Commercial Law and Preliminaries of Auditing · Class 11 Commerce
Ch 4Errors and Frauds — Class 11 Commercial Law and Preliminaries of Auditing, concept-first.
However carefully a set of books is maintained, mistakes creep in. In auditing, the word "error" is reserved for an unintentional mistake in recording, classifying, summarising, or presenting a transaction — there is no intent to deceive anyone, only carelessness, ignorance, or oversight.
Key concepts
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Types of Accounting Errors
Accounting errors are unintentional mistakes, classified into four types: Error of Omission (a transaction left out wholly — complete omission, not caught by the Trial Balance — or partly — partial omission, which IS cau…
Most relevant Q&A
Chapter contents
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Errors in Accounting — Meaning and Types
However carefully a set of books is maintained, mistakes creep in. In auditing, the word "error" is reserved for an unintentional mistake in recording, classifying, summarising, or presenting a transa…
Detection of Errors by the Auditor
Detecting errors is largely a matter of systematic checking, because errors are unintentional and are rarely hidden on purpose. An auditor typically uses the following techniques.
Fraud — Misappropriation and Manipulation
Unlike an error, fraud is an intentional act, done with the deliberate object of deceiving someone or gaining a wrongful advantage — typically financial.
Detection of Frauds by the Auditor
Fraud is, by definition, deliberately concealed — so detecting it demands sharper, less predictable techniques than the routine checking used for errors.
Duties of the Auditor in Relation to Errors and Frauds
What exactly is an auditor expected to do about errors and frauds? This question has a long, well-settled answer in auditing theory, rooted in a famous piece of English case law that is still taught w…
More questions
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- Q1Which of the following is an example of an 'Error of Principle'? (a) A credit sale of ₹5,000, correctly entered in the Sales Book, but poste…Free
- Q2A firm's Trial Balance still agrees even though its books contain two independent mistakes: the Purchases Book has been overcast by ₹800 (in…Free
- Q3Which of the following is the auditor's most effective method for detecting an 'error of complete omission' — a transaction that has never b…Free
- Q4Which of the following best describes 'Misappropriation of Goods'? (a) Recording a cash sale in the books as though it were a cash purchase…Preview
- Q5The fraudulent practice in which cash received from one debtor is pocketed by an employee, and the resulting shortfall is later concealed by…Preview
- Q6A company deliberately overvalues its closing stock and defers recording certain expenses to the next accounting year, so that its published…Preview
- Q7The well-known principle that 'an auditor is a watchdog, but not a bloodhound' — laid down in Re Kingston Cotton Mill Co. (No. 2), 1896 — me…Preview
- Q8Which of the following audit techniques is most useful for detecting a fraud such as the misappropriation of cash? (a) Reviewing only the cl…Preview