Question

Discuss the differences between Fraud and error...What are the necessary components required for a fraud to take place. Include in your analysis the differences between fraudulent financial statements and misappropriation of assets.

Answer 1

Fraud : Fraud is an intentional action done by a person to mislead the another person. It may be done by hidding the truth or by wanted hurting the person is called fraud.

Error : Errors are made unknowingly by any person due to lack of information.They are not deliberate. It can be material and immaterial .

Necessary components required to take fraud are

1.representation of facts.

2.Ignorance of truth and facts

3.done due to lack of ethics

4. Pressure from markets

5.loss incurred to third party

Now difference between fraudulent financial statements and misappropriation of assets

Fraudulent financial statements

It occurs when there is an intentional misstatements of accounts and records that are used in preparation of financial statements .Then it is disclosed to deceive users of those financial statements.

Misappropriation of assets

It happens when people entrusted to manage the assets of an company to steal from it and misuse it for personal use.It involves employees or insider of the company