Errors in Errors in AccountingAccounting

Accounting ErrorsAccounting Errors : : Bad calculations were a Bad calculations were a

common common accountingaccounting  errorerror historicall historically, although the use of software has y, although the use of software has greatly reduced greatly reduced such such errorserrors. . AccountingAccountingsoftware software calculates automatically, so as long calculates automatically, so as long as a transaction is entered properly, as a transaction is entered properly, there should be no math mistakes.there should be no math mistakes.

The complex tasks of finding and The complex tasks of finding and fixing fixing accountingaccounting  errorserrors require  require strong analytical skills, problem-strong analytical skills, problem-solving skills and attention to detail.solving skills and attention to detail.

An accounting error is a An accounting error is a mistake made in mistake made in financialfinancial

accountingaccounting that is not  that is not fraudulent in nature. These fraudulent in nature. These innocent mistakes can be innocent mistakes can be greatly reduced by using greatly reduced by using

accountants who are accountants who are familiar with accounting familiar with accounting

procedure and the financial procedure and the financial position of a given position of a given

individual or company. individual or company. When a mistake of this When a mistake of this

type is identified, it must be type is identified, it must be corrected as soon as corrected as soon as

possible. possible.

Some accounting errors are errors of Some accounting errors are errors of omission, in which something is left omission, in which something is left out of an accounting statement by out of an accounting statement by mistake. Many people balancing mistake. Many people balancing their checkbooks have noted the their checkbooks have noted the

consequences of an error of consequences of an error of omission when they forget to log a omission when they forget to log a

transaction and overdraw their transaction and overdraw their accounts or cannot get their books accounts or cannot get their books to balance. A transaction may not to balance. A transaction may not be recorded or may be recorded in be recorded or may be recorded in

the wrong place, leading to an the wrong place, leading to an omission on an accounting omission on an accounting statement which creates a statement which creates a

discrepancy. discrepancy.

Errors of commission involve data that Errors of commission involve data that is recorded or calculated is recorded or calculated

inaccurately. For example, inaccurately. For example, an accountant might transpose an accountant might transpose

numbers, add instead of subtracting, numbers, add instead of subtracting, or make a similar mistake in or make a similar mistake in

accounting. Bad calculations were a accounting. Bad calculations were a common accounting error common accounting error

historically, although the use of historically, although the use of software has greatly reduced such software has greatly reduced such

errors. Accounting software errors. Accounting software calculates automatically, so as long calculates automatically, so as long as a transaction is entered properly, as a transaction is entered properly, there should be no math mistakes. there should be no math mistakes.

Finally, in an error of principle, Finally, in an error of principle, the principles of accounting the principles of accounting

procedure are applied procedure are applied improperly or negligently. improperly or negligently.

There are a series of There are a series of standard accounting standard accounting

practices that people are practices that people are supposed to use in handling supposed to use in handling financial accounts, and these financial accounts, and these

generally generally accepted accounting accepted accounting

principles(GAAP) must be principles(GAAP) must be followed by all accountants. followed by all accountants.

Accountants who do not Accountants who do not apply these procedures apply these procedures

properly can create properly can create accounting errors that will accounting errors that will result in discrepancies on result in discrepancies on

financial statements. financial statements.

Once an accounting error is Once an accounting error is recognized, steps are recognized, steps are

taken to identify why it has taken to identify why it has occurred. Then, the error occurred. Then, the error

can be corrected. It is also can be corrected. It is also important to address the important to address the

cause to reduce the risk of cause to reduce the risk of a repeat error. For a repeat error. For

example, if an accounting example, if an accounting principle was not followed, principle was not followed, the accountant knows to the accountant knows to follow this principle in the follow this principle in the

future. In addition, the future. In addition, the accountant could be held accountant could be held

liable in the future for liable in the future for failing to comply with failing to comply with

procedure. procedure.

Sometimes it is hard to distinguish Sometimes it is hard to distinguish between a genuine accounting between a genuine accounting

error and fraud. An auditor error and fraud. An auditor investigating a case may come up investigating a case may come up with information that can be used with information that can be used to find out whether an accountant to find out whether an accountant made an innocent mistake or was made an innocent mistake or was attempting to commit fraud. For attempting to commit fraud. For example, an audit may find that example, an audit may find that an accountant knew about an an accountant knew about an accounting error and took no accounting error and took no

action, which would suggest that action, which would suggest that fraud may have been involved. fraud may have been involved.

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