Tracing in Audit: Overview, Definition, and Examples

Auditing is a process in which a company hires an independent party, known as auditors, to examine its financial statements. The purpose of auditing financial statements is to obtain an audit report, provided by auditors, which contains the auditors’ opinion about whether the financial statements of the company show a true and fair view. In addition, those financial statements should also be free from any material misstatements. To present their opinion, auditors need to perform procedures and obtain audit evidence associated with different assertions related to the financial statements. Similarly, the audit evidence they gather must be sufficient and appropriate to be able to draw reasonable conclusions on which they can base their opinion.

There are different sources of audit evidence that auditors can obtain. First of all, they can obtain audit evidence through a test of controls. Test of controls is a process in which auditors examine the internal controls of the client and see if those controls are effective. Similarly, auditors can obtain audit evidence through substantive procedures. Substantive procedures are divided further into two categories. These include tests of details and substantive analytical procedures. In the test of details, auditors use different methods to check the details of transactions or balances. On the other hand, substantive analytical procedures involve analyzing relationships between information obtained from various sources to identify discrepancies.

Two of the most commonly used types of documentary evidence related to substantive audit procedures are tracing and vouching. While both of them are closely related, they are very different.

What is Tracing in Audit?

Tracing in audit is one of the oldest and most reliable techniques that auditors use. It is straightforward, yet it can help auditors in a great way. Tracing is the process of following a source document to its subsequent accounting entries and presentation in the financial statements. However, usually, auditors trace a source document to the accounting system of a business and use other procedures later to check inclusion in financial statements. Tracing in auditing means locating an item. For auditing purposes, tracing is the exact opposite of vouching.

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For a single sales transaction, for example, tracing begins when auditors select a sales order. From the sales order, they trace the related sales invoice. It may also include tracing the related goods delivery note and dispatch notes. However, these notes generally relate to the testing of controls. Nonetheless, auditors can still cross-check the units dispatched with the sales order and sales invoice. From the sales invoice, auditors obtain the related voucher that the client used to enter the sale into the account. Finally, they check the ledgers of the client for that specific voucher number.

The above process is a simplified example of how tracing works. Practically, auditors must select a sample of source documents and trace them to the accounting system of the client. It may require auditors to go from one department to another, several times, to obtain evidence. For any missing invoices, auditors can inquire the management about omissions. Ideally, there should be no omissions from the source documents to the accounting systems. Likewise, the details in the source documents should also match with other source documents and details in the accounting system.

Purpose of Tracing Audit

The purpose of the tracing audit is to ascertain that the internal controls at the client are effective. Tracing a transaction from a source document to the accounting system and subsequently to the financial statements can expose any control deficiencies in the internal controls of the client. For example, if a sale order contains a different number of units as compared to the respective sales invoice, there is a control deficiency in the process.

Similarly, tracing can give auditors a general overview of what happens in a particular process at the client. For example, when auditors trace a purchase invoice to the accounting system, they also go through the whole process. It acts as a walkthrough for them as it helps them understand which department is responsible for each stage of the purchase cycle. Similarly, it can help them obtain a better understanding of what goes into the purchase process of the client. It can, therefore, further impact the audit procedures that auditors perform, and the overall quality of audit.

Tracing also plays a vital role in testing the completeness and, sometimes, accuracy assertions of the financial statements. Completeness assertion is to determine whether all transactions and events that should have been recorded are recorded and all related disclosures that should have been included in the financial statements have been included. Accuracy assertion, on the other hand, relates to whether amounts and other data relating to recorded transactions and events have been recorded appropriately and related disclosures have been measured appropriately.

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Example of Tracing in Audit

Auditors of a company, ABC Co., want to check its purchase process. Among other audit procedures that the auditors use, they also use tracing to check the completeness of the transactions. To use tracing for the purchase process, the auditors use the following method.

  • They take a sample of purchase requisitions received from the store department of ABC Co. The auditors don’t refer to the financial statements to pick the sample.
  • From the purchase requisitions, auditors trace the respective purchase orders, which they find in the purchase or procurement department of ABC Co.
  • Once they identify the purchase orders, they trace the purchase order to the goods received notes. Auditors confirm the units requested in the requisition note and the units in the purchase order match with each other.
  • From the good received note and purchase order, auditors trace the relevant invoice received from the vendor from whom ABC Co. purchased the goods.
  • Using the invoice, auditors trace the relevant voucher using which ABC Co. entered the purchase invoice into the accounting system.
  • Finally, using the number on the voucher, auditors trace the accounting entries in the accounting systems of ABC Co.

While this is an example of how auditors may trace purchases in the accounts of a client, the actual process may vary from one client to another. Auditors need to obtain an understanding of the systems of each client to determine how they should go on about tracing source documents to the accounting systems.

Tracing vs Vouching

As mentioned above, auditors use tracing and vouching during audits as procedures to obtain audit evidence. However, many people still confuse the difference between tracing vs vouching. While both of these processes include examining the source documents of a company and its related posting in the accounting systems, the way both of these processes go on about doing it is different.

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First of all, tracing starts from the source document up to the respective posting in the client’s accounting system. Vouching, on the other hand, is the complete opposite of it. Vouching starts from the posting in the accounting system all the way back to the source document of the transaction. For tracing, auditors don’t consider the total value of a transaction or a line item on the financial statements. For vouching, however, auditors start from first considering the value of both the transaction and line item in the financial statements.

Similarly, tracing and vouching in audit are both different in the assertions they check. With tracing, auditors mostly focus on verifying the ‘completeness’ assertion of transactions. It means they check whether all transactions with source documents are also posted in the financial system of the client. Vouching, among other assertions, mainly focuses on the ‘occurrence’ assertion. That means auditors use vouching to check whether transactions posted in the accounts of the client have supporting documents to verify them or have occurred.

In short, the main difference between tracing vs vouching is the direction they take. Tracing follows a bottom-up approach, starting from source documents and ending at the accounting entries in the financial system of the client. In contrast, vouching follows a top-down direction, starting from accounting entries and ending at the source documents.


Tracing is an audit procedure used by auditors to obtain audit evidence related to transactions in the financial statements of clients. Auditors use tracing to check the internal controls of the client for effectiveness, get an idea of the processes behind transactions and balances, and to verify the completeness assertion of transactions. Tracing vs vouching are similar, as both include checking source documents and accounting entries. However, tracing starts from the source document and goes to the accounting entries while vouching starts from accounting entries and goes to the source document.  

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