An auditor may face the situation of incomplete records under the following circumstances:
a. Where records are kept on a single-entry book-keeping system; or
b. Where records are kept on a double entry basis but some of the records are destroyed accidentally or are seized authorities or are otherwise not available for the auditors‟ examination due to similar reasons.
Under the second circumstances, an ideal approach for carrying out the audit would be that the auditor may direct the management of the enterprise to complete or reconstruct the accounting records, e.g. if vouchers are available but the cash book, journal and the ledger are not maintained, then cash book, journal and ledger should be written up. However, if vouchers are also not available, then cash book, journal and ledger will have to be prepared correlating the evidence available, e.g. memorandum records, bank statements, statements from outside parties, etc. even though such books, which are prepared may not be complete, but may still contain useful information for the auditor.
On the other hand, when books are maintained on single entry basis, then management of the entity would be asked to write up the books, to the extent possible, as they would have been written up under the double entry book keeping system. In any case, the following steps would be required to conduct the audit under such circumstances:
i. Ascertain that the balance sheet or statement of affairs as the beginning of the year should be prepared and all the relevant accounts should be opened in the ledger. Normally, under the single- entry system, cash, bank and personal ledgers accounts are maintained.
ii. Confirming that all entries on receipt side of the cashbook are posted on the ledger accounts.
iii. Check that all entries on the payments side of the cash book are also posted in the ledger accounts.
iv. Confirming that all entries appearing in the bank account are posted in the necessary ledger accounts.
v. To analyze creditors account and post entries related to credit purchases made, purchase returns, discount received, bills payable issue to suppliers, bills payable dishonored to relevant accounts.
vi. Apply analytical review procedures in depth and notice deviations to investigate in detail. Obtain direct indirect evidence to verify the existence of fixed assets e.g. payment of local taxes, electrical bills, etc.
vii. 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 audit.