AA – Nov 2023 – L2 – Q4a – Audit Failure and Expectation Gap, Audit and Assurance Evidence

This question distinguishes between fraud and error in the audit of financial statements.

Question

ISA 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, distinguishes fraud from error and provides significant guidance on the auditor’s responsibilities to consider fraud in an audit of financial statements.

Required:
Distinguish between fraud and error giving an example of each.
(4 marks)

Answer

Fraud is the intentional act of deception by one or more individuals to obtain an unjust or illegal advantage resulting in a material misstatement of the financial statements.

Example: The alteration, falsification, or manipulation of accounting records or documents to inflate revenue.

An error is an unintentional mistake in the financial statements, including the omission of an amount or disclosure.

Example: An incorrect accounting estimate arising from oversight or misunderstanding of facts.

Tags: Audit Responsibility, Error, Financial Statements, Fraud, ISA 240
Level: Level 2

Topic: Audit and Assurance Evidence, Audit Failure and Expectation Gap
Series: NOV 2023

Uploader: Dotse