one of the partners, directors, manager or officers of the company.
7. Special Mark in case of Detailed Checking: In case of vouchers, which require detailed checking, the auditor should put special mark on them. He should check such vouchers carefully.
8. Passing of Vouchers: The auditor should see that a responsible senior officer of the concern passes every voucher correctly and the rubber stamps are affixed. He should also see whether the responsible official signs them.
9. Stamped: If the amount of voucher exceeds Rs.500 it must be stamped. The auditor should note whether the vouchers are stamped too.
10. Not to take the Help of the Employees: The auditor should not take the help of the employees of the concern while checking the vouchers.
11. Type of Account: The auditor should see whether the payment is made to a capital account or revenue account.
12. Related to the Year under Audit: The auditor should see that the vouchers are related to the year for which the auditing is going on.
13. Amount in Words and Figures: The auditor should also see that the figures and words of the amount in the vouchers are the same.
14. Points Regarding Further Verification: If any transaction requires further verification of any other evidence such as Memorandum of Association, Articles of Association, Prospectus, Partnership Deed, etc. they shall be noted.
15. Not to Accept Invoice as a Voucher: The invoice should not be accepted as voucher because there are a lot of chances of double payment i.e., once in the form of credit purchase and second time in the form of cash purchase.
16. Not to Accept the Mutilated Vouchers as such: In case if any voucher is mutilated or the amount therein is cut then the auditor should not accept such vouchers as such. They should be made signed by any senior responsible officer of the concern before they are accepted.
17. Pad Paper is not Voucher: Pad papers should not be accepted as vouchers because in such case chances of fraud are more.
18. Time of Payment: The vouchers for insurances, rates, and taxes, etc. should be checked by the auditor with reference to the period for which the payment has been made. In case of payments in advance, the auditor should see whether correct adjustments have been made.

Vouching of Impersonal Ledger

impersonal ledger contains two kinds of accounts viz., (i) nominal accounts like rent, salaries, cartage etc. and (ii) real accounts like machinery, furniture etc. You know that balances of nominal accounts are transferred to Trading and Profit and Loss Account while balances of real. accounts are shown in the Balance Sheet. We will now study the vouching of items which appear in the impersonal ledger and relate to Profit and Loss Account.

The Impersonal Ledger will be Vouched as Follows :

1. The auditor should check postings of various cils11 payments and receipts in respect of nominal accounts in the impersonal ledger. These transactions can be salaries, wages, rent, etc, paid in cash or dividends, interest, etc. received in cash.
2. The auditor should check the totals of all the subsidiary books, and their postings in the relevant nominal accounts in the impersonal ledger.
3.  In the case of transfer and adjustment entries from one impersonal account to another which have been passed through the journal, the auditor should see that every entry is supported by sufficient documentary evidence.
4. The auditor should check various adjustment entries made at the end of the year when final accounts are prepared. Such adjustments relate to outstanding assets and liabilities and depreciation etc.

Outstanding Assets and Liabilities

Arithmetical accuracy of impersonal ledger is no proof that the profit or loss has been correctly arrived at. If we omit certain expenses which have become due but have remained unpaid, the profit shown will be more. It is, therefore, necessary that all the expenses which have been incurred during the current year must be debited to Profit and Loss Account and shown as a liability in the Balance Sheet. Similarly, there may be certain incomes which might have accrued in the current year but not yet received. To ascertain the profits correctly, such incomes should be credited to the Profit and Loss Account and shown as an asset in the Balance Sheet. It is. advisable that a 'Mernorandum Book' containing details of outstanding assets and liabilities is maintained. This book should be signed by a responsible officer. With the help of this book, the auditor can easily ascertain the outstanding and accrued items for which the adjusting entries should have been passed. Through this book, the auditor can compare outstandings and accruals of two different periods. We will now discuss some of $&outstanding assets and liabilities and the auditors duties about them.

Outstanding Assets

An expenditure which has been incurred during the current year but the benefit of which will be enjoyed during the next year is called an outstanding asset. Outstanding assets can be of three types. These are: 1. prepaid expenses, 2. incomes receivable (accrued incomes), and 3.deferred revenue expenditure.

1. Prepaid Expenses: Prepaid expenses are those expenses which have been paid in the current year but the benefit of which will be received in the forthcoming year. For example, if we pay an insurance premium of Rs. 12,000 for one year on 1st April, 1989, then one - fourth of this expenditure (Rs. 3,000) relates to the next year (from January to March 1990). Thus, Rs. 3,000 should not be charged to the Profit and Loss Account of the year 1989. If we do so, the profits for 1989 will unjustifiably get reduced by Rs. 3,000. To arrive at correct profit for the current year this amount of Rs. 3,000 should be deducted from total expenditure,. Examples of prepaid expenses are: insurance premium, rent, rates and taxes, telephone bills, etc., which are generally paid in advance.

