Question

Under Auditing Standards, which of the following would be classified as an error? Multiple Choice Misappropriation of assets for the benefit of management. Preparation of records by employees to cover a fraudulent scheme. Misinterpretation by management of facts that existed when the financial statements were prepared. Intentional omission of the recording of a transaction to benefit a third party.

Answer 1

Answer:

Misinterpretation by management of facts that existed when the financial statements were prepared.

Explanation:

Under accounting standard , an error is defined as an unintentional act that can disrupt the interpretation of a financial statement and which could likely mislead the users in making a wrong decision.

An error is different from a fraud as a fraud is an intentional act to gain undue advantage by manipulating and altering transactions .

While every other option given in the answers choice are fraud, Misinterpretation by management of facts that existed when the financial statements were prepared is an error.

Answer 2

Answer:

The correct choice is C)

A misinterpretation by management of facts that existed when the financial statements were being prepared can be classified as an error.

Explanation:

An accounting error is a non-fraudulent discrepancy in financial documentation. The term is used in financial reporting. Types of accounting errors include:

• Error of omission - a transaction that is not recorded. ... One example of an error of commission is subtracting a figure that should have been added.
• Error of commission - a transaction that is calculated incorrectly. One example of an error of commission is subtracting a figure that should have been added.
• Error of principle - a transaction that is not in accordance with generally accepted accounting principles ( GAAP). One example of an accounting error of principle is an expenditure that is placed in an inappropriate category.

If a company discovers that an accounting error significantly affected a previous report, it usually issues a restatement of the original release.

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