What is the purpose of tracing in an audit?

The purpose of tracing in an audit is to provide evidence for the completeness assertion by following transactions from their origin to their final recording in the financial statements. Tracing involves taking a sample of source documents, such as invoices or receipts, and working forward through the accounting records to ensure that all related entries and transactions are properly recorded in the financial statements. This process helps auditors verify that all transactions that should be recorded have been included, thus confirming the completeness of the financial information for which management is responsible.

This practice is crucial as it ensures that no transactions have been omitted, which could lead to misstatements in the financial statements and could mislead stakeholders. By confirming that the documentation supports the financial records, auditors can enhance the reliability of the financial reporting process.