For vouching the prepaid expenses, the auditor should scrutinize the relevant nominal accounts,the-demand notes. Thedw.aat receipts, etc. and make sure that proper adjustments have been made in the account books. Ile should ensure that calculations in respect of prepaid expenses are correct.

1. Incomes Receivable or Accrued Incomes: These are incomes earned or accrued or become due in the current year but not yet received. For example, till the end of the year on 31st December, rent for December might not have been received. Similarly, a borrower of a loan might not been paid interest for the last three months of the accounting year. As these incomes have accrued in the current year, it is but natural that such incomes should be credited to current year's Profit and Loss Account. About such incomes, the auditor would make sure that they will be duly received, and that the calculations are correct.
2. Deferred Revenue Expenditure: According to Prof. Arnold Johnson, deferred revenue expenditures are "non-recurring expenditures which are expected to be of financial benefit to several accounting periods of indeterminable total length." The benefits of such expenditures are anticipated to extend not only into the current year but also over several subsequent years. Examples of deferred revenue expenditures include substantial costs for a special advertising campaign to launch a new product, research and development expenses, significant repairs to machinery, and discounts allowed on the issuance of shares.
   Instead of charging the entire amount of these expenditures to the Profit and Loss Account in the year they are incurred, the cost is allocated over the years during which the benefits are expected to be realized. Only a proportionate amount is charged to the Profit and Loss Account each year. For instance, if Rs. 40,000 is spent on major repairs to a machine that will remain useful for the next four years, Rs. 10,000 (i.e., 1/4 of Rs. 40,000) should be debited to the Profit and Loss Account annually.
   When vouching for deferred revenue expenditures, the auditor should verify the details of the computation of the amount carried forward and ensure that the portion charged to the current year's Profit and Loss Account is reasonable. The auditor should also examine the basis on which the estimates were prepared and confirm that they are reasonable.

Outstanding Liabilities

Outstanding liabilities refer to expenses that have become due for payment during the current year but have not yet been paid. For instance, if the rent for the month of December 1990 was due but not paid within that year, it would be considered an outstanding liability. Since the rent for December 1990 pertains to the accounting year 1990, it should be debited to the Profit and Loss Account and listed as a liability on the Balance Sheet. If outstanding liabilities are not recorded in the Profit and Loss Accounts, the final accounts will not accurately reflect the profit or loss, and the Balance Sheet will also be incorrect. It is the auditor's responsibility to verify all outstanding liabilities. Failure to do so could lead to negligence, as was established in the case of Westminster Road Construction and Engineering and Trading Transactions Company Ltd.
Identifying all outstanding liabilities can be challenging for the auditor because some items may be hidden or unclear from the accounting records. The auditor's experience is crucial in such situations. They can identify these liabilities by reviewing the payment side of the Cash Book for a few months following the end of the financial year. For example, if a payment for December rent is recorded after the year-end, the auditor can assume it was outstanding at the close of the year. The auditor may also request a certificate from a responsible officer confirming that no expenses from the current year remain unpaid and that any unpaid expenses have been properly accounted for. Additionally, the auditor should personally review various nominal accounts, such as wages, salaries, rent, interest, discounts, taxes, etc., and compare them with the figures from the previous year. If there are significant discrepancies, further investigation is warranted. Examples of outstanding liabilities include unpaid rent, wages, and taxes.

