Differences Between Fraud And Accounting

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Differences between:
Errors: An error is an unintentional misstatement of the financial statements. Example: a mistake in extending price times quantity on a sales invoice.

Fraud: Fraud is an intentional misstatement of the financial statements. Fraud can happen as misappropriation of assets, often called defalcation or employee fraud, and fraudulent financial reporting, often called management fraud. Example: An example of fraudulent financial reporting is the intentional overstatement of sales near the balance sheet date to increase report earnings.

Illegal acts: Is the noncompliance with laws and regulations on the financial statement amounts and disclosures. Example: A violation of federal tax laws directly affects income tax expense …show more content…

Auditors find a variety of errors resulting from such things as mistakes in calculations, omissions, misunderstanding and misapplication of accounting standards, and incorrect summarizations and descriptions.

Material fraud:
The standards recognize that fraud is often more difficult to detect because management or the employees perpetrating the fraud attempt to conceal the fraud. Even being difficult to detect fraud, it doesn’t change the auditor’s responsibility to properly plan and perform the audit to detect material misstatements.

Illegal acts having a direct effect on the financial statements:
The auditor should obtain sufficient appropriate evidence regarding material amounts and disclosures that are directly affected by laws and regulations.

Illegal acts that do not have a direct effect on the financial statements:
The auditor should perform two procedures to identify instances of noncompliance with other laws and regulations that may have a material effect on the financial statements:

Inquire of management and those charged with governance about whether the entity is compliance with such laws and regulations. Inspect correspondence, if any, with the relevant licensing or regulatory authorities.

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