After an audit conducted in accordance with the SAs, it is discovered that the accountant and an outside supplier had colluded to raise forged invoices that looked genuine. The auditor had not detected the fraud. Which statement is most appropriate?

Correct answer: A) The subsequent discovery of a material fraud does not by itself indicate that the audit was not performed in accordance with the SAs, as the auditor is not expected to be an expert in authenticating documents

Explanation

SA 200 and SA 240 recognise that fraud involving collusion and forgery may not be detected even in a properly planned and performed audit. A later discovery of fraud does not by itself mean the audit failed to comply with the SAs; the question is whether the auditor performed procedures appropriate in the circumstances with professional skepticism. Detecting material misstatement due to fraud is still within the auditor's objective, so the auditor is not exempt from responsibility.