CS Professional June 2026 Question Paper Internal and Forensic Audit

FOR CS PROFESSIONAL EXAM PREPARATION

CS Professional 2026
Question Paper ·
Internal and Forensic
Audit
EXAM YEAR TYPE SUBJECT

CS Professional 2026 Question Paper Internal and Forensic Audit
DATE

June 2026

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 Maximum marks : 100

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Total number of questions : 6
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Total number of printed pages : 12

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NOTE : Answer ALL Questions.

PART-I

1. Case Study :
Unique Healthcare Ltd. is a radiological instruments manufacturing company in Northern India

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radiological instruments supplying its products .to private and public sector hospitals and healthcare
having its registered office and factories in New Delhi. Company deals in wide range of

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products have been added in itsgproduct line. Company’s operations with new technology,
centres. In recent past, due to increasing

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sales turnover and customer base are increasing leaps and bounds.
Company’s Managing Director and CEO a Professional Entrepreneur, appreciates that an internal
audit is an independent objective assurance and consulting activity to add-value and improve
an organization’s operations. It helps an organization in accomplishing its objectives by bringing

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a systematic, disciplined approach to evaluate and improve the effectiveness of risk management,

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control and governance processes.
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. from internal audit
c. o Considering potential of internal auditing, CEO Gupta has high expectations
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service

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and to the board of directors by detecting and correcting weaknesses in a process before
external audits discover them. This protects the organization from loss of reputation and regulatory
fines. He believes that the objective of an Internal Audit is to evaluate compliance with procedures,
applicable laws, regulations and international standards. Data and reports are reviewed to
assure consistency and compliance.
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Currently, company has a small in-house team lead by an unqualified person for internal audit
function guided by the company’s statutory auditors. Now, company, realizing the benefits
of sound internal control systems that ensure compliance with laws and regulations, enhancing
efficiencies and minimizing losses, has decided to outsource the internal audit activity, instead
of creating a new full-fledged internal audit department in the company. This would also help
company avoid huge costs in managing and in-house internal audit department.

You, a qualified Company Secretary practising mainly in internal auditing, have been approached
by the MD. You have been offered the internal audit of the company for next three years.

In your letter of appointment of internal auditor, in the scope of audit and in the terms
of reference paragraphs, management has entrusted you to carry out a comprehensive review
of all operations of the company and to evaluate and assess the existence, adequacy and
effectiveness of internal controls therein, pointing out weaknesses if any in and suggesting
measures to control them in an actionable manner.

Apart from the above, company management has specifically mandated you to minimize non-
compliance and penalties and also the adverse comments in statutory auditors’ reports.

With reference to the above, you as a Company Secretary are required to answer the following
questions :

(a) With respect to internal auditing describe authority and responsibility of internal auditor.

(b) What are the laws and regulations that govern internal audit activities in India ?

(c) What are the factors that company’s statutory auditors are mandated to examine to
ensure whether company’s internal audit system is commensurate with the size of the
company and nature of its business ?

(5+5+5=15 marks)

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2. (a) “Communicating audit results effectively is a very crucial aspect of the audit engagement.”

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Internal auditor must prepare a draft issue sheet, draft report of all the issues identified
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during the audit engagement and the same must be communicated to the relevant

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management level and concluded with agreed action plan to be implemented for improving

You are required to prepare a format of audit issue sheet, what an issue sheet should
include, mentioning any two key considerations to be made while communicating audit
issue ?

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. the auditor comes across various records and
(b) During the verification of transactions, the auditor examines the supporting documents

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e any unusual transactions, he verifies the same
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and records. In scrutiny of documents,

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documents and if he comes across

a scanning of records which require expertise and experience.
thoroughly. This is called
The auditor can rely on the documents depending upon the origin (source) of the
documents and the efficiency of the internal control system in operation.

