Page 288 - Accountancy_F5

Table 9. 2: Differences between errors and frauds

Error Fraud
(i) Unintentional mistakes that occur (i) Intentional misrepresentation car-
during the recording or posting ried out to benefit certain individu-
process. als.
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(ii) Errors are instances where the (ii) Fraud is an act of deception carried
doer does not plan to hide them, out with a sense of unfairness. The
discovered and corrected, even the doer usually conceals it carefully
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doer may be happy to see that they so that it cannot be discovered or
have been corrected corrected
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(iii) There are no benefits or motives (iii) Frauds are deliberate alterations/
behind its commitment they occur manipulations of accounting records
by chance for one’s own benefits

The importance of timely correction of accounting errors
Generally, the correction of accounting errors in timely manner is critically important
for several reasons. These include, ensuring the accuracy of financial statements,
compliance with accounting standards, mitigating negative impacts on the profitability and
sustainability of the business, securing the financial position of the business, maintaining
trust and credibility with various stakeholders, and ensuring the integrity of financial
reporting. These points are further elaborated as follows:

(a) Accuracy in reported financial statements
Accounting errors can lead to inaccurate financial statements, which can mislead
stakeholders such as investors, creditors, and management. Accurate financial
reporting is crucial for decision-making processes.
(b) Compliance with accounting standards
Businesses are required to comply with accounting standards and regulations.
Errors can lead to non-compliance, which can result in penalties and damage to
the company’s reputation.

(c) Profitability and sustainability of the business:
Errors that affect the reported income can give a false picture of the company’s
profitability. This could impact future investment decisions and the sustainability
of the business.
(d) Securing the financial position of the business
Errors can distort the true financial position of the company. This could affect the
company’s ability to secure loans or attract new investors.

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