Question

We know that as humans we are going to make mistakes. There is simply no way around that fact. Should we be nervous about making errors? As auditors, what should we think when we see an error? In other words, when we see an error, do we always think fraud? Is there a way to tell the difference? Is an auditor responsible for finding errors?

Answer 1

Let us first find out what the errors and fraud means.

Error: Errors are unintentional misstatements or ommissions or disclosures in teh financial statements. Example of errors are: Wronng application of accounting principles and accounting estimates, mistakes in recording accounting data etc. It means errors are unintentional mistakes.

Fraud: Fraud is intentional act. This can be done by one person or more persons, be it management, employees, or any third party etc. Examples are fraudulent financial reporting, misappropriation of assets etc. Fraud results in the misstatement of the financial statements.

Now, the auditor's duty is to form an opinion on whether the financial statements are presented fairly , in all material respects, in accordance with the applicable financial reporting framework.Because of the inherent nature or concealment aspects of fraud and the need to apply judgement in evaluating fraud risk, even a properly planned and executed audit may fail to detect fraud. In expressing an audit opinion, the auditor provides only reasonable (not absolute) assurance that the financial statements are free from material misstatements resulting from errors and fraud.

So, the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements, whether caused by error or fraud.