You, a practising Company Secretary have deputed a newly appointed assistant for

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carrying out preliminary routine internal audit procedures. You have assigned him the

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task of vouching. Your assistant is curious to know about vouching. You have been

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asked to answer following questions ?

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(i) What are the purposes of vouching ?
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a (ii) What are the major reliability categories of documents based on their origin
and availability ?

(2+3=5 marks)

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(c) Artificial intelligence (AI) and Machine Learning (ML) are revoltuionizing, transforming
various industries, including the field of internal control. Internal control refers to the
processes, procedures and systems that an organization has in place to ensure that
it operates efficiently, effectively and ethically.

As an internal auditor, describe how Artificial Intelligence (AI) and Machine Learning
(ML) can improve internal controls in current digital era ?

3. (a) Nest Advisors is a management consulting firm having 250 fortune company client
bases. The CEO of the company is concerned about high employee attrition rate
in his company. He has given assignment to you to dig out the reasons for such
high attrition rate as well as any way forward. What factors does an Internal Auditor
consider in such analysis ?

(b) Sunny Electric Ltd. is a regional electricity supply company facing frequent power
outages, billing discrepancies and high transmission losses. The management has asked
the internal audit team to conduct an audit of the company’s operations, focusing
on technical efficiency, revenue assurance and regulatory compliance.

Based on the above information, you are required to :

(i) Identify the key areas the internal audit team should focus on while auditing
Sunny Electric Ltd.

(ii) Suggest internal audit procedures to evaluate operational efficiency and control
effectiveness in these areas.
(3+2=5 marks)

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(c) CA RR, the internal auditor of ABC Ltd., a medium-sized trading company, was

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reviewing the company’s internal control system as part of his audit procedures. He

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• m An employee failed to take action on an important report due to lack sof
noticed following instances where errors and lapses occurred :

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a • The finance team made duplicate payments.
• Two employees colluded to override a system check related to customer credit
limits.
• The owner approved certain transactions bypassing standard operating procedures,
raising concerns about management override.

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• Duties were not segregated properly due to limited staff strength.
CA RR discussed these findings with. the management and explained that such control
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failures, despite the existence ofe internal controls, are not rare. He also highlighted
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that internal control systemslainherently have certain limitations.
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(i) Based on the above, what is CA RR trying to communicate to the management ?
(ii) What are the inherent limitations of internal control systems that may have
led to these issues ?
(2+3=5 marks)

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

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c. o impact on risk management. Internal auditors are being askedmto assess the culture
4. (a) Culture is an important factor in organizational success and can have a significant

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of the organization and to help identify potential cultural risks that may affect the

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organization’s objectives.
What are the ways in which internal auditors can evaluate and assess organizational
culture ?

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(b) ABC Ltd., a manufacturing company, has recently implemented a new ERP system
for processing all financial transactions. During the audit, the auditors notice that :
• some User IDs are being shared among employees.
• It is not clear whether the audit trail feature has been consistently active and
secure, and
• access logs for audit trails and configuration changes are not routinely reviewed.
You are required to :
(i) Explain the purpose and importance of an audit trail in a computerized accounting
system.
(ii) Also advise the key internal controls which may be required to be implemented
and operated to verify the functionality of the audit trail by the auditor.
(2+3=5 marks)
(c) Sankalp Manufacturing Ltd. has recently appointed a new audit firm to conduct its
statutory audit. During the initial planning meeting, the audit partner emphasized the
firm’s commitment to quality control in compliance with SIA 220.
However, the audit team faced challenges including unclear delegation of responsibilities,
inconsistent documentation and inadequate review of audit procedures by the engagement
partner.
The audit firm now wants to strengthen its quality control procedures as per SIA
220 to ensure the audit is conducted effectively and meets professional standards.
With reference to the above information, explain how the audit firm can apply SIA
220 to improve the quality control of the audit engagement at Sankalp Manufacturing
Ltd. Illustrate key elements of quality control that should be implemented.

1/2026/IFA/OBE Contd. ........

