Definition of Fraud? Fraud means intentional misrepresentation of financial information by one or more individuals among management, employees or third parties. It may involves (a} manipulation, falsification or alteration of records or documents (b) misappropriation of assets (c) suppression or omission of the effects of transaction from records or documents (d) recording Of transactions without substance or (e) misapplication of accounting policies. The responsibility of fraud rests with management. The effective internal control system can reduce but cannot eliminate the possibility of frauds.


1. Omission Of invoices for purchases in the books of accounts.
2. Entry of false purchases in the accounting books,
3. Omission of invoices for sales in the books of accounts.
4. Entry of false sales in accounting record.
5. Value of stock may be .inflated or deflated,
6. Goods on consignment may be recorded as actual sales.
7. Goods .on sales or return basis can be passed through sales book.
8. Omission of outstanding liabilities.
9. Omission of advance payments.
10. Capital expenditure may be charged to revenue.
11. Revenue expenditure may be treated as capital,



1. Cash sales may not be recorded.
2. Fictitious allowances and returns given to customers.
3. Omissions of miscellaneous receipts like of scrap.
4. Teeming and lading may be followed.
5. Dummy names of workers may be stated to misappropriate cash.
6. Overcast of wages sheets leads to misappropriation of cash.
7. Omission of credit notes for purchase returns in order to steal cash.
8. Fictitious purchases and expenses are recorded to take away cash.
9. Goods sent on sales or return may be sold for cash and return recorded.
10. The goods may be sold for cash under value post paid and post and returns inward is stated.
11. Personal expenses may be recorded as business expenses.
12. Omission of amount of bill collected on due date.
13. Understatement of cash in hand at the time of balancing cash book.
14. Voucher may be used twice for making payment.
15. Recovery of bad debts written off in the past may be omitted to record.


The employees may steal stock of goods. The misuse of assets is a part of fraud. The management can keep proper record of stock, purchases, sales and returns. There is need of effective internal control to protect the goods. The auditor can find out the misappropriation of goods through physical verification.


Balance sheet is a statement of assets and liabilities. Window dressing is a technique to present the items in such a way that it looks more attractive. The measure may be taken to show favourable position his type of manipulation is called window dressing. This act is wrong or fraud. There is no adjustment in the ledger accounts. The items may be grouped in the balance sheet. The special financial policy can be adopted during last one or two months of the year.
Following are the examples of window dressing:
1. Goods sent on sale or return basis are recorded as regular sales.
2. An effort is made to collect book debts just before balance sheet date.
3. Long-term loans may be arranged before the end of the year.
4. Revenue expenditure may be treated as deferred revenue expenditure.
5. Charging less depreciation on assets.
6. Recovery of loan from employees at the end of the year and advancing loan at the start of the year.
7. Sale of goods to subsidiary company at close of year and recording return inwards in the next period.


Teeming means take out money from one account and jading means put back money In the same account after some time. It is a method of misappropriation of cash received by falsifying record of subsequent transactions. It is a fraud and it can be worked in this way. ‘A’ debtor pays cash of Rs.500. The cashier takes this and no entry is recorded in the account of ‘A’, Later on ‘B’ pays cash of Rs.500. The cashier can make an entry of Rs.500 in A’s account. At this stage no entry is made in B’s account, After that ‘C’ can make a payment of Rs.500, The entry can be recorded in B’s account at this time no entry is made ‘in C’s account This process may continue for many transactions. The process explained is simple for the sake of understanding. It may be complex due to splitting of amounts over various accounts. More than one misappropriation may be in process at the same time.


1. The auditor should know internal check system of cash. The weak points must be examined in detail. The cashier has no right to make entries in the ledger.
2. He should check counter-foils of receipts with cash book. He must pay attention to the date.
3. He can check the counter-foils of paying-in-book; cash book entries, bank statement and rough cashbook, if any. He must check the date of entries.
4. He can compare the cheques received and sent to bank and accounts of debtors to see that splitting up of cheques has not been done.
5. He can examine debtors’ balances in ledger to see the accounts overdue.
6. He can see accounts of customers being settled in installments.
7. He must examine the accounts of customers who have been settling their accounts in one installment on due date but not in installments.
8. He can call for the statements of accounts from debtors and compare such balances with balance in ledger accounts.