What is a Misstatement?

A misstatement is the difference between the required amount, classification, presentation, or disclosure of a financial statement line item and what is actually reported in order to achieve a fair presentation, as per the applicable accounting framework. A misstatement could have been caused by an error in recording a transaction, or fraudulent activity. It is considered to be material when the user of a set of financial statements alters his economic decisions because of the misstatement. Auditors assess the level of material misstatement when developing an audit plan for a client.

When a claim is brought that a business has issued fraudulent financial statements, a common defense is for the organization to claim that a misstatement occurred, which by definition is non-intentional and therefore nonfraudulent.