When planning and performing audit procedures, evaluating and reporting the results thereof, the auditor should consider the risk of misstatement in the financial statements resulting from fraud or error.


It is an unintentional mistake in the financial information, which can occur any time during processing and recording of transactions. These include:

  1. Mathematical or clerical mistakes;
  2. Oversight or misrepresentation of facts;
  3. Misapplication of accounting policies.

Types of Errors

Errors of commission: These are errors that do not show in the trial balance because it still balances. This is where the correct amount for a transaction is recorded but the wrong person’s account. For debtors the correct class of accounts may be used but the wrong personal entries are entered.

Errors of omission: where a transaction is completely omitted from the books.

Error of principle: where an item is entered in the wrong class of account for example a fixed asset is debited to the expense account.

Compensating errors: where errors cancel each other out. The errors usually have occurred on opposite sides of the account that is on the credit side and the debit side with an equal amount. The errors in question are totally independent.

Error or original entry: when the original figure is incorrect and the double system entry is still observed.

Complete reversal of entries: where correct accounts are used but each item is shown on the wrong side of the account. For example crediting a sale in the debtor account and debiting the sales account.



It is the deliberate distortion of information together with the related misappropriation of assets. An irregularity becomes a fraud when it involves criminal deception that is seeking unjust advantage leading to misleading information.


This refers to intentional misrepresentation of financial information by one more individuals among management, employees or third parties.

Common types of fraud include:

  1. Manipulation, alteration or falsification of records or documents.
  2. Misappropriation of goods.
  3. Misappropriation of accounting policies.
  4. Suppression or omission of effects of transactions on documents.
  5. Recording fictitious transactions.