An error is an unintentional mistake in accounting records or financial statements. It occurs due to negligence, misunderstanding, oversight, or lack of knowledge.
Examples:
A fraud is an intentional act to deceive, misappropriate assets, or manipulate financial reporting.
Examples:
Key difference: Error is without intention; fraud is with intention.
Errors can be classified in several ways.
Note: Many textbooks also group errors as clerical and errors of principle. In exams, you can use either classification, but give examples.
Frauds are broadly of two types:
Also, frauds can be classified as:
Management fraud is usually harder to detect because management can override controls.
Access the complete note and unlock all topic-wise content
It's free and takes just 5 seconds
From this topic
Error is unintentional and occurs due to oversight; fraud is intentional and involves deception.
Differences (any three):
Types of errors (any three):
Always add a short example for full marks.
Financial auditing is the process of examining an organization's (or individual's) financial records to determine if they are accurate and in accordance with any applicable rules (including accepted accounting standards), regulations, and laws.
Download this note as PDF at no cost
If any AD appears on download click please wait for 30sec till it gets completed and then close it, you will be redirected to pdf/ppt notes page.
An error is an unintentional mistake in accounting records or financial statements. It occurs due to negligence, misunderstanding, oversight, or lack of knowledge.
Examples:
A fraud is an intentional act to deceive, misappropriate assets, or manipulate financial reporting.
Examples:
Key difference: Error is without intention; fraud is with intention.
Errors can be classified in several ways.
Note: Many textbooks also group errors as clerical and errors of principle. In exams, you can use either classification, but give examples.
Frauds are broadly of two types:
Also, frauds can be classified as:
Management fraud is usually harder to detect because management can override controls.
Common red flags:
These do not prove fraud, but they increase audit risk and require further testing.
Auditor uses a combination of procedures:
Important: Detection of fraud is not a guarantee; auditor provides reasonable assurance, not absolute assurance.
Prevention is mainly the responsibility of management through:
Auditor evaluates controls and reports weaknesses, but management must implement strong controls.
In exams, write auditor responsibility like this:
However, primary responsibility for prevention and detection of fraud lies with management.
Understand business + controls
↓
Assess risk (error + fraud)
↓
Test controls (if reliable)
↓
Perform substantive tests
↓
Investigate anomalies/red flags
↓
Conclude: misstatement? (material?)
↓
Communicate + modify report if needed
If these notes helped you, a quick review supports the project and helps more students find it.
Errors are unintentional mistakes due to oversight, negligence, or lack of knowledge. Frauds are intentional acts of deception to misappropriate assets or misstate results.
No intention → Error
Intention to deceive → Fraud
Conclusion: In exams, clearly write intention as the main basis and add 2–3 examples.