AUDITING

PRSENTATION ON FRAUDS
AND ERRORS IN AUDITING

SUBMITTED BY: SUBMITTED TO:

Akash nair Ast. Prof. Shefali Ma’am
BBA VI A
WHAT IS AUDITING

• The term audit is derived from a Latin word “audire” which means to hear
authenticity of accounts is assured with the help of the independent review.
• An audit is an examination of accounting records undertaken with a view
of establishing whether they correctly and completely reflect the
transactions to which the purport to relate.”  –Lawrence R. Dickey
• “Audit is defined as an investigation of some statements of figures
involving examination of certain evidence, so as to enable an auditor to
make a report on the statement.” –Taylor and Perry
Objectives of auditing

• Primary objective
❑To determine accuracy and reliability of financial statements

• Secondary objectives
❑Detection and prevention of errors
❑Detection and prevention of frauds
 Errors in auditing
1. Errors of principle
Such errors are committed when some fundamental principle, accounting is not
properly observed in recording a transaction
2. Clerical errors
Such an error arises on account of wrong posting
❑Errors of commission: when amount of transaction or entry is incorrected recorded in
accounting books/ledger
❑Errors of omission: when transaction are not recorded in books of original entry or
posted to the ledger
❑Comepnsating errors: when 2 or more errors are committed in such a way that the
result of these errors in debit and credits is nil
❑Error of duplication: when a transaction is recorded more than once
Types of frauds

1. Misappropriation of cash: it is very common in big firms and can take place
usually through:
❑Suppressing receipts
❑Recording less amount than actual amount on receipt
❑Fictitious payments
❑Recording more amount than actual amount

2. Misappropriation of goods: This is common especially when goods are of

high value but not bulky
3. falsification/manipulation of account: accounts may be manipulated by
those responsible persons who are in top management of organization in order
to achieve certain specific objectives
5. Window dressing: When accounts are prepared in such a way that
apparently on face of it, they indicate much better picture than
actually what they are
6. Secret reserves: when accounts are prepared in such a way that
apparently of face of it, they disclose a worse picture than actually
what they are
 ERRORS V/S FRAUDS
ERRORS
REASON OF OCCURRENCE IS
IGNORANCE
UNPLANNED ACTIVITY
GENERALLY, NOT CONSIDERED AS AN
OFFENCE
CAN CAUSE UNDUE PROFIT, LOSS OR
EVEN NO IMPACT
VERY EASY TO DETECT
FRAUDS
MADE DELIBRATELY
PLANNED ACTIVITY
CONSIDERED AS OFFENCE
ALWAYS RESULT IN LOSS
DIFFICULT TO IDENTIFY