Mr. Abhyudaya has been appointed as an Auditor of Kashvi Enterprises. After appointment, the books of Kashvi Enterprises have been destroyed by earthquake. State the extensive procedures to be followed for audit in such scenario.

Auditing and Assurance Revision Questions and Answers

The scenario is guided by the audit of incomplete records. Audit of incomplete records are generally required under the following two circumstances.

(i) When accounts have been maintained on single entry basis or

(ii) Accounting record may be destroyed by fire, flood etc. or seized by government authorities. The auditor may be required to follow extensive procedures, which include:
(a) obtain list of records available
(b) Ensure that management reconstructs/compile records to the extent possible.
(c) Perform compliance procedure to assess whether internal control system is in operation.
(d) Vouch transactions in books of accounts with appropriate evidence.
(e) Examine system of custody of cash receipts, cheque book etc.
(f) Conduct surprise verification of cash & inventory.
(g) Verify fixed assets by physical verification.
(h) Formulate appropriate audit opinion.

A disclaimer of opinion may be necessary if any restriction on scope of audit is enforced.

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