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CS Professional · Compliance Management, Audit and Due Diligence · Concepts of Various Audits

During a statutory audit of Mahadev Steels Ltd, the auditor finds a minor cash fraud by a clerk. A director asks whether the auditor's primary objective was to detect such fraud. Which response is correct?

The primary objective of an audit is to express an opinion on the financial statements. Detecting fraud is incidental, but the auditor must obtain reasonable assurance that statements are free from material misstatement, whether from fraud or error.

  1. AThe primary objective is to express an opinion on the financial statements; fraud detection is incidental, though the auditor must plan to obtain reasonable assuranceCorrect
  2. BThe primary objective is detecting all frauds and errors
  3. CThe auditor has no responsibility for fraud at all
  4. DThe primary objective is to certify the company's future profitability

Explanation

The main objective is forming and expressing an opinion on the financial statements. Detecting fraud is not the primary objective, yet the auditor must obtain reasonable assurance about material misstatement, including from fraud. Saying there is no responsibility or guaranteed detection is wrong.

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