Fraudulent financial reporting, Auditing

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Fraudulent financial reporting

Involves intentional misstatements or errors of amounts or disclosures in financial statements to mislead financial statement users. Fraudulent financial reporting might entail the following:

(1) Deception like manipulation, falsification, or modification of accounting records or supporting documents from which the financial statements are set.

(2) Mis-representation in, or intentional error from, the financial statements of events, transactions or other important information.

(3) Intentional misapplication of accounting principles associating to measurement, presentation, recognition, categorization, or disclosure.

 
The differentiating factor among fraud and error is whether the underlying action which results in the mis-statement in the financial statements is planned or unintentional. Dissimilar error, fraud is intentional and generally includes deliberate concealment of the facts. Whereas the auditor might be able to recognize potential opportunities for fraud to be committed, it is hard, when not impossible, for the auditor to establish intent, mainly in matters including management judgment, like accounting estimates and the suitable application of accounting principles.


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