The Difference Between Tracing and Vouching

This is an important question you need to know for the CPA exam and in business.

VIDEO SUMMARY

This video talks about the difference between Tracing and Vouching. If you take the CPA exam, these are two definitions that you are just going to have to memorize. So I am going to explain the difference, and I am going to give you a tip on how I remember these definitions.

Let’s first cover the definitions. These are both terms that are used in financial auditing. So an accountant will come into a business, look at their accounting records, and evaluate how accurate they are. That’s what an audit is. And two of the procedures that are performed are Tracing and Vouching. Tracing looks at a financial document and traces the path of that document all the way to the financial statements. Vouching goes the opposite direction. Vouching starts with a number on the financial statement and then you find the original document that supports that number. The key to understanding these terms is direction. Tracing goes towards the financial statements. Vouching goes away from the financial statements. So you really just have to memorize the direction.

Now it is also important to understand what these procedures are trying to prove. Tracing provides evidence for completeness. Vouching provides evidence for occurrence. It is easy to get this confused, but the direction tells you different things. If you trace from a document to the financial statement, it tells you completeness but not occurrence, because there are pieces of that overall financial statement number we haven’t looked at. We only traced one document. And going the other direction, we find the opposite. Vouching tells you occurrence, but not completeness. This is because you might be missing an original document, and you never know, because it was never included in your financial statement number to begin with.

So here is my tips for remembering these: Now this may seem silly, but it works.

Tracing. Let’s do tracing first. It comes first alphabetically so it makes sense to start there. Tracing starts with a t. A t, can look a little like an arrow. What do you do with an arrow? You shoot it towards a bullseye. What is the bullseye for an accountant? It is your financial statements. So the direction for tracing is towards the financial statements.

Now let’s look at Vouching. When you vouch for something, what are you saying? You are backing up someone’s statement. So vouching goes the direction away from the statement. You are starting with the statement, and you are vouching, or backing that statement up with evidence.

So those are the tips I use to remember these terms. These are just two terms you have to memorize in accounting.

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Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.