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

Meera Agro Pvt. Ltd. engages a forensic auditor after a suspected diversion of funds. Which feature most clearly distinguishes this engagement from the company's statutory audit?

A forensic audit is directed at a specific suspicion and aims to establish facts, quantify the loss and identify those responsible. A statutory audit instead uses materiality and sampling to form an overall opinion on the financial statements, so it does not fix individual responsibility.

  1. AIt relies on materiality thresholds to ignore small misstatements
  2. BIt is targeted at a specific suspicion and focuses on establishing facts, quantifying loss and identifying the persons involvedCorrect
  3. CIt is performed only after the annual general meeting approves accounts
  4. DIt is limited to sample testing of balances at the year end

Explanation

Forensic audit is fact-finding and focused on a specific allegation, often looking at intent, quantum and the perpetrators. Statutory audit uses materiality and sampling to support an opinion. Option A describes statutory audit practice, so it is wrong.

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