CS Professional December 2025 Question Paper Internal and Forensic Audit

FOR CS PROFESSIONAL EXAM PREPARATION

CS Professional 2025
Question Paper ·
Internal and Forensic
Audit
EXAM YEAR TYPE

CS Professional 2025 Question Paper
SUBJECT DATE

Internal and Forensic Audit December 2025

Notes · Sample Papers · Previous Year Papers · Mock Tests

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NEW SYLLABUS
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Roll No. ..................................... OPEN BOOK EXAMINATION

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Time allowed : 3 hours
.c Maximum marks : 100
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Total number of questions : 6 Total number of printed pages : 12

NOTE : Answer ALL Questions.

PART-I
1. Case Study :
ABC Co. Ltd. is a steel manufacturing company having its registered office in NOIDA (UP)

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. in last two years. All purchases are centralized
and its main plant facilities at Raipur (CG) and several other plants at various locations in

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e and payments are also made by head office. It
India. Company’s business has increased manifold

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l of goods and payments to suppliers and also resulting
and orders are placed by the MD office

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results in delays in ordering and delivery
into delays in project completions. Company’s main customers are Public Sector Undertakings.
Timely supply of materials and execution of projects are critical not only to avoid cost and
time overruns but to avoid huge penalties and fines. Therefore, now company wants to
decentralize its processes and to get studied and evaluated all the processes. Company wants
to get implemented sound internal control systems and risk management in its all-critical processes.

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.have pointed out
Company’s statutory auditors in their recent audit report, have raised serious concern that

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eand non-reconciliation
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lack of segregation of duties, lack of periodical verification of assets
of debtors and creditors, amongst other missing operational acontrols.

Risk management relates to how an organization sets objectives, then identifies, analyses,
and responds to those risks that could potentially impact its ability to realize its objectives.
Management performs risk assessment activities as part of the ordinary course of business
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in each of these categories. Examples include strategic planning, marketing planning, capital
planning, budgeting, hedging, and incentive pay out structure.
Internal controls are measures, put in place by management to ensure reliability of financial
reporting, promote efficiency and effectiveness in operations and compliance with laws.
The objective of an internal audit is to evaluate compliance with company’s laid down procedures,
applicable laws, and international standards. Data and reports are reviewed to assure consistency
and compliance. Thus, internal audit provides a value-added service to management and to
the board of directors by detecting and correcting weaknesses in a process before external
audits discover them. This can protect the organization from loss of reputation and regulatory
fines.
Company has engaged you, as an Internal Auditor. In the light of the above, answer the
following questions :
(a) What key steps you would take to establish internal controls in the company ?
(b) Narrate the key aspects you would examine to evaluate effectiveness and efficiency
of internal controls. (5 marks)
(c) Explain the role of internal audit in internal control and in risk management.
2. (a) You are in the process of evaluating the internal controls of a company by focusing
on controls operating for creditors from whom various goods are being purchased
by the company. In this respect, you want to collect information about existence,
operation and efficiency of internal controls in the company. You plan to prepare
a set of questions to be circulated amongst the executives and employees of the
company for their response. Which method is being contemplated by you for evaluating
internal controls ?
Prepare a set of few questions regarding controls operating for creditors.

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(b) Planning is not a discrete phase of an audit, but rather a continual and iterative process

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that often begins shortly after the completion of the previous audit and continues until
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scertain matters prior to the auditor's identification and assessment of the risks of material
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the completion of the current audit engagement. Planning includes the need to consider

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ag misstatement. Explain and discuss the key matters that need to be considered by
the auditor prior to the identification and assessment of the risks of material misstatement.
(c) (i) After an illustrious career in Indian Audit & Accounts Service for about 25
years, Parth, a postgraduate in law, has taken voluntary retirement from

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government service. Being in fine spirits, he wants to take responsibility as

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Chief Internal Auditor in the corporate sector. On looking at attractive
compensation packages, hem
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sbusiness. The Board of company is keen on him due
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applied for such position in a leading listed company

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engaged in oil refining
to his impressive
Can he be appointed in this leading position of said company ? Explain with
reference to the legal provisions of the Companies Act, 2013.
(2 marks)
(ii) D, is an internal auditor of a listed company. The company wants to make

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sure that it is in compliance with SEBI requirements at all times and it is

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never on the wrong side of the law. It asks its internal auditor to manage

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its compliance tracking system including directly corresponding with regulator

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in this regard. The profile and scope of internal audit agreed at time of
appointment included ‘‘compliance with laws and regulations.’’
Can he perform such type of activities in capacity of internal auditor of company ?
(3 marks)

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3. G N & Company, a newly established firm of Company Secretaries, has been appointed
as internal auditors of a large manufacturing company. Partners of the firm have no prior
experience of handling such large internal audit assignment independently. They are keen to
know how to proceed for audit. G, Partner in Charge of the Internal Audit has undergone
his practical training with you and has approached you for your invaluable guidance and
mentoring in this regard.

