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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error

During the audit of Kestrel Ltd, the auditor finds that a clerk in the accounts department entered a supplier invoice twice because she misread a reference number. Under ISA 240, which description best fits this misstatement?

The misstatement is an error because it resulted from an unintentional act. ISA 240 separates fraud from error by whether the underlying action was intentional, not by the amount or the document involved. Misreading a reference number and double-entering an invoice shows no intent to deceive.

  1. AFraud, because the misstatement has a material effect on payables
  2. BError, because the misstatement arose from an unintentional actCorrect
  3. CFraud, because the misstatement was in a document supporting a transaction
  4. DError, because the amount involved was small relative to revenue

Explanation

ISA 240 distinguishes fraud from error by the intent behind the act that causes the misstatement. A duplicated entry caused by misreading a reference is unintentional, so it is an error. Size alone does not decide the classification, so the materiality-based options are wrong.

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