Tracing is an audit procedure of inspecting source documents to the accounting records in order to ensure that the accounting records are complete. Likewise, auditors usually perform the tracing procedure when they need to test the completeness assertion.
Similar to vouching, tracing is also an act of examination of documents. However, tracing goes the opposite way of vouching in the audit. While vouching goes from accounting records to source documents, tracing process starts from source documents to accounting records.
By tracing from source documents to the accounting records, auditors can verify whether transactions or balances that should have been recorded have actually been recorded. Hence, auditors may detect any misstatement that could occur due to the omission of transactions or items from the financial statements.
Tracing Example Audit
For example, in an audit of revenue, auditors usually test completeness assertion by using tracing procedure as below:
- Select a sample of shipping documents
- Trace the selected shipping documents to sales invoice and sales journal in order to ensure that they have been recorded as sales revenue
Of course, other procedures such as scanning the sequential number of sales invoices for missing numbers and ensuring that they are not unrecorded sales are usually also performed together with trancing to ensure the completeness of sales revenue.
Difference between tracing and vouching in audit
Unlike tracing where auditors start the procedure from supporting documents to the accounting records, in vouching, auditors go the other way around by starting the process from the accounting records to the supporting documents. The redirection here is very important to distinguish between tracing and vouching in audit.
In vouching, auditors usually start the procedure by selecting a sample of transactions in the accounting records; then they vouch the selected transactions to the supporting documents (i.e. source documents) to verify if the recorded transactions actually occurred.
While tracing tests the completeness assertion, auditors usually perform vouching to test the occurrence or existence assertion in the audit. Hence, these two procedures provide two different types of evidence (completeness vs. occurrence or existence).
Another point to note is that tracing is usually used to detect the risk of an understatement which is due to the lack of completeness. On the other hand, vouching is usually used to detect whether there is an overstatement of transactions or items in the financial statements.
Below is the summary of the difference between tracing and vouching in audit:
|Difference between tracing and vouching in audit|
|Start from source documents to accounting records||Start from accounting records to source documents|
|To ensure the transactions or balances that should have been recorded have actually been recorded||To ensure the transactions or balances that have been recorded are adequately supported|
|To test the completeness assertion||To test the occurrence or existence assertion|
|To detect the risk of an understatement||To detect the risk of an overstatement|