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

Rohit, a forensic auditor, is appointed by Vindhya Steel Ltd. after the statutory auditor issued a clean opinion for FY 2024-25. Rohit finds a fictitious vendor scheme running over three years. The promoters argue that the clean opinion proves the audit failed and the auditor is automatically liable. Which view is most appropriate?

Statutory audit provides reasonable, not absolute, assurance, so a later-discovered fraud does not automatically prove audit failure. Liability depends on whether the auditor performed the audit in accordance with auditing standards with professional skepticism; a forensic report does not replace the audit opinion.

  1. AThe auditor is automatically liable because any undetected fraud is an audit failure
  2. BThe statutory auditor is never responsible for fraud-related matters
  3. CThe statutory audit is designed for reasonable, not absolute, assurance, so undetected fraud does not by itself prove failure; liability depends on whether the audit was performed per standardsCorrect
  4. DThe forensic report replaces the statutory audit opinion for that year

Explanation

Statutory audit gives reasonable assurance and has inherent limitations, especially for collusive fraud. Failure arises only if the auditor did not follow auditing standards with due skepticism. Option 2 is wrong as auditors do have fraud-related responsibilities, and the forensic report does not replace the opinion.

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