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A method for fault diagnosis of industrial systems is presented. Plant devices, sensors, actuators and diagnostic tests are described as stochastic finite-state machines. A formal composition rule of these models is given to obtain: 1) the set of admissible fault signatures; 2) their conditional probability given any fault; and 3) the conditional probability of a fault given a prescribed signature. The modularity and flexibility of this method make it suitable to deal with complex systems made by a large number of components. The method is used in an industrial automotive application, specifically the diagnosis of the throttle body and of the angular sensors measuring the throttle plate angle is described in detail.