1. Incomes received in advance: It refers to that income which has been received in the current year by way of an advance, but relates to the next year. For example, a tenant may pay advance rent in the current year for January. This rent, no doubt, has been received in the current year, but it relates to the next year and hence it should not be credited to the current year's Profit and Loss Accrued. The auditor should carefully scrutinize such items and ensure that all receipts which pertain to the next year should be treated as on earned income and are shown as a liability in the Balance Sheet.
2. Unpaid or outstanding expenses: Expenses which pertain to the current year and should have been paid but have not actually been paid during the same year are called unpaid or 'outstanding expenses'. All such expenses should be charged to the current year's Profit and Loss Account and shown as a liability in the Balance Sheet. To find out the outstanding expenses, the auditor should examine all nominal accounts, receipts, invoices, demand notes, etc. He should ensure that these have been charged to Profit and Loss Account and shown as a liability in the Balance Sheet.
3. Purchases made at the close of the year: Many a times, it happens that purchases made at the close of the year are received and entered in the stock register, but no entry is made in the Purchases Book with the result that purchases are understated and profit gets inflated. The auditor should call for a schedule of such purchased and ensure that Purchases Account is debited with their total amount and the amount is shown as a liability in the Balance Sheet. To check unrecorded purchases, the auditor should compare Goods Inwards Book with Purchases Book for few days before the close of the year.
4. Outstanding Rent, Rates and Taxes: If rent, rates and other taxes relating to the current year have not been paid by the time the books are closed, these must be I 1 ascertained and debited to the Profit and Loss Account and shown as a liability iliihe 1 Balance Sheet. Failure to do so will inflate the profit for the current year. The auditor I should inspect the ledger accounts, the demand notes, the receipts, etc, in order to ascertain such outstanding expenses. He can also make comparison of the current year's I figures of the preceding years to assess the amounts payable.
5. Outstanding Wages and Salaries: It so happens that accounts are closed on the last day of the last month of the year but the wages and salaries for that month are paid on the first day of the next month in the next year. For example, the accounts may be closed on 31st March but the wages and salaries for March may be paid on 1st April. If this is done, current year's Profit and Loss Account will be debited with wages and salaries for eleven months and not twelve months. The profit revealed by Profit and Loss Account will thus get inflated. Hence, it is necessary to include the wages and salaries for March while debiting this item to the current year's Profit and LossAccount and to show wages and salaries for March in the Balance Sheet as a liability.

[Intext question]

1. Audit Fee: There are two opinions on showing audit fee for auditing current year's accounts as an outstanding liability. Some say it should not be shown as current year'sexpenditure because the audit work of current year's account is done in the next year and so it is next year's expense. Others say that audit fee is paid for the work of the current year and hence, it should be charged to the current year's Profit and Loss Account and shown as a liability in the Balance Sheet. Both these arguments appear to be sound. Now it is an accepted principle that if the audit work starts in the current year the audit fee should be debited to Profit and Loss Account of the current year and if the audit work commences in the succeeding year, the audit fee should be charged to that year and not shown as an outstanding liability of the current year.
2. Other Liabilities: There can be various other outstanding liabilities for expenses like freight and carriage, travelers and agents' commission, etc. The treatment of these liabilities should be the same as that of the outstanding wages and salaries, if the expenses relate to the current accounting year these must be debited to the Profit and Loss Account of the current year, whether they have been paid or not.

Vouching of cash book or cash transactions.

Cash transactions take place almost every day in business. An auditor should give care and attention to the vouching of cash transactions.

The main objectives of vouching of cash transactions are,

1. To ensure that all receipts of cash are duly accounted for.
2. To ensure that no improper payments are made.
3. To see that all receipts and payments of cash are actually and properly recorded.
4. To see that all payments have been made to proper persons and the payments are true payments.
5. To see that cash and bank balance correct and really exist.

Vouching of cash book or cash transaction covers the vouching of receipt side and vouching of payment side.

Vouching of receipt side or debit side of cashbook or cash receipt transactions:- 
Vouching of cash receipt transactions is more difficult than that of cash payment transactions, since there is greater chance of manipulation in regard to cash receipt.

The auditor should bear in mind the following points, while vouching the cash receipt transactions.

1. The auditor should carefully examine the system of internal check in operation with regard to cash receipt transactions.
2. An auditor can resort to test checking only if he has satisfied himself that there is an efficient system of internal check.
3. He should ascertain whether a diary of cash receipt or rough cash book has been in use. If a rough cash book has been in use, he should examine the entries in the rough cash book and compare with the entries in the ash book.
4. He should examine the methods of depositing daily receipts into the bank.
5. He should check the bank pass book with the entries in the cash book.
6. He should vouch cash receipts by reference to documentary evidences.
7. He should enquire into the system of allowing documents, the rate of discount allowed etc.
8. He should enquire into the bad debts written off. He should satisfy himself the bad debt written off are authorized by a responsible person.

 He should ensure whether there is a proper control over use of receipt book. In this context, he should keep in mind the following points:

1. All receipts are on printed forms.
2. See that receipt book should be consecutively numbered.
3. The receipts have to be signed by a responsible officer.
4. The unused receipt book should be kept in safe custody.
5. All spoilt receipts should remain attached to the counter foils.

