Final answer:
A misstatement is an unintentional error in financial statements, while fraud is a purposeful misrepresentation. Examples of misstatement can include mathematical errors, while fraud might involve inflating assets or revenues.
Step-by-step explanation:
A misstatement is an unintentional mistake in the financial statements, whereas fraud is intentional distortion of the financial statements. A misstatement can occur due to errors in gathering or processing financial data. Common examples include mathematical mistakes, incorrect accounting estimates, or overlooking certain transactions. On the other hand, fraud is a deliberate act to deceive stakeholders by manipulating financial records and presenting a false picture of the company's financial health. This could involve overstating assets, understating liabilities, recognizing revenue prematurely, or delaying expense recognition.
For instance, if a company's accountant accidentally records a transaction in the wrong accounting period, this would be a misstatement. However, if the accountant knowingly alters financial records to inflate profits, this is considered fraud.