ERRORS AND FRAUDS

ISA 240 is an international auditing stardard that deals with an auditors responsibility relating to fraud in
an audit of financial statements.

The objectives of his standard therefore are,

To identify and assess the risks of material misstatement f the financial statements due to fraud.

To respond appropriately o fraud or suspected fraud identified during the audit.

Therefore according to ISA 240, An error is an unintentional mistake n the financial

statement.forexample,

Posting figured wrongly which at involve errors of omission and commission.

Misapplication of accounting policies.

Misreporting of figures.

Afraid is an international misrepresentation of financial information by one or more individuals among

the management or employees.

Forexample, Manipulation of records and documents

Misappropriation of assets especially cash for personal use

Misapplication of accounting policies.

The following are the differences between errors and frauds

Errors are in intentional while frauds are intentional.

Errors are easier to detect where as frauds are difficult to detect since most of the information is
destroyed .

Errors are committed by lower level staff while frauds are committed by knowledgeable person's in most
cases management.

The following are the instances that indicate the presence of frauds

Where the company is managed by one person r a small group of people fraud will exist in this case due
to collision or misuse of power.

Where there is high turnover of key accounting personel, this will lead to fraud arising from lack of
accountability.

Where the company's business is collapsing and failures of business are increasing, this may be fraud
arising from misuse of company's assets.
Where there is inadequate working capital to support the company's capital requirements.

The unreasonable response by management to audit questions may be due to cover up of fraud.