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CS Professional · Internal and Forensic Audit · Basic Concepts of Forensic Audit

During the statutory audit of Ganga Foods Ltd., the auditor applies materiality and tests samples of transactions. A later forensic review of the same year examines every payment to one vendor, including immaterial ones. What explains this difference in approach?

A statutory audit gives reasonable assurance on whether financial statements are free of material misstatement, using sampling and materiality. A forensic audit targets a specific suspected irregularity, so it may examine whole populations and small amounts because the aim is proving or disproving fraud.

  1. AForensic auditors are not required to use professional skepticism
  2. BA statutory audit seeks reasonable assurance on material misstatement, while forensic work targets specific suspected irregularities regardless of amountCorrect
  3. CStatutory audit must examine 100% of transactions, forensic audit only samples
  4. DMateriality is irrelevant to a statutory audit

Explanation

Statutory audit gives reasonable assurance about material misstatement using sampling. Forensic audit is targeted at a suspected irregularity, so even small amounts and full populations may be examined. Option 3 reverses the sampling position.

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