Characteristics of Errors in Accounts Receivable and Inventory Audits.

ABSTRACT: Auditors require empirical information about the characteristics of errors in audit populations. In this paper, the error characteristics in 55 accounts receivable and 26 inventory audits are examined. First, the error rates present in these audits are analyzed, and the balance between overstatement and understatement errors is examined. The distributions of the error amounts and error taintings are then studied, as well as the relation between error amounts and book amounts. Some major findings are contrary to auditors' expectations, emphasizing the need for replication studies to further explore this area.