Characteristics Of Misstatements

Characteristics of Fraud

Misstatements in the financial statements can occur from fraud or error. The distinctive factor between fraud and error is whether the fundamental action that results in the misstatement of the financial statements is intentional or unintentional.

The term “error” signifies to an unintentional misstatement in financial statements, comprising the omission of an amount or a disclosure, such as the following:

• A mistake in collecting or processing data from which financial statements are formulated.

• An incorrect accounting estimate resulting from oversight or misinterpretation of facts. The word “fraud” raises to an intentional act by one or more individuals between management, those stimulated with governance, employees, or third parties, involving

Fraudulent financial reporting embraces intentional misstatements containing omissions of amounts or disclosures in financial statements to mislead financial statement users. Fraudulent financial reporting may be achieved by the

(Ref: Para. A36)

Inherent Limitations of an Audit in the Context of Fraud

As illustrated in ISA 200, “Objective and General Principles Governing an Audit of Financial Statements,” the objective of an audit of financial statements is to empower the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. Owing to the inherent limitations of an audit, there is a mandatory risk that some material misstatements of the financial statements will not be detected, even though the audit is properly planned and performed in accordance with