Vouch or Trace:
a writing and vouching exercise for auditing students
"Vouch or Trace" is a simple exercise that takes a limited amount of students' time and virtually
no class time. It is a writing assignment that requires students to vouch a sample of transactions
from the sales journal to the sales orders. We find students' understanding improves when they
work in groups and explain their logic to others. So we encourage them to work together as they
think through the objective and design their procedure. However, we require each student to
select their own sample, perform the audit procedure, and write their own paper. Having students
vouch a few transactions from the sales journal to simulated invoices, shipping documents and
sales orders introduces them to the nature of audit evidence and helps them see how sales orders
and shipping documents support the existence/occurrence assertion. In addition to providing a
writing assignment and introducing students to audit evidence, the project also enhances
subsequent discussions of year-end cut-off, internal control and statistical sampling.
Rather than include extensive examples in the paper, we put the material on our website
http://buiznt.busfac.calpoly.edu/cob/actg/tmiller/articles/voucha~1/vouch.html. Sample sales
orders, shipping documents, invoices, sales journal and price list are in *.html format so readers
can view them as they read the article. Complete sets of these documents are provided in *.rtf
format for anyone wishing to use the case. The *.rtf files can be downloaded by most word
processors. PowerPoint slides used to illustrate cut-off problems and an Excel template used to
determine the required sample size are also available. Finally, the Access database files are
available to anyone who wants to modify the customer table and use local businesses.
Teaching Note
Objectives
Our original objective was to incorporate a writing assignment in the class. Because we were
reluctant to sacrifice coverage of auditing material, we developed a project that would also help
students learn about auditing. This project requires students to think about the relationship
between an auditing procedure and the audit objective, perform the procedure and then write
about the relationship.
In class, we emphasize that auditing procedures must provide evidence supporting the audit
objective. Auditors sample source documents and trace to obtain evidence supporting the
completeness assertion. They sample transactions from a journal and vouch to obtain evidence
supporting the occurrence assertion. While the logic between these auditing procedures and the
objectives appears clear, our test results indicated many students did not understand these
relationships.
For this project we designed a database, which includes four types of overstatements: sales
recorded in the sales journal for which there are no shipping documents; sales recorded on
12/31/97 for goods shipped on 1/2/98; billing customers for more goods than were actually
shipped; and billing customers at a higher prices than quoted on the sales order. Students are
instructed to design a procedure to detect overstatement. Rather than turn in their sample results,
students write a one or two page paper describing the procedure so that someone else can
replicate their procedure. They must also explain to a jury of non-accountants why the procedure
will detect overstatement a high percentage of the time.
By actually performing the procedure, students see how vouching transactions from the sales
journal to the sales orders provides evidence that the transaction occurred. They not only see how
vouching may detect fictitious transactions recorded in the sales journal but they also see why it
will not detect unrecorded transactions. Similarly, students see that tracing shipping documents
into the sales journal provides evidence pertaining to the completeness assertion. They learn why
tracing will not detect fictitious transactions but that it may detect shipments that were never
recorded in the sales journal.
Year end cut-off
The last two entries in the sales journal are dated Dec.31, 1997 even though the shipping
documents are dated Jan. 2, 1998. We use these documents later in the quarter to illustrate yearend cut-off problems. Students' familiarity with these documents makes it easier to understand
year-end cut-off. We take advantage of their familiarity by using overheads of the sales journal;
invoice 6565, dated 12/31/97; and shipping document 5011, dated 1/2/98, and to teach year-end
cutoff.
Statistical Sampling
Students save their sample results for evaluation when we cover statistical sampling later in the
quarter. If time permits, you may require your students to evaluate their sample results. Our
classrooms are equipped with computer driven projectors and we use an Excel spreadsheet
template to quickly calculate the required sample size, the sample mean and the standard
deviation based on several students’ results.
