Errors of principles refers such errors arise when the entries are not recorded according to the fundamental principles of accountancy, e.g., wrong allocation of expenditure between capital and revenue, ignoring the outstanding assets and liabilities, valuation of assets against the principles of book-keeping.
Such errors may be committed either intentionally or unintentionally. If they are committed intentionally, the object is to falsify and manipulate the accounts either to show more profit or less profit than they actually are. Such errors actually effect thy balance-sheet. Therefore, it is very important for an auditor to pay particular attention towards this type or error. Such an error is not disclosed by the trail balance or by routine checking. It can be detected only by searching enquiry and independent checking.
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