Distinguish between errors and fraud. Give three examples of each

Misstatements can result from errors or fraud. The term errors refer to unintentional misstatements of amounts or disclosures in financial statements. The term fraud refers to an intentional act by one or more among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. Thus, the primary distinction between errors and fraud is whether the misstatement was intentional or unintentional. Unfortunately, it is often difficult to determine intent. For example, if the auditor detects a misstatement in an account that requires an estimate, such as a bad debt expense, it may be difficult to determine whether the misstatement was intentional.

Examples of misstatements due to errors or fraud include:

• An inaccuracy in gathering or processing data from which financial statements are prepared.
• An omission of an amount or disclosure.
•  A financial statement disclosure that is not presented in accordance with GAAP.
•  An incorrect accounting estimate arising from overlooking or clear misinterpretation of facts.
• Judgments of management concerning accounting estimate that the auditor considers unreasonable or the selection or application of accounting policies that the auditor considers inappropriate.