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

Following a whistle-blower complaint, Anand Steels Ltd. appoints an auditor to investigate suspected diversion of Rs 1.8 crore through fictitious vendors. The engagement is expected to produce a report that may be placed before a court. Which approach best distinguishes this engagement from a routine statutory audit?

The engagement is a forensic audit because it targets a specific suspected fraud, applies investigative techniques and collects evidence suitable for court. A statutory audit instead samples transactions within materiality to give an opinion on true and fair financial statements.

  1. AIt targets a specific suspected fraud, uses investigative techniques and gathers evidence in a form admissible in legal proceedingsCorrect
  2. BIt samples transactions only to form an opinion on the true and fair view of the year's accounts
  3. CIt is mandated annually and covers every transaction with a materiality threshold
  4. DIt concentrates on efficiency of vendor payment cycles and recommends cost savings

Explanation

Forensic audit starts from a specific suspicion, applies investigative and analytical techniques, and preserves evidence so it can support litigation. A statutory audit relies on sampling and materiality to give a true and fair opinion, so it is not designed to prove fraud. Efficiency review describes operational audit.

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