Material Misstatement Concept

Material Misstatement Concept

Misstatement or material misstatement is deviation from the financial reporting framework. Deviation may be in the form of disclosure, classification and presentation.

Reasons for Misstatement

There are two possible reasons for misstatement (deviation) i.e. fraud and error. Frauds are intentional for personal benefits while errors are unintentional.

1.    Misstatement Due to Error

Misstatement due to error means that there is no deliberate or intentional act which causes the misstatement. Error may include inaccurate processing of information, omission of recording the financial transactions, biased or inaccurate assumption for estimates.

2.    Misstatement Due to Fraud

Second reason for misstatement in financial stamen is fraud. The fraud is a deliberate attempt by an individual to manipulate the financial statement facts .Management of entity is responsible to take appropriate steps for prevention and detection of frauds.