Vouching of the important items on the debit side of the cashbook or cash receipt transactions. 
i) Opening balance:- The opening balance of the cash book should be vouched by comparing it with the closing balance of cash book as shown in the audited copy of the balance sheet of the previous year,

ii) Cash sales:- The vouching procedure in regard to cash sales should be on the following lines:

• He should examine the system of internal check in operation in regard to cash sales.
• After ascertaining the efficiency of the internal check system as regards cash sales, auditor should vouch the cash sales as follows:

a) Cash memos written by the salesman should be checked with the summery sales prepared at the end of the day.
b) He should examine the rough cash book, if any.
c) He should check up the rough cash book with the main cash book.
d) The summaries of daily sales should be checked with the entries in the stock register.
e) He should verify the daily deposit of cash received into the bank, pay-inslip also should be vouched.

iii) Receipts from debtors:-
While vouching the receipts from debtors, an auditor should bear in mind the following points:

• He should enquire into the system of internal check in operation in regard to the receipt from debtors.
• After satisfying himself about the efficiency of internal check in operation in regard to the receipt from the debtors, the auditor should conduct the vouching of receipts on the debtors on the following lines:

a) He should check the total cash received from the debtors by verifying the rough cash book with the counter foils of the receipts issued to customers.
b) He should check the cash book with the rough cash book.
c) He should check the details of cash and cheques paid into the bank.
d) He should enquire into whether bad debts are written off by a competent authority.
e) He should verify the balances due as per the schedule of debtors with letters of confirmation received.
f) He should be alert to the possibility of teeming and lading.

iv). Receipts from bills receivable:-
Bills receivable include bills of exchange, promissory notes, and I.O.U’s received from debtors. The receipts from bills receivable can be in two ways:
1) Receipts from bills discounted:
The vouching of receipts from bills discounted should be as follows:
a) The amount of cash received from bills discounted should be checked by comparing the bills discounted book with the cash book, pass book, B/R book.
b) See that proper records have been made in the books for discount on bills discounted.
c) He should determine the contingent liability in respect of bills discounted but not matured on the date of the balance sheet.

2) Receipts from bills matured:
a) The auditor should check the cash received from bills matured by comparing the bills receivable book with the cash book and the pass book.
b) Special attention should be given to bills which have matured but remain unpaid.

v) Receipts from sale of investment
Vouching of receipts from the sale of investment should be on the following lines:

• Investments are usually sold through brokers, as such, broker’s sold notes or contract notes should be examined to vouch the amount from the sale of investments. If the sale of investment has been effected through the bank, then, the bank advice should be examines to vouch the amount received from the sale of investments.
• The sale proceeds of the investments should also be checked with the related investment account with the stock market quotations.
• If the investment has been sold cum-dividend, the auditor should see that the sale proceeds are properly apportioned between capital and revenue receipt.
• If the investment has been sold ex dividend, the auditor should see that the dividend is received and recorded.
• He should see that the profit or loss on the sale of investment is properly adjusted.
• If the investments are pertain to some ear marked funds, the auditor should see that the profit or loss on the sale is transferred to the ear marked fund a/c.

vi) Receipt from the sale of fixed assets
Vouching of receipts from the sale of fixed assets should be on the following lines:

• The auditor should see that the sale of fixed asset is properly sanctioned.
• If the sale of fixed assets is through a broker, the proceeds of the fixed assets sold should be vouched with the help of sold notes. In the case of sale of fixed assets is through an auctioneer, the sale proceeds should be vouched with the help of the auctioneer’s note. He can verify the cash receipt in the cash book with the counter foil or carbon copy of the receipt issued to the party. He may also vouch the sale proceeds of fixed assets with the correspondence with the parties and the sale contracts and the fixed asset a/c.
• He should see that proper fixed asset a/c has been credited with the sale proceeds.
• If there is any profit, the auditor should see that it is credited to capital reserve.
• In the case of certain prepaid expenses in respect of fixed assets, the auditor should check whether suitable adjustments are made in the expenses accounts.

vii) Loan received
Vouching of loan received should be on the following lines:

• He should ascertain that whether client is empowered to borrow money.
• In the case of a joint stock company, he should verify whether the legal provisions have been complied with.
• He should verify the loan agreement to ascertain the terms and conditions on which the loan has been received.
• If the loan is secured, he should ascertain what security has been offered and the value of security offered.
• He should ensure that the loan amount received is recorded in the books of account.
• If the interest on loan is unpaid, the auditor should see that it is properly adjusted.

viii) Dividend on investment

• The auditor should verify the dividend received is recorded in the cash book with the counter foils of the dividend warrants.
• To see that dividends have been received in the dates.
• If the dividend is sold ex-dividend, see that dividends are subsequently received are entered in the cash book and credited to dividend account.

ix) Subscription received
x) Insurance claim received
xi) Commission received
xii) Rent received
xii) Royalty received 

Vouching of cash payments or credit side of the cash book.

