Error account

Part of a series on
Accounting
Historical cost Constant purchasing power Management Tax
Major types Audit Budget Cost Forensic Financial Fund Governmental Management Social Tax
Key concepts Accounting period Accrual Constant purchasing power Economic entity Fair value Going concern Historical cost Matching principle Materiality Revenue recognition Unit of account
Selected accounts Assets Cash Cost of goods sold Depreciation / Amortization (business) Equity Expenses Goodwill Liabilities Profit Revenue
Accounting standards Generally-accepted principles Generally-accepted auditing standards Convergence International Financial Reporting Standards International Standards on Auditing Management Accounting Principles
Financial statements Annual report Balance sheet Cash-flow Equity Income Management discussion Notes to the financial statements
Bookkeeping Bank reconciliation Debits and credits Double-entry system FIFO and LIFO Journal Ledger / General ledger Trial balance
Auditing Financial Internal Firms Report Sarbanes–Oxley Act
People and organizations Accountants Accounting organizations Luca Pacioli
Development History Research Positive accounting Sarbanes–Oxley Act
Misconduct Creative Earnings management Error account Hollywood Off-balance-sheet Two sets of books
v t e

An error account is a type of account used for storing compensation for errors in trading, a transaction that is not posted in a timely manner because of inconsistencies, such as an incorrect account or routing numbers to the wrong name on the account, producing a claim that needs to be resolved as soon as possible so payments can be made.

Transaction processing

When many hundreds or thousands of transactions are being done each day, and whenever there is human input involved, error accounts are necessary to keep the audit trail intact. Error accounts also play a role in improving customer service. GAAP recommends daily or weekly monitoring of error accounts depending on volume and transaction size. It is typically up to the company or applicable government department's accounting department to monitor the error accounts that it has in place.

In 1994, Nick Leeson used a poorly monitored error account at Barings Bank in an attempt to cover up evidence of his trading losses and place ever larger unauthorized trades to win back the money. In doing so, he lost over £800 million and bankrupted his employer.^[1]

Error accounts can be implemented in manual accounting as well, but this is much less common in the developed world since personal computers became pervasive.

See also

• Accounting standard
• International Financial Reporting Standards
• International Accounting Standards Board
• Center for Audit Quality
• Transaction processing

Notes

References

• https://web.archive.org/web/20091221191957/http://dictionary.bnet.com/definition/error+account.html
• "error account definition – Dictionary – MSN Encarta". Archived from the original on 2009-11-27.
• https://web.archive.org/web/20091225204039/http://jobfunctions.bnet.com/abstract.aspx?docid=147896
• https://web.archive.org/web/20110722153944/http://www.acpsec.org/en/secretariat/Dr_Kathie_Cooper.ppt Forensic Accounting use of Error Accounts
• Kane, Edward J.; DeTrask, Kimberly (August 1999). "Breakdown of accounting controls at Barings and Daiwa: Benefits of using opportunity-cost measures for trading activity". Pacific-Basin Finance Journal. 7 (3–4): 203–228. doi:10.1016/S0927-538X(99)00016-5.

This page was last edited on 10 June 2022, at 03:39