Internal Control
The project is simple enough that students can see the control weaknesses. The database allows
sales orders, shipping documents and invoices to be created independently. This allows invoices
to be written for goods that have not been shipped. The project helps students understand why the
use of pre-numbered documents and cross-referencing are important controls. Merely by
subtracting the first invoice number from the last, and the first shipping document number from
the last, students see that there are four entries without supporting documentation.
Students familiar with information systems or databases can see the importance of system design
in internal control. This particular problem could be avoided if the database required a sales order
number before it would accept a shipping document number. Similarly, the database should
require a shipping document number before it would accept an invoice number or print an
invoice. Database integrity rules could ensure that there are no missing sales orders, shipping
documents or invoices and that none of the numbers had been previously used.
2
Vouch or Trace Assignment
Often, the best way to learn something is to do it
Attached is College Business Computer's sales journal. CBC creates a sales order when
customers place an order. A shipping document is created when the goods are shipped to a
customer. All goods are shipped F.O.B. shipping point. The shipping department forwards one
copy of the shipping document to the receivables department, which prepares an invoice. The
receivables department then forwards a copy of the invoice to the accounting department, which
posts the invoice to the sales journal. A copy of the sales order is filed in the sales office,
shipping documents are filed in the warehouse on the loading dock, and invoices filed in the
receivables department.
You are to design an audit procedure that will detect sales overstatements. Budget limitations
prevent you from auditing all of the transactions, so you are to select a sample of ten transactions
from one of the following:
Entries in the Sales Journal
Sales Orders in the sales department Order File
Shipping Documents in the Shipping Document File on the loading dock
Invoices from the Invoice File in the receivables department.
Once you have selected a sample of ten transactions, you are to obtain supporting evidence by
tracing or vouching the ten transactions to the ten related entries in the sales journal, the ten
related sales orders, the ten related shipping documents journal and/or to the ten related invoices.
For instance, if you selected a sample of ten invoices, you might trace the invoices into the sales
journal and vouch the invoices to the ten related shipping documents and then to the related sales
orders. Remember that you are trying to obtain evidence that sales are not overstated. You need
to know that the shipping document numbers are cross-referenced on the invoices and that the
sales order numbers are cross-referenced on the shipping documents.
Your answers will be two, three or four paragraphs long.
Describe the audit procedure you have designed so that a student taking the auditing class next
quarter can read your description and perform the same procedure. You may want to use one of
the transactions in your sample to describe how you applied this procedure. For example,
I selected a sample of ten transactions from the invoice file located in
the accounting department. I traced the customer’s name, date, and
amount on each of the invoices to entries in the sales journal. Then, I
vouched each of these transactions to shipping documents located in a file
on the loading dock in the warehouse. I compared the customer’s name,
date, quantity and product description on each of the invoices with
information on the related shipping documents.
For example, on invoice 6521, I traced the customer name (Hind
Inc.), the date (1/14/97), and the amount ($13,976) to the corresponding
information in the Sales Journal. Then I obtained the shipping document
number (4971) from the invoice and vouched to the shipping document.
3
Both the invoice and shipping document indicated 1 pentium pro computer
with a 17” monitor, 3 standard pentium computers with a 17” monitors, and
4 laserjet printers were to shipped to Hind Inc. on 1/14/96.
The preceding example is for illustrative purposes and is not necessarily an effective procedure.
You need to design a procedure that will detect overstatements.
In your answer, please indicate whether this is an analytical procedure, test of controls, test of
details of account balance or test of details of transactions. Use the following words carefully:
invoice, shipping document, sales order, invoice file, shipping document file, order file, sales
journal, vouching and tracing. Although you might believe you have a better name for a
document or file, it is usually best to use the standardized name so everyone understands exactly
which document or file you are referencing.
With any sample there is the possibility that your tests will lead to the wrong conclusion. For this
portion of your answer, assume that sales are overstated but your tests indicated sales were fairly
presented. In other words, your test results lead you to the wrong conclusion. Explain to a jury of
non-accountants why the procedures your performed should provide reasonable assurance about
sales. The jury needs to be convinced that the procedures you performed would detect fictitious
entries a high percentage of the time.
