Could accounting errors land you in jail?


There are various types of accounting errors made frequently, and they are not the same as committing fraud. An error is a genuine mistake that has been made unintentionally.

Generally speaking, an error will be simple to trace and correct, although it can still take time to identify. You are likely to become the subject of an investigation by HMRC if carelessness is suspected, and you may be charged a penalty, depending on the severity.

What is false accounting?

False accounting is fraud and is a criminal offence, likely to result in a prison sentence. This is not a genuine error and is usually carried out for a number of reasons.

An example of false accounting is the altering of financial information, so that the true value of the company isn’t presented. This may be to secure business finance from a bank or other financial institution, or to increase share prices. In some cases, two sets of accounts may be kept in order to falsify figures or cover up theft.

If this type of fraud is committed, a company may be trading while it is insolvent, without actually realising it. Once you realise that there may be a problem with the accounts, report the suspected fraud before considering an outsourced accountancy service to trace and rectify the problems.

What are genuine accounting errors?

There are four types of accounting error – errors of commission, errors of omission, compensating errors and errors of principle. Here are some explanations:

Errors of omission

This type of error is when some information is omitted by mistake. A transaction may be completely left out of the accounts, perhaps when an invoice isn’t included. Once discovered, this type of error is simple to correct.

Errors of commission

This is when a transaction has been entered incorrectly and may have occurred due to negligence or ignorance. This is the recording of the wrong value but in the correct account.

Compensating errors

This is an error that is compensated in an error elsewhere in the accounting process. For instance, an incorrect entry in the credits may be compensated by a similar error in the debits.

Errors of principle

This type of mistake is procedural rather than inaccurate. The correct amount may be recorded but placed in the wrong account. For example, business expenses may be recorded as personal expenses, although the correct figure is used. This is known as an input error and may take some time to trace.

If you would like to know how to avoid accounting errors, please contact us today.