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OR (Alternative to Q. No. 4)

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co of audit risk and its three components. She mentions that while two
4A. (i) CA SS is conducting a training session for newly joined audit trainees. She explains

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the concept

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components

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influenced by the auditor.

by the auditor. Give two examples of this component.
(b) Also explain how the auditor can manage this component to keep audit risk
at a low level.
(3+2=5 marks)

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(ii) Cancer Research Hospital, a charitable healthcare institution, provides medical services

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at subsidized rates. During the audit for the financial year 2025-26, the auditor observed

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the following :

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• Bills had not been issued to some partients even though they were recorded
in the patient register.
• Certain donations received for setting up a dialysis unit were utilized for general
administrative expenses.
• Grants received from a government health scheme were recorded, but supporting
documentation or correspondence were missing.

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• The hospital maintained a large stock of medicines and medical supplies, however,

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there were no proper records or controls over their issues and use.

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• There were significant deviations between budgeted and actual expenditures,

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particularly in staff salaries and equipment maintenance,

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In view of above, discuss the special steps or audit procedures an auditor should
apply while auditing the transactions of hospital ?

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(iii) Tushar has been appointed as internal auditor for Spark Limited, a medium-sized
manufacturing company. During the review, Tushar notices several discrepancies in the
disbursement records and suspects there might be weaknesses in the internal control
system. Additionally, there have been recent changes in the company’s business policies
that he was not informed about. Tushar is concerned about maintaining his independence
and objectivity while ensuring that management is aware of these issues.
What are the responsibilities of Tushar as an Internal Auditor with respect to the
accounting function and financial records of the organization ?

PART-II

5. Case Study :

Balaji Enterprises Private Limited (BAPL) is one of the major agricultural equipment
manufacturers and suppliers in Uttar Pradesh. Company has achieved a sales turnover of
` 100 crore in financial year 2024-25 and has estimated a sales turnover ` 200 crore
in FY 2025-26. Company has several group companies in different business lines. BAPL
has cash credit facilities of ` 50 crore and performance bank guarantee of ` 30 crore from
a public sector bank. Two months ago, company renewed the CC limit with enhancement
to ` 100 crore. In a recent stock audit conducted by the bank’s stock auditors, it has
been pointed out that enhanced limit has not been utilized for intended purpose and end-
use of funds, as declared by the borrower, has not been verified by the bank and enhanced
funds have been siphoned in group companies. Stock auditors asked the borrower to produce
the ledger accounts of all related parties and the transactions in the ledgers substantiated
those funds have been siphoned to these companies.

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Surprisingly, company’s statutory auditors, though specifically mandated to comment on utilization

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of working capital funds in company’s statutory auditors’ report, have not commented upon

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the same. Rather, statutory auditors have confirmed that there is no mis-utilization of working

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capital funds. Stock auditors requested to the borrower’s accounts department to

a meeting with Directors. However, manager accounts denied for approaching the company

directors directly.

The ubiquitous issue of corruption and the high risk of internal fraud raise serious concerns

about the liability of corporate directors. There has been seminal shift in the Indian corporate

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legal regime with the enactment of the Companies Act 2013 and more recent amendments.

s emauditors’ findings, asked various explanations from
lthata as the funds have been utilized by the group companies
Bank management in compliance of stock

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the borrower. The borrower replied

under the same management, hence bank should have no objection as there is no mis-utilization

of the funds. Borrower contended that they are paying interest regularly and are maintaining

their all-loan accounts standard.

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Borrower further stated that bank has hypothecated the immovable valuing more than the

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objection

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fraud has been committed by the borrower.

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(a) Whether there are any fraud indications in the case ? Briefly describe what kinds

of frauds, specifically to economy and financial transactions, have occurred ?

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(b) What are the different job-roles of Company Secretary in the field of Forensic Audit ?

(c) Briefly explain Corruption, Asset Misappropriation and Financial Statement Fraud in
brief.

