Relevant cost - meaning

Types of fraud and errors in auditing.

Fraud can be defined as intentional misrepresentation of financial information in order to gain personal advantage.

Frauds can be classified under two categories, namely:
(a) management fraud
(b) non-management fraud

Non-Management Frauds.
These types of fraud are rampant in the day-to-day affairs of the business, and they include the following:
(a) defalcations
(b) embezzlement
(c) erasures
(d) alterations
(e) errors

Non-management fraud may occur either in the form of misappropriation of cash or goods or manipulation of accounts without direct misappropriation.

Embezzlement

This speaks of the act of appropriating money fraudulently to one’s own use.

Erasures

This refers to the act of instant erasing from the books of records.

Alterations

This means the act or process of alteration or modification to defraud the employer.

Errors

Errors are defined as the act of ignorance or imprudent deviation from a code or usual practice. Errors are sub-divided into four categories as listed earlier:

  • Original errors – errors emanating from the original or source document. They are made in copying the source document into the books of original entry.
  • Errors of omission – errors made when the whole documents or transactions are completely omitted or overlooked from the record.
  • Errors of principle – these can occur when the recording clerk fails to abide by the rules of double entry system or where item of expense is treated as revenue or where revenue is treated as capital.
  • Errors of commission – these occur when one fails to perform his or her duty. These errors are common in everyday activities of the business.

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