While vouching cash payments, an auditor should pay attention to the following points.
i) All vouchers relating to cash payments should be serially numbered and properly arranged.
ii) He should insist that the vouchers are properly dated.
iii) He should evaluate the system of internal check in operation with regard to cash payments and satisfy himself as to the efficiency of the
internal check.
iv) He should see that:

• The cash payments are for the purpose of the business.
• Payments are related to the period under audit.
• The payments is properly sanctioned or authorized.
• The payments are made to the right person.
• The payments are supported by proper vouchers.
• The payments are properly recorded in the cash book.

v) Examine the rough cash book items and compare it with the main cash book.
vi) See that the payments made are posted to the concerned accounts.
vii) See that the amount appears in the vouchers both in words and figures and it agrees with the amount in the cash book.
viii) Ensure that the payments have been passed as correct by a responsible official.

Vouching of different items on the payment side or credit side of the cash book

i) Opening credit balance: The opening credit balance in the bank column can be verified from the previous year’s audited balance sheet.
ii) Cash purchases: The vouching of the cash purchases should be on the following lines.

• The auditor should examine entries in the cash book with the help of cash memos or invoices issued by the supplier and also goods inward book.
• Special attention should be paid to trade discount, which should be deducted from purchase.
• See that the cash paid for the goods have actually received.
• He should see that the purchases are duly authorised.
• He should see that the amount paid is debited to the appropriate account.
• To ascertain whether payment made for cash purchases relates to the business

iii) Payments to creditors: Vouching of payment to creditors should be on the following lines

• Payments to creditors may be vouched with the receipts issued by the creditors.
• He should check the amount due to the creditors with the accounts of the creditors.
• Examine the goods inward book and see that goods have actually been received.
• The auditor should verify the periodical statement of accounts.
• In the case of purchase made before the close of the year, see that goods not actually received are kept out of the closing stock of the year.

iv). Payment of bills payable: Payment of bills payable on their maturity should be vouched on the following lines.

• The payment of bills payable, as recorded in the cash book, should be vouched with the bills payable book and also with the bills payable returned by the payees.
• If the bills payable are through the bank, the auditor should examine the bank pass book for the payment.
• He should see that bills payable paid and returned by the payees are cancelled.

v). Vouching of loans advanced:  Loans advanced should be vouched by the auditor on the following lines.

• He should see that loans advanced are properly authorised.
• He should examine the loan agreement.
• He should vouch the loan advanced as recorded in the cash book with the loan agreement also with the receipt given by the borrower.
• If the loan is advanced against any security, the auditor should examine the security and its title deeds.
• Examine the mortgage deed, if the loan is advanced against mortgage.
• See that the provisions of the companies Act as regards the granting of loans to directors and officers of the company are complied with.

vi). Purchase of investment: Vouching of purchase of investment should be on the following lines.

• The auditor should see that the purchase of investment is properly authorised.
• If the investments are purchased through a broker, he should vouch the investments purchased with the broker’s note.
• If the investments are purchased through the bank, he should examine the bank pass book to check the payment.
• He should make a physical verification of the investment purchased.
• If the investments are purchased cum interest, he should see that the payment made is properly allocated between capital and revenue.
• See that investments purchased are registered in the name of the client.
• In the case of accompany, the auditor should see that investments have been purchased in accordance with the provisions of the companies Act.

vii). Payment of capital expenditure: The payment of capital expenditure refers to the payment made for the acquisition of the fixed assets such as land & building, plant & machinery, patent, copy right, furniture etc.

Vouching of payment of capital expenditure should be on the following lines.

• The auditor should see that the payment of capital expenditure is properly authorised.
• He should examine the document pertaining to the purchase and ownership of the fixed assets.
• He should examine the invoices and the receipts obtained from the suppliers to ensure that payments have been made.
• He should see that all expenses incurred for the acquisition are capitalised.
• He should see that repairs and maintenance expenses incurred are charged to revenue account.
• He should physically examine the fixed assets purchased.
• He should vouch the cash boom entries for the payment of capital expenditure with the concerned ledger account.
• See that property purchased is registered in the name of the client.

Vouching of payment made for the acquisition of patents

Vouching of payments made for the acquisition of patents should be on the following lines.

1. If the patent has been purchased, the auditor should vouch the payment made for the patent with the help of the contract for sale and the receipts for the payment obtained from the seller.
2. If the patent has been purchased through an agent, the auditor should vouch the agent commission with the help of agents account and receipt given by the agent. He should see that the agent’s commission is capitalized.
3. He should see that expenses incurred on the purchase of the patent are capitalized.
4. Where the patent is acquired through research, the auditor should see that all the expenses incurred on the experiments and the research connected with patents are capitalized.
5. He should see that payments made towards the renewal fee are charged to revenue account.
6. He should actually see the patent.