What a CPA Should Consider While Conducting an Error Analysis Essay Example

What a CPA Should Consider While Conducting an Error Analysis Essay Example What a CPA Should Consider While Conducting an Error Analysis Essay What a CPA Should Consider While Conducting an Error Analysis Essay In accounting, errors are classified as errors in recognition, errors in measurement, errors in presentation and errors in disclosure in the financial statements of a given company. An error can be as a result of mathematical mistakes, mistake in applying GAAP or an oversight of facts that were in place when the financial statements were being prepared. In recognition of an error, a CPA should always be in a position to predict, locate the error and also correct errors in their functions of systems and procedures design, controllership and substantiation (Thompson McCoy, 2008). A CPA professional should determine carefully the entry that was made in the books of accounts. For instance, the entry can be an expense, inventory, purchase or sales.   He should effectively classify the type of entry into the above mentioned categories. Secondly, the CPA must consider which the correct entry was. Thereafter, he or she should examine the accounts which are affected by the error and analyz e increases or decreases needed. Finally, the CPA should accurately make the correct entry in the accounts. The CPA should consider all the aforementioned items and steps to prevent the error of one particular period affecting the financial statements of the subsequent years, for instance, overstating closing inventory of a given year will overstate the income of that year and consequently understate the income coming year. If the CPA puts into consideration the above items, the errors will be accurately corrected and will not affect the income of several periods. However, if the steps used in error analysis are not put into consideration, the financial statements will be overstated or understated. This is because the occurrence of the errors will have an impact on the balance sheet and also the income statement. This will result to a wrong picture of the company’s performance which leads to loss of investors’ or creditors’ confidence with the company. References Thompson, J. H McCoy, T. L. (2008). An Analysis of Restatements Due to Errors and Auditor Changes by Fortune 500 Companies. Journal of Legal, Ethical and Regulatory Issues, Vol. 11, p. 12-17