Q.State whether the following statement is True or False, with a brief justification: "An audit guarantees that a company's accounts are completely free from fraud."

Auditing meaningfully reduces the risk of undetected fraud but cannot eliminate it entirely — this honest limitation is explicitly recognised.

This statement is FALSE, and the reasoning matters as much as the verdict.

An audit is a systematic, evidence-based examination designed to give reasonable assurance that the financial statements present a true and fair view — but 'reasonable assurance' is deliberately weaker than an absolute guarantee. Section f's list of auditing's limitations explains why: in practice, an auditor typically works through test-checking (examining a representative sample of transactions) rather than verifying every single entry in a large organisation's books, simply because full verification of a large volume of transactions is not practically feasible. A fraud that is carefully and deliberately concealed — particularly one involving collusion between two or more employees, or forged supporting documents — can escape detection through this sampling-based process. …

Students sometimes treat an audit as an absolute guarantee simply because it is a formal, official-sounding process. The correct, exam-safe answer always distinguishes between an audit providing REASONABLE ASSURANCE (a meaningful, evidence-based reduction in risk) and an ABSOLUTE GU …