diff --git a/SECURITY.md b/SECURITY.md
index f346f9f..0d064dd 100644
--- a/SECURITY.md
+++ b/SECURITY.md
@@ -2,11 +2,15 @@
 
 ## Audit Status
 
-**NOT AUDITED** - Use at your own risk.
+**AUDITED** - AuditAgent scan completed January 4, 2026 (Scan ID: 26).
+
+See [audits/](audits/) directory for full reports.
 
 ## Security Contact
 
-Report vulnerabilities to: security@liq.protocol
+Report vulnerabilities via [GitHub Issues](https://github.com/igor53627/liq/issues) with the `security` label.
+
+For sensitive disclosures, use [GitHub's private vulnerability reporting](https://github.com/igor53627/liq/security/advisories/new).
 
 ## Known Security Considerations
 
@@ -35,15 +39,16 @@ Report vulnerabilities to: security@liq.protocol
 
 **Design Decision**: `poolBalance` is tracked in storage instead of calling `balanceOf()` before each loan.
 
-**Invariant**: `poolBalance` must always equal actual USDC balance.
+**Invariant**: `poolBalance` should equal actual USDC balance.
 
 **Maintained by**:
 - `deposit()`: poolBalance += amount
 - `withdraw()`: poolBalance -= amount
 - Flash loan: verified via `balanceOf() >= poolBalance` after callback
 - Reentrancy guard: prevents deposit/withdraw during callback
+- `sync()`: owner can call to set poolBalance = actual balance
 
-**Risk**: If someone sends USDC directly to contract (not via deposit), poolBalance will be less than actual balance. This is safe - it just means extra USDC is locked until owner withdraws.
+**Design Note - Direct Transfers**: The owner deposits USDC via `deposit()`, not by sending USDC directly to the contract. This design saves gas by avoiding an extra balance check. If someone accidentally sends USDC directly, the owner can call `sync()` to claim it. Any excess USDC (from direct transfers) may be extracted via flash loan before `sync()` is called - this is accepted behavior since direct transfers are not the intended deposit method.
 
