In an audit, fraud is considered in two forms: fraudulent financial reporting (for example, overstating revenue) and misappropriation of assets (for example, embezzlement). What distinguishes fraud from error is intent.
The auditor assesses the risks of material misstatement due to fraud and designs procedures in response; however, preventing and detecting fraud is primarily the responsibility of management.
Source: BDS 240
Related terms
Professional scepticismThe auditor having a questioning mind, being alert to conditions that may indicate error or fraud and critically assessing evidence.Forensic accountingThe use of accounting, auditing and investigative techniques to produce evidence for legal disputes and allegations of fraud.Fraud investigationA special investigation carried out to establish a suspected irregularity or allegation of fraud with evidence, and to determine its extent and the loss.Adverse opinionThe opinion in which the auditor states that the financial statements are not presented fairly, where misstatements are both material and pervasive.Agreed-upon proceduresAn engagement in which the practitioner performs procedures agreed with the entity and, where relevant, a third party, and reports only the findings without providing assurance.Analytical proceduresThe evaluation of financial information through analysis of plausible relationships among financial and non-financial data.
Last updated: October 22, 2026 · This definition is for general information only.