(d) In forensic auditing, specific procedures are carried out in order to produce evidence.
Investigator uses various techniques and procedures to identify and to gather evidence
to prove, for example, how long have fraudulent activities existed and carried out
and how it was conducted and concealed by the perpetrators. What are the techniques
investigators can use in gathering evidences ?

(5+5+5+5=20 marks)

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

6. (a) M Ltd. appointed S & Co., Chartered Accountants, as statutory auditors for the
financial year 2025-26. During the audit, the statutory auditors noticed fake and duplicate
expenses reimbursement of ` 1.10 crore to the directors of the company.

In this situation, explain the procedure to be adopted by the auditors for reporting
fraud.

(b) What is cyber fraud ? What is the difference between Phishing and Vishing ?

(c) A reckless waste of firm’s assets by speculating on the stock market and incompetence/
negligence in managing business of Swastik Ltd., apart from omission, or perversion
of truth and failure to file information and report were noticed. The management of
Swastik Ltd. was in a dilemma whether to treat this as fraud or non-compliance.
You are required to provide a note to the management of Swastik Ltd. as a practising
Company Secretary regarding how to differentiate between Fraud and Non-Compliance.

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(d) Garvit Pvt. Ltd. is an e-commerce company that has recently started using blockchain

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technology to record customer payments made through cryptocurrency and to execute

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smart contracts with suppliers. The system is connected to the company’s existing

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accounting software through Application Programming Interfaces (APIs).
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Management believes that blockchain is fully secure because transactions cannot be
altered once recorded. However, the auditor is concerned about issues such as loss
of private keys, inability to reverse incorrect transactions, cyber-attacks on network
nodes, data privacy compliance and changing legal regulations relating to cryptocurrency.
Based on the above details, answer the following :
(i) What are the common risks associated with the use of blockchain technology ?

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(ii) Also discuss the probable audit implications when an organization uses blockchain

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technology

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(2+3=5 marks)

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OR (Alternative to Q. No. 6)
6A. (i) Companies Act 2013, goes beyond professional liability for fraud and extends to personal
liability if a company continues.
In the context, you are required to examine and answer Yes or No whether following
are frauds in terms of Companies Act or not, attracting penalty under section 447
of the Companies Act 2013. If yes, name the designation of the responsible officer.

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(a) Furnishing false information or suppressing any material information of which

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he or she is aware.

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(b) Inducing persons to invest money.

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(c) Acceptance of deposit with intent to defraud depositors

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(d) Furnishing false statement or mutilation or destruction of documents.
(e) Making a false statement in any return, report, certificate or financial statement.

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(ii) The Bhartiya Sakshya Adhiniyam play an important role in determining the admissibility
and weight of evidence in case involving forensic audit. By understanding the rules
and principles of evidence law, forensic auditors can ensure that their findings are
presented in a manner that is admissible and persuasive in court.

Under Bhartiya Sakshya Adhiniyam 2023, what are the basic rules to be kept in
mind to have evidence of value in the eyes of courts of law and be relied upon
reading the decision ? Explain in brief.

(iii) The development of digital technologies has led to the growth of the internet, social
media, and other digital platforms that have become essential components of modern
life. Criminal have found new ways to exploit vulnerabilities in these technologies. The
rise of digital technologies has increased the crime rate which becomes a major concern
for Governments, Business Industry, Corporates and Individuals around the world.
Criminals are gaining access to sensitive information, financial data, or intellectual property.

(a) You are required to explain the difference between traditional white-collar crime
and cybercrime ?

(b) Explain roles and responsibilities of the Board of Directors and Company
Secretaries in protection from cybercrimes.

(2+3=5 marks)

(iv) As per Association of Certified Fraud Examiners (ACFE) 2022 report 85% of all
fraudsters displayed at least one behavioural red flag.

Briefly explain any such five behavioural red flags as early warning indicator of fraud.

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