Tracing in auditing – Explanation and How is it different from vouching?


Tracing is a traditional audit technique. Tracing is the ideal process of simply following the transaction in books of accounting back to the source document. Tracing generally means locating an item.

The items are located in the general ledger and they are traced back to source document i.e. subsidiary ledger.

Tracing is done by looking at the unique document numbers and then moving to account books to locate the source document. Tracing is useful in tracking down transactional errors.

The approach of audit tracing is used by the auditors to ensure and verify if transactions were recorded properly. For example, the auditor takes up the serial number of customer orders as it is received in the organization.

The auditor then follows the flow from various sections from departments to departments. The auditory may enquire with each employee involved in processing the document regarding what actions they were taking in processing the documents.

Tracing shows what instructions have been executed electronically in a program or instruction sheet and in which sequence they have been executed.

When the auditor knows about the sequence that is being followed, he can make the proper audit planning and program and follow it rigorously.

Tracing through audit trails

For understanding audit tracing, we need to understand audit trails. Audit trails are manual or electronic documents. Audit trails record each financial event or procedure to provide support of evidence to the transaction.

Basically, it creates a layer of evidential support in confirmation of the financial transactions. The auditee uses various types of an audit trail to provide historical records.

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Audit trails provide a sequence of financial events. They help in identifying areas of non-compliance by providing proof for compliance and integrity of the employees.

Tracing vs Vouching

These are popular terms used in the audit industry. Tracing means having look at the financial documents and tracing through the audit trails i.e. documents relating that all the way to the financial statements. While vouching is exactly the opposite of tracing.

Vouching for means that if you are looking at accounts receivables, you have to look at the document number to find out the document that supports the receivables balances. Tracing is in the financial statements.

Vouching is out of the financial statements. Both have therefore major difference in direction. Tracing allures evidence for completeness.

It goes through layers of audit trails. On the other hand, vouching provides evidence for occurrence. Again, the direction is important to spot the difference between tracing and vouching.

Let’s take an example of accounts receivables. If you are tracing the balances, you have to look at various accounts and their supporting invoices along with other documents like bill of transportation or receipts of merchandise. This will tell you whether the documents are complete or not.

The other aspect of auditing i.e. occurrence is made by vouching. Vouching looks at who made the authorization and checks out the balances and verifies the matching number to show whether the transaction occurred or not.