Generally in books of accounts we find the following types of errors. Detection of errors is the main advantage of auditing.
1. Errors of omission:
When the transaction has been either omitted wholly or partially. It is called an error of omission. Such an error does not affect the accuracy of the trial balance and will be difficult to detect, so the error will not be disclosed by the trial balance. For example a credit purchase is omitted to be record in the purchase book or by mistake a smaller amount is recorded in the book of original entries and posted as such there from. These are the error of omission. An auditor may have detected the error by comparing the data of previous period with this item so the critical analyses of the auditor locate such type of errors.
2. Errors of commission:
When a transaction is incorrectly recorded, either wholly or partially is called error of commission. For example wrong posting from original books to ledger, incorrect entries in the original record and addition, such errors will affect the trial balance. Such errors can be detected by checking the arithmetical accuracy of the original entries and posting from the ledger and original books. It can also be find when somebody challengers the transaction. Such errors are discovered at the time of extracting the trial balance. It should be corrected then and there but in certain cases they are not detected and the trial balance remains out of balance.
3. Errors of principal:
This is an error where no proper distinction has been made between the accepted accounting principles. Such errors may be committed intentionally or unintentionally. For example ignoring the outstanding assets, wrong allocation between revenue and capital valuation of assets on wrong principle. Such an error shall affect the profit and loss account and balance sheet. It can be detected by independent checking and searching inquiry. Because such errors are not found by the trial balance or routine checking.
4. Compensating errors:
It is an error which is counter balance by another error of same amount in the opposite direction. For example an error on the debit side of the account may be balanced of another error with the same amount on the credit side of some other account or an over casting of an count by Rs. 1000 may be counter balanced by under casting of an account of the same amount. Such errors will not affect the trial balance and can be detected by intelligent and arithmetical checking of books.
5. Trial balance errors:
While preparing the trial balance some error may happen called trial balance errors. These may consist of
· Entering an amount incorrectly.
· Errors casting in the trial balance.
· Wrong addition of the trial balance columns.
· Omission of cash and bank balance.
· Balance Omission from the trial balance.
Such errors can be detected by routine checking. An auditor will locate the difference in the trial balance keeping in view the following points.
i. Checking of total:
The auditor should first of all check the total of the trial balance.
ii. Compare the names:
He should compare the names of the accounts in trial balance with the ledgers. Some times in case of cash book balance of some accounts may not be transferred to the trial balance.
iii. Compare debtors and creditors:
The auditor should compare the list of the debtor’s accounts with the creditor account.
iv. Locate the ledger:
Auditor should try to detect the errors in a particular ledger.
v. Divide the difference by two:
Auditor should separate the difference of trial balance by two and check that is there any items of this value.
vi. Checking of positing:
He should check all those amounts of posting which are corresponding to the difference or half of the difference.
vii. Checking of exact amount:
Auditor should verify the exact corresponding amounts which are equal to the difference or half of the difference.
viii. Importance to the totaling:
He should pay special attention on the checking of total. If the difference of the trial balance is separate by the error then it will be due to misplacement or figure transposition. For instance 65 for 56.
If all the above tests are applied and error is not located then all the accounts should be checked thoroughly.
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