Types of “Frauds” to be detected during Audit
Frauds is an act done intentionally to get an advantage or gain. Errors are unintentional, whereas frauds are intentional errors.
Type of frauds – following type of frauds can occur in the books of account:
• Misappropriation of goods: - When any employee or any outsider of the company steels the goods (raw material, semi finished product or finished goods) this type of fraud occurs.
• Misappropriation of cash: - similarly cash can also be misappropriated. The auditor has to verify the loss of cash by-
1. Checking receipts of the business
2. Cash used by the firm and
3. Balance cash in hand
• Falsification of Books-Intentionally writing the books of account in a wrong way is known as falsification of the books of account. This type of fraud is done in the books of account with the involvement is interested in showing a picture of the state of affairs of the company in such a way that suits them. There may be a hidden purpose behind it.
This type of act can be done for following purposes:-
1. To show less profit: This can be done by showing less receipt or by showing less expense. This object may be to save tax or to avoid take over bids.
2. To show more profit: this can be done by showing more receipts or by showing fewer expenses. This can be done in order to attract more investments, loans. Or to attract the shareholders etc.