The International Standards on Auditing provide guidance on the responsibility of auditors to consider fraud and error in the audit of financial statements. However, the primary responsibility for the prevention and detection of fraud and error still rests with those charged with the governance and management of an entity.
The term error refers to an unintentional misstatement in financial statements, including the omission of an amount or a disclosure, such as a mistake in gathering or processing data from which financial statements are prepared, an incorrect accounting estimate arising from oversight or misinterpretation of facts, and a mistake in the application of accounting principles relating to measurement, recognition, classification, presentation, or disclosure.
Fraud, on the other hand, is defined as an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage, which results in a misstatement of financial statements.
Fraud may involve schemes designed to conceal it, such as collusion and forgery. Misstatements may result from fraudulent financial reporting or misappropriation of assets.
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