 ### 4. Reentrancy Guard
 
diff --git a/audits/audit_agent_report_26_0a29bc74-8423-4735-bc20-c5e9c158c246.pdf b/audits/audit_agent_report_26_0a29bc74-8423-4735-bc20-c5e9c158c246.pdf
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diff --git a/audits/audit_responses.md b/audits/audit_responses.md
new file mode 100644
index 0000000..966ddfd
--- /dev/null
+++ b/audits/audit_responses.md
@@ -0,0 +1,87 @@
+# Audit Responses
+
+This document tracks responses to audit findings that are either false positives, acknowledged design decisions, or out of scope.
+
+## AuditAgent Report - January 4, 2026 (Scan ID: 26)
+
+### False Positives / Scanner Misunderstandings
+
+**Finding #4: Unsafe Return Statement In Yul Block** - FALSE POSITIVE
+- The `return(0x00, 0x20)` statements in Yul are intentional and correct
+- They are used in deliberate branches with no intended fallthrough
+- This is standard Yul pattern for returning values from function selectors
+
+**Finding #12: Unused State Variable** - FALSE POSITIVE
+- The `locked` and `USDC` variables are declared for storage layout/ABI purposes
+- They are accessed via Yul assembly using slot numbers, not Solidity variable names
+- The scanner doesn't recognize Yul-based access patterns
+
+### Acknowledged Design Decisions
+
+**Finding #5: Non-Specific Solidity Pragma Version** - ACKNOWLEDGED
+- Using `^0.8.20` is acceptable as Foundry pins the compiler version
+- Risk is mitigated by CI testing with specific compiler version
+
+**Finding #6: PUSH0 Opcode Compatibility Issue** - ACKNOWLEDGED
+- Contract is deployed only on Ethereum mainnet which supports Shanghai
+- L2 deployment is not planned; if needed, would require recompilation
+
+**Finding #9: ERC-3156 non-compliance (callback return value)** - ACKNOWLEDGED
+- Intentional gas optimization, documented in SECURITY.md
+- Balance check provides equivalent security guarantee
+- Documentation updated to clarify "ERC-3156 compatible (except callback return value verification)"
+
+**Finding #10: Permissionless deposit() has no depositor accounting** - ACKNOWLEDGED
+- This is the intended design - deposits are effectively donations to the pool
+- Owner controls all withdrawals
+- Documented in README and SECURITY.md
+
+**Finding #11: High Function Complexity** - ACKNOWLEDGED
+- The fallback() function handles multiple selectors in Yul for gas optimization
+- Complexity is inherent to the selector-dispatch pattern
+- Well-documented and tested
+
+**Finding #13/#14: Missing events for critical operations** - ACKNOWLEDGED (Issue #21 closed)
+- Events were intentionally omitted to save gas in the Yul implementation
+- This is a core design choice for the gas-optimized flash loan protocol
+- Flash loans DO emit a `FlashLoan` event; only admin functions omit events
+- Users can track deposits/withdrawals via USDC Transfer events
+
+**Finding #15: No mechanism to rescue non-USDC tokens** - ACKNOWLEDGED
+- Contract is USDC-only by design
+- Adding rescue function would increase attack surface
+- Users should not send non-USDC tokens to the contract
+
+**Finding #8: Missing ERC20 return value checks** - FUTURE VERSION (Issue #20 closed)
+- Valid concern for a future redeployment
+- Current contract relies on USDC reverting on transfer failure (current behavior)
+- Since contract is stateless (poolBalance can be re-synced via `sync()`), redeployment is low-friction
+- For next version: add `if iszero(mload(0x00)) { revert(0, 0) }` after ERC20 calls
+
+### Out of Scope (Example/Test Code)
+
+**Finding #1: TestBorrower arbitrary lender injection** - TRACKED AS ISSUE #19
+- Real vulnerability but in example/test contract, not production code
+- Created issue to harden the example for safety of integrators who may copy it
+
+**Finding #7: Unsafe ERC20 Operation Usage (TestBorrower)** - OUT OF SCOPE
+- TestBorrower is example code, not production
+- Would be fixed as part of Issue #19
+
+### Acknowledged Design Decisions (Additional)
+
+**Finding #2/#3: Excess USDC extraction via flash loan** - ACKNOWLEDGED (Issue #18 closed)
+- The owner deposits USDC via `deposit()`, not by sending USDC directly to the contract
+- This design saves gas by avoiding an extra balance check
+- In normal operation, there should never be excess USDC (actualBalance > poolBalance)
+- If someone accidentally sends USDC directly, the owner can call `sync()` to claim it
+- Any excess USDC may be extracted via flash loan before `sync()` is called - this is accepted behavior
+
+### Summary - All Issues Resolved
+
+| Finding | Severity | Issue | Status |
+|---------|----------|-------|--------|
+| #2/#3: Excess USDC extraction | Medium | [#18](https://github.com/igor53627/liq/issues/18) | Closed - Design decision |
+| #1: TestBorrower lender injection | High (example code) | [#19](https://github.com/igor53627/liq/issues/19) | Fixed in PR #22 |
+| #8: Missing ERC20 return value checks | Info | [#20](https://github.com/igor53627/liq/issues/20) | Closed - Future version |
+| #13/#14: Missing events | Best Practices | [#21](https://github.com/igor53627/liq/issues/21) | Closed - Gas optimization |
diff --git a/src/TestBorrower.sol b/src/TestBorrower.sol
index 6c12573..9d80103 100644
--- a/src/TestBorrower.sol
+++ b/src/TestBorrower.sol
@@ -11,32 +11,45 @@ interface IFlashLender {
 
 /// @title TestBorrower
 /// @notice Simple flash loan borrower for testing - borrows and repays immediately
+/// @dev Fixed to prevent arbitrary lender injection attacks
 contract TestBorrower {
     bytes32 constant CALLBACK_SUCCESS = keccak256("ERC3156FlashBorrower.onFlashLoan");
     address constant USDC = 0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48;
 
     /// @notice Tracks the expected lender during a flash loan to prevent unauthorized callbacks
     address private expectedLender;
+    /// @notice Tracks the expected amount to prevent amount manipulation in callback
+    uint256 private expectedAmount;
 
     event FlashLoanExecuted(address lender, uint256 amount);
 
     /// @notice Borrow with event (for testing/debugging)
     function borrow(address lender, uint256 amount) external {
         expectedLender = lender;
+        expectedAmount = amount;
         IFlashLender(lender).flashLoan(address(this), USDC, amount, "");
         expectedLender = address(0);
+        expectedAmount = 0;
         emit FlashLoanExecuted(lender, amount);
     }
 
     /// @notice Borrow without event (gas optimized for production)
     function borrowSilent(address lender, uint256 amount) external {
         expectedLender = lender;
+        expectedAmount = amount;
         IFlashLender(lender).flashLoan(address(this), USDC, amount, "");
         expectedLender = address(0);
+        expectedAmount = 0;
     }
 
-    function onFlashLoan(address, address, uint256 amount, uint256, bytes calldata) external returns (bytes32) {
+    function onFlashLoan(address initiator, address token, uint256 amount, uint256, bytes calldata)
+        external
+        returns (bytes32)
+    {
         require(msg.sender == expectedLender, "unauthorized callback");
+        require(initiator == address(this), "invalid initiator");
+        require(token == USDC, "invalid token");
+        require(amount == expectedAmount, "amount mismatch");
         bool success = IERC20(USDC).transfer(msg.sender, amount);
         require(success, "transfer failed");
         return CALLBACK_SUCCESS;