FRAUD AND EROR

There may be misstatement in the financial statements on account of fraud and error. Fraud may be
defined as an unintentional misstatement which may arise because of mistake in collection or
processing of data which has been used in preparation of financial statement; oversight or
misinterpretation of facts at the time of preparing financial statement mistake in application of
Accounting principles related to presentation, measurement, classification, Recognition or disclosure.

Fraud may include misappropriation of assets by embezzlement of receipts, stealing physical or

intangible assets, causing situation in which the organization has to pay for the goods or services which
have not been received. It may also include intentional omission of events, transactions, or any
significant information. It may be because of the fact that an individual is motivated to misappropriate
assets , the management is in internal or external pressure .Fraud may be defined as manipulation
,falsification ,alteration of accounting records or supporting documents which have been used at the
time of preparation of financial documents.

Fraud and Error may be distinguished as follows;-

In error the action is unintentional. In Fraud the action is intentional.

It is easy to detect and commented upon. It is difficult to detect and commented upon.

It may be because of oversight. It is deliberate concealment of facts.

True and Fair View

It is the requirement of the audit report to state that his opinion whether the financial statements
represent true and fair view of the organization’s state of affairs. The audit is conducted in accordance
with standards of auditing. In forming his opinion on the financial statements, the auditor follows
procedure which have been designed to satisfy him that the financial statements represent true and fair
view of state of affairs on financial position and operating results. There are certain limitations of the
audit .Similarly internal control measures are also limited. Therefore there is always a possibility that
some misstatements will be there. It may be that certain misstatements may come to the knowledge in
course of audit. Similarly there is unavoidable risk which may result in certain misstatements be left out.
Discovery of fraud and error is not the main objective of audit. However some such instance appear the
auditor is expected to extend his procedures to confirm or otherwise of these suspicions.

In any case the auditor is expected to see that the Profit and Loss Account and Balance Sheet has been
drawn in conformity to the requirement of the specific applicable act, relevant information and working
results have been shown in these statements, there is no window dressing, there is neither
understatement nor overstatement and there is no attempt to show the better picture than the real
one. Material facts related to expenses, income, assets liabilities unusual, exceptional, non-recurring
items have been disclosed. Generally accepted accounting principles have been followed and have
consistently been applied. Subsequent events (events that took place between the date of Balance
Sheet and the date of audit) have been taken into the account. The information has been conveyed
clearly.