Do not turn in your sample results at this time. However, you need to save your results so we can
use them later in the quarter when we cover audit sampling.
4
sales journal
college business computers
date
invoice
no.
1/14/97
1/28/97
1/31/97
2/10/97
2/19/97
2/28/97
3/9/97
3/18/97
3/25/97
4/1/97
4/11/97
4/20/97
4/30/97
5/5/97
5/15/97
5/25/97
6/1/97
6/12/97
6/19/97
6/27/97
7/4/97
7/15/97
7/20/97
7/31/97
8/3/97
8/10/97
8/18/97
8/26/97
8/30/97
9/3/97
9/12/97
9/17/97
9/28/97
10/7/97
10/15/97
10/25/97
11/2/97
11/13/97
11/23/97
12/1/97
12/11/97
12/21/97
12/31/97
12/31/97
12/31/97
6521
6522
6523
6524
6525
6526
6527
6528
6529
6530
6531
6532
6533
6534
6535
6536
6537
6538
6539
6540
6541
6542
6543
6544
6545
6546
6547
6548
6549
6550
6551
6552
6553
6554
6555
6556
6557
6558
6559
6560
6561
6562
6563
6564
6565
customer
name
Hind Inc.
Foster's Freeze
Trusco Tank
Foothill Cyclery
Performing Arts
San Luis Ready Mix
Copeland's Sports
Madonna Inn
Trusco Tank
Foster's Freeze
Apple Farm Inn
Copeland's Sports
Barbich, Longcrier,
Flora Design Studio
First Presbyterian
Kimball Motor Co.
Standard Motor Co.
Performing Arts
Pacific
Barbich, Longcrier,
Hind Inc.
Airport Auto Center
Foster's Freeze
Madonna Inn
Flora Design Studio
Copeland's Sports
Apple Farm Inn
Barbich, Longcrier,
Performing Arts
Barbich, Longcrier,
Neal-Truesdale
F. McLintocks
San Luis Ready Mix
Apple Farm Inn
Standard Motor Co.
Sinsheimer,
Airport Auto Center
Trusco Tank
San Luis Ready Mix
Foothill Cyclery
Barbich, Longcrier,
Sinsheimer,
San Luis Medical
Kimball Motor Co.
Hind Inc.
cust
no.
109
106
119
105
107
115
111
101
119
106
108
111
116
104
103
102
114
107
118
116
109
113
106
101
104
111
108
116
107
116
112
110
115
108
114
117
113
119
115
105
116
117
120
102
109
amount balance
13,976.00
17,414.00
10,282.00
2,544.00
13,020.00
27,446.00
37,407.00
7,888.00
10,476.00
8,182.00
13,820.00
5,388.00
12,326.00
9,276.00
2,544.00
5,388.00
5,638.00
6,034.00
3,094.00
2,544.00
5,388.00
16,064.00
10,282.00
16,376.00
7,032.00
2,544.00
40,340.00
15,814.00
20,470.00
6,314.00
20,470.00
22,108.00
10,776.00
22,602.00
7,632.00
4,290.00
34,828.00
7,032.00
20,470.00
15,046.00
2,544.00
12,282.00
19,870.00
4,892.00
16,976.00
13,976.00
31,390.00
41,672.00
44,216.00
57,236.00
84,682.00
122,089.00
129,977.00
140,453.00
148,635.00
162,455.00
167,843.00
180,169.00
189,445.00
191,989.00
197,377.00
203,015.00
209,049.00
212,143.00
214,687.00
220,075.00
236,139.00
246,421.00
262,797.00
269,829.00
272,373.00
312,713.00
328,527.00
348,997.00
355,311.00
375,781.00
397,889.00
408,665.00
431,267.00
438,899.00
443,189.00
478,017.00
485,049.00
505,519.00
520,565.00
523,109.00
535,391.00
555,261.00
560,153.00
577,129.00
5