Many articles published in the recent past prove the existence of errors in the financial statements. The reports note that there are different errors that organizations have found in their financial statement. Similarly, the articles report that these errors can have negative effects on the business if they are not changed (Ashton & Hylas, 1982). For example, they can scare away investors and customers. Similarly, other accounting professionals state that one error found in inventory can lead to an irregularity in the wrong calculation of the cost of goods sold, which has a negative impact on the calculation of net income and net profits. The similar error can lead to negative effects gross and overall income in the firm.
Studies have also revealed that different reasons can lead to errors in financial statements. One reason can be intentional activities done by the auditors in the firm. For example, if the auditor intends to create an irregularity in recording an entry such as the amount of incomes paid to the employees in the firm. Similarly, an accountant or auditor can decide to make a wrong entry in the cost of goods sold or cost of purchases for personal gains (Wiliam & Rodger, 1994). This error with creates negative impact on the financial statement of an organization. Unintentional errors caused by the accountant or the auditors. This means that in the process of making a financial entry, the controller might make a mistake without knowing. Sometimes the accountant may omit an entry that is required to make the balance sheet complete. The omitted errors are accounted for as an unintentional error and have negative effects on the financial statement of any firm.
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Studies also state that other causes errors in the financial statement can occur due to poor audit procedures. In this case, if an auditor or an accountant fails to recognize are the absence of a required entry or makes a wrong entry in the process of auditing then it might lead to an error. Similarly, miscalculations during the process of auditing can also lead to errors in the financial statement (Ashton & Hylas, 1982). Another cause of errors in the financial statement could be the fact that financial statements are prepared from business books, which might already have errors. In the process of preparing errors using books that have irregularities in them, the auditor will inevitably make errors in the financial statement. Forecasting issue is other factors that can lead to financial errors in any given organizational balance sheet. Forecasting issues result from the inability of leaders to develop effective methods of dealing with risk factors in the company.
When financial risks occur such as cases relating to the recession and other financial mismanagement in the company, it is possible for this issue to lead to errors in an organization. Mathematical mistakes can also lead to errors in a financial statement. For example, if an auditor or an accountant does the wrong operation, then it can lead to an error in the balance sheet. For example, when filling the financial books, if the accountant or the person in charge of records adds instead of multiplying hence leading to mathematical errors in the organizational balance sheet. On the other hand, poor presentation of entries in the financial accounts that auditors rely on to make the balance sheet can also lead to financial errors in the balance sheet (Wiliam & Rodger, 1994). Another factor that leads to errors in the balance sheet is the use of unqualified auditors and accountants. When firms decide to use accountants who are not familiar with all the necessary entries required for a complete balance sheet, chances is that they will either omit or include unwanted inventories hence causing errors in financial statements.
References
Ashton, R., & Hylas, R. (1982). Audit Detection of Financial Statement Errors. The Accounting Review. Vol. 57, No. 4 , 751-765.
Wiliam, K., & Rodger, M. (1994). Does auditing reduce bias in financial reporting? A review of audit-related adjustment studies. Journal of Accounting. Vol 6 Issue No 13 , 149.
