What is the difference between fraud and error?
This is a technical topic covered in the auditing standards under AU-C Section 240. The key difference between fraud and error is that the former is intentional and the latter is unintentional. There are two main types of fraud that an internal auditor should be concerned with: fraudulent reporting and misappropriation of assets (ie theft).
"The main difference between fraud and error is that fraud is intentional and errors are unintentional. As auditors, we are primarily concerned with financial misstatements that are caused by fraudulent financial reporting and misstatements that are caused by theft and other misappropriation of assets."
Community answers are written by other candidates practicing this set. Reading how others frame the same question is one of the fastest ways to sharpen your own.
Anonymous Answer
Fraud is an intentional act to deceive a person. For instance - An employee embezzles inventory from the warehouse and reports this transaction as a cash sale without recording the cash into the cash balance, leading to misappropriation of assets. Whereas an error is an unintentional act. For instance - Failure to record expenses under the correct accounting head.
Cindy's Feedback
Very good. Do you have an example you can share where you drew a distinction between the two and took appropriate action? This will help show an application of your knowledge in action.