You, a senior partner of a well-established firm of Company Secretaries, told him that internal
auditors should possess certain skills and competence, in addition to being independent and
objective in their assessments. You advised him that effective planning is key to success for
every project by quoting a well-known saying that if you fail to plan, you plan to fail. You
also advised that internal auditors must plan and conduct meetings with various stakeholders
including board of directors, senior management and others, to understand the business
environment and their requirements.

Answer the following questions of G, Partner of the G N & Company :

(a) Explain what skills and competence internal auditors must possess ?

(b) Mention the sources wherefrom G N & Co. would obtain knowledge about company’s
business and its environment ?

(c) Emphasize in brief why assessment of internal control environment is so important
and advise the factors to be kept in mind while assessing the control environment
of the company.

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Attempt all parts of either Q. No. 4 or Q. No. 4A

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sdrive during the year 2024-25 to support victims of a flood in Uttarakhand.agThe
4. (a) ABC Foundation, a registered NGO based in Mumbai, launched a nationwide donation

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These funds were then sent to different NGOs operating in Uttarakhand, who were
actively involved in flood relief work.
ABC Foundation has appointed you to audit its accounts for the year in which it
collected and remitted donations for flood victims. Draft the audit programme for audit

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of receipts of donations and remittance of the collected amount to different NGOs.

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Mention three points each, peculiar to the situation, which you would like to incorporate

e m of said receipts and remittances of donations.
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in your audit programme for audit

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Rise of digital platformsahas created new opportunities for financial institutions to innovate
(b)
and create new products and services, such as mobile banking and online investment
platforms. Internal auditors need to be able to identify and evaluate these opportunities
and ensure that they are pursued in a way that is consistent with the organization’s
strategy and objectives. Further, use of latest technologies in systems in organizations

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is an emerging issue in internal audit as it presents new risks and challenges that

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internal audit must address.

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In this context, what are the areas internal audit should focus on, when auditing the

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ag (5 marks)
(c) ABC Ltd., engaged in the manufacturing of various products in its factory, is concerned
with shortage in production and there arose suspicion of inventory fraud.

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You are appointed by ABC Ltd. to evaluate the options for verifying the process
to reveal fraud and the corrective action to be taken. As an investigating accountant
what will be your areas of verification and the procedure to be followed for verification
of defalcation of inventory ?
OR (Alternate to Q. No. 4)
4A. (a) XYZ Ltd. has appointed PK, to conduct their internal audit for the new financial
year. The Audit committee requested PK, to present a detailed report on their findings
and areas where immediate action is needed to mitigate critical risks.
What should be the content of the internal audit report to address this requirement
of the Audit Committee ? Answer with reference to the Standard on Internal Audit
(SIA) 370.
(b) Rupee Bank Ltd. is suffering from huge number of NPAs. During the month of
April 2025, the management of the bank decided to sell some of its NPAs. Bank
is doing this exercise for the first time. The management has selected following NPA
accounts for sale :
Name NPA since F.Y. Amount (Rs. in Lakhs)
ABC Ltd. 2020-21 28.34
AEF Pvt. Ltd. 2019-20 56.65
VXY Fabric Corporation 2022-23 38.60
KOT Iron Works 2023-24 41.70
JKL & Associates 2021-22 60

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Being internal auditor of the bank, you are required to scrutinize the proposal made

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by the bank and help them by providing specific points to be considered.
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a and diversified organizations, which may make it difficult for internal auditors to understand
(c) Modern business operations are becoming increasingly complex, particularly in

the entire process and to identify potential risks. It arises due to the multitude of
processes, systems and business units within an organization, making it difficult to
understand how they all fit together and how they impact the organization's objectives.
In this context, to overcome this challenge in internal audits, what are the steps

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organizations should take ?

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5. Case Study : a g
ABC Pharmaceuticals Ltd., a listed company, is under forensic investigation following the
resignation of its statutory auditors. The auditors cited concerns over financial irregularities.
An internal audit revealed the following :

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• Multiple vendor payments just under the ` 10 lakh approval threshold.

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• Repetitive vendor invoice amounts ending in specific digits.

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• Round-number expense reimbursements from a group of employees.

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Suspicious fund transfers through group companies to offshore accounts and back to
related parties (possible layering).

• Email evidence of backdated invoices and manipulated purchase orders.

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As a forensic auditor, answer the following questions :

(a) How would Benford’s Law be applied to detect irregularities in vendor and reimbursement
transactions ? What anomalies would be considered as red flags ?

