What are the special steps involved in audit of incomplete records?

Auditing and Assurance Revision Questions and Answers

Normally, the auditor of incomplete records may be necessitated under two circumstances viz. (i) when the accounts have been maintained on single entry basis of (ii) accounting records may be destroyed fire, flood, etc. or seized government authorities. Under either of circumstances the audit objective would remain the same and, thus, auditor would have to follow extensive audit procedure before expression of an opinion on such financial statements. Steps, which may be followed in this regard, are as under:

1. Ascertain the exact status of accounting records available including memoranda records, if any. Also obtain a list of records i.e. accounting, memoranda, statistical etc.

2. Ensure that the management compiles/ reconstructs accounting records to the extent practicable. In case of single entry, the accounts may be converted to double entry basis.

3. Perform compliance procedure to assess whether any control system is in operation. Generally, it is difficult rather almost impracticable that any control worth the name would be in existence.

4. Vouch transaction recorded in books of account with reference to appropriate audit evidence. Check posting, casting etc. in depth. Auditor may also obtain external evidence as far as possible like confirmation from third parties. Bank reconciliation should also be examined in detail.

5. Examine the system in operation in respect of custody managed cash memos, receipts, cheque- books etc.

6. Conduct surprise checks to verify cash in hand, inventory, etc.

7. Verify fixed assets observing physical verification.

8. Obtain indirect evidence to verify the existence of fixed assets e.g. payment of local taxes to municipal authorities, electrical bills, etc. in case of building.

9. Check veracity of memoranda records and obtain further evidence to confirm the same.

10. Apply analytical review procedures in depth and notice deviations to investigate in detail. Ratio analysis shall be of particular importance since it would provide substantive audit evidence.

Formulate an appropriate audit opinion based on above findings. A disclaimer of opinion may be appropriate in case there is any restriction on the scope of an audit.

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