Dupage Water District is a not-for-profit entity that received federal financial assistance during the year. The District engaged an auditor for the annual audit of its financial statements. In compliance with Government Auditing Standards, the auditor also designed his audit of the District to provide reasonable assurance of detecting material misstatements resulting from illegal acts. What additional requirements does the auditor have with regard to the entitys compliance?

1. None.
2. The auditor must design the audit to provide reasonable assurance of detecting noncompliance with terms of grants and contracts.
3. The auditor must design the audit to provide reasonable assurance of detecting all misstatements resulting from illegal acts.
4. The auditor must design the audit to provide reasonable assurance of detecting any fraud.