Academic journal article Global Economic Observer

The Influence of Accountancy Errors on Financial and Tax Reports

Academic journal article Global Economic Observer

The Influence of Accountancy Errors on Financial and Tax Reports

Article excerpt

1. Introduction

In every field of activity errors may occur. In carrying out the accounting activity, there may occur errors possibly referring mathematical mistakes, mistakes in applying accounting policies, ignoring or misapplication of the accounting judgment to the recognition of elements of financial statements, booking omissions.

In this study, we shall present the way the accounting errors affect the accounting and fiscal reports and the accounting principles applied to the specialist's reasoning to correct them.

In carrying out activity by the economic entities, there may occur situations in which some elements of the annual financial statements cannot be measured with precision, but only estimated.

Estimates can be easily confused with accounting errors because they sometimes require revision. The revision is not the correction of an error.

Unlike the correction of accounting errors, the estimates revision does not affect the tax reporting. They affect the financial statements.

Particularly important for the correction of the accounting errors is the date on which they are corrected and the financial year which they belong to. This information helps with determining the way to correct accounting errors.

An important issue addressed in the field is the error analysis so as to distinguish between errors and fraud. Our objective is to study accounting errors and, maybe in another work, we shall address the delicate issue of the border between error and fraud.

"The distinguishing feature between error and fraud would be the intentional nature of fraud. Error would result from a fortuitous action, not intentionally malicious and not with the purpose to distort the true financial performance of firms that disclose accounting information. An irregularity

can be seen as an intentional act that does not, however, have the purpose of generating an illegal advantage24.

This study can help managers and auditors to understand the common circumstances and types of errors, and thus what activities to monitor more closely. The study also contributes to the academic literature by comparing the errors to estimations, by examining the influence on financial and tax reporting.

Besides the theoretical approach of the way to correct accounting errors, a case study on the correction of accounting errors will complete the work. This may be helpful for the accounting practitioners, managers, auditors, but it may also be used as material in future research.

The topic is little discussed in the specific literature.

Since accounting is a standardized science, the main source of information for the present study were the provisions of the Accounting Regulations on the individual annual financial statements and the consolidated financial statements, approved through the Order 1802/2014 issued by the Minister of Public Finance.

The author of the article "Accounting Errors and Errors of Accounting"25 highlights the importance of assuming the accounting errors: "Accounting should pay more attention to errors, as errors are essential for the updating of beliefs. Accounting is an information system, and errors are the carriers of information according to Bayes' Theorem. Accountants are primarily concerned with the mean (value), but the variance of accounting numbers is equally important."

Christensen argues that "error is intrinsic to accounting systems, as it is to all information systems that seek to represent synthetically and objectively a corporate environment that is truly complex and subjective". According to this author, accounting serves several purposes in the context of economic systems, with diverse and contradictory interests.

Conflict between users is common. Thus, errors arise out of this conflict.

2. Accounting errors

2.1. What are accounting errors

Lourenço and Sarmento (2008: 34-35) state that "error", in the context of accounting, will emerge from a random, unintentional or eliberate act caused by negligenceor ignorance. …

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