Beyond human error, what do you think may cause a company to report errors in its...

Beyond human error, what do you think may cause a company to report errors in its financial statements to the extent that requires restatement?

Expert Solution

FINANCIAL STATEMENT IS A STRUCTURAL REPRESENTATION OF HISTORICAL FINANCIAL INFORMATION INCLUDING RELATED NOTES,INTENTED TO SHOW ENTITY'S ECONOMIC RESULTS AND POSITION AS PER APPLICABLE FINANCIAL REPORTING IN OTHER WORDS A FINANCIAL STATEMENT OF A COMPANY MUST REPRESENT TRUE AND FAIR VIEW OF COMPANY'S FINANCIAL POSITION. FINANCIAL STATEMENTS INCLUDE PROFIT AND LOSS ACCOUNT, BALANCESHEET, CASH FLOWBAND FUND FLOW STATEMENT, NOTES TO ACCOUNT.THERE ARE VARIOUS USER OF THE FINANCIAL STATEMENT OF A COMPANY AND THEY TAKE MAJOR DECISION ON THE BASIS OF FINANCIAL STATEMENT LIKE INVESTOR,SHAREHOLDER,OWNER,LENDERS AND CREDITORS,CUSTOMERS, GOVERNMENT AND MANAGEMENT ETC.BUT CERTAIN ERRORS COULD BE FOUND IN IT WHICH COULD BE AS FOLLOW-(BESIDE HUMAN ERROR)_

1-ERROR OF PRINCIPLE-:RECORDING ENTRY IN FUNDAMENTALLY INCORRECT MANNER EX-CAPITAL EXPENDITURE CHARGED TO REVENUE.NO EFFECT ON TRIAL BALANCE,BUT THEY MAY AFFECT PROFIT.

2-ERROR OF OMMISSION-WHERE TRANSACTION IS NOT RECORDED IN ACCOUNTS,WHOLLY OR PARTLY.FOR EXAMPLE :SALES OF 1000 TO A EITHER NOT RECORDED WHOLLY OR SHOWN IN SALE ACCOUNTS BUT NOT POSTED TO A'S ACCOUNT.FULL OMISSION DOES NOT AFFECT TRIAL BALANCE BUT PARTIAL OMOISSION DOES.MAY AFFECT PROFIT.

3-ERROR OF COMMISSION-INCORRECT RECORDING OF A TRANSACTION. MAY BE OF FOLLOWING TYPE-a)posting error-wrong account/amount /side

b)casting error-wrong totalling/balancing.

c)duplication error-entry recorded twice

d)carry forward error-wrong amount/side

4-COMPENSATING ERROR- WHICH ARE NULLIFIED BY THE IMPACT OFANOTHER ERROR.EXAMPLE-EXPENSE AMOUNTING TO RS.6000 WRONGLY RECORDED AT RS.8000 WHILE ANOTHER EXPENSES AMOUNTING TO RS. 2000 NOT RECORDED AT ALL.NO EFFECT ON TRIAL BALANCE. BUT MAY AFFECT PROFITS IF ONE ERROR ARISES IN REVENUE A/C AND OTHER IN A BALANCESHEET ITEM.

ekkarill92 answered 1 year ago

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