(b) Explain the concept of layering in forensic audit. How would you trace and establish
a layering mechanism in the fund transfers ?

(c) What data analytics techniques can be used to detect anomalies or collusion in Employee
Reimbursements ?

(d) How would you preserve and analyze email evidence ? What role does email data
play in proving manipulation ?

(e) Suggest internal audit measures and controls that could have helped in identifying these
red flags earlier.

(4+4+4+4+4=20 marks)

Attempt all parts of either Q. No. 6 or Q. No. 6A

6. (a) Red flags are systems or indications of situations of Fraud. A red flag is a signal
and a set of circumstances that are something unusual in nature.

During the statutory audit of a branch of public sector bank, auditors have following,
amongst others, observations :

• Branch Manager and joint-custodians (JCs) of cash hardly had any leave during
the year.

• Branch Manager and JCs arrives always early and goes late and works till
late evening.

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• No cash shortages have been shown on any day, while excess cash has been

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• They have been reluctant to provide the required information to the auditors

and have been never cooperative to produce the required records timely.

• They have been disputing on audit issues.

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Non-compliance of regulatory inspection reports persisting since long and had

e mand bank's policies/ procedures.
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no respect to regulations

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You are required to identify

facts.

(b) What do you understand by digital Incident Response (IR) ? Describe in brief the

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key steps of the process.

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(c) Data Mining Techniques have become increasingly important in fraud detection due

to the sheer volume of data that needs to be processed and analyzed in order to

identify potentially fraudulent behaviors.

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Explain in brief which data mining technique would be most appropriate in the following
circumstances :

(i) To identify abnormal pattern of logging the systems out of office hours.

(ii) To identify potentially fraudulent behaviour based upon series of criteria.

(iii) To identify complex pattern of fraudulent behaviour that may not be immediately
apparent.

(iv) To identify suspicious language/emotional tone in emails used in frauds.

(2+1+1+1=5 marks)

(d) You are required to identify the types of cybercrimes from the given situations :

(i) An email that appears to originate from one source but actually has been
sent from another source.

(ii) Making the websites/services unavailable.

(iii) Writing readymade computer programs to attack the computer and get enjoyment
out of destruction.

(iv) Changing the data either before or during entry into the computer systems.

(v) Pretending to be someone he is actually not by creating fake email.

OR (Alternate to Q. No. 6)

6A. (a) PQR Ltd. is a listed company having turnover of ` 100 crore & plans expansion
by installation of new machines at new building having total additional project cost
of ` 40 crore.

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Purpose ` (Crores)

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20

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For Machinery 17

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Total 40

Project gets implemented in 2024-25 and one of the accountants reports to the Managing
Director that some suspicious transactions are noticed in the purchase of building material.
But the Management is confused as to whether they should get an Audit or Forensic

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Audit done for the same.

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Advise Management about the difference

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(b) a accounting engagement involving gathering of evidence
Tarun is performing a forensic
in relation to suspected fraud of substantial amount in a company. He has been appointed
under the terms of a contractual agreement with the company.

The company operates in an electronic environment. While performing engagement,
his team has gathered evidence from electronic records in Enterprise Resource Planning

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. doing so, the
system (ERP), messages in company’s e-mail system and also from system logs and

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audit trails generated by company’s computer systems. However, while
team has failed to take care of aspects such as keeping s
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records of each person

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in team gathering relevant evidence, date and time of collection
evidence. What implications would it have on forensic accounting engagement ?

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(c) ABC Limited engaged in manufacturing of floor coverings has taken a Product Liability
Insurance policy (PLI). Such a policy covers risk of liabilities for damages for bodily
injury resulting from sale and distribution of floor coverings by vendors of ABC Limited’s
products. The policy is also subject to ‘‘claim series’’ clause. A Claims Series event
is a series of two or more claims arising from one specific common cause which
are attributable to the same fault in design or manufacture of products or supply
of the same products showing the same defect. A claim series event is deemed to
be one claim under the terms and conditions of PLI policy.

The company has been asked to shell out damages of ` 3 crores due to supply
of faulty products to one of its vendors. The vendor had sold floor coverings to
a 5-star hotel which has alleged that harmful chemicals used in dyeing of floor coverings
have resulted in skin ailments to some of its guests.

Being in capacity of Forensic Professional appointed by insurance company, what special
issues would you keep in mind while dealing with claims involving PLI policy covering
such matters ?

(d) HIJ Industries is a leading textile manufacturing listed company. In the course of evidence
collection and analysis, it was observed that the company is involved in siphoning
of funds through payments to shell companies. Hence, SEBI appointed K & Associates,
as forensic auditors, to identify the alleged fraud in the company. Explain in brief
the steps to be taken by K & Associates in the process of forensic audit.

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