What Is a Transposition Error?
A transposition error is a simple error of data entry that occurs when two digits that are either individual or part of a larger sequence of numbers are accidentally reversed (transposed) when posting a transaction. Although this type of error is often small and unintentional, it can result in huge financial losses in some instances.
These are a subset of what are known as transcription errors.
- A transposition error is a data entry error that occurs when two digits—either individual or part of a larger sequence of numbers—are accidentally reversed when posting a transaction.
- Caused by human error, they are often small and unintentional, but can result in huge financial losses.
- If a business’s accounting records show a discrepancy, one easy operation is to divide the discrepancy by nine. The amount, if erroneous, will divide evenly by nine.
Understanding Transposition Errors
When two adjacent numbers are transposed, the resulting mathematical error will always be divisible by 9 (e.g., (72 - 27) / 9 = 5). Bank tellers can use this rule to quickly find their errors in many cases. Transposition errors may occur in accounting firms, brokerages, and all other areas of finance.
Transposition errors made in the trading world are sometimes called fat-finger trades.
Transposition errors are generally the result of human error and are unintentional in nature. With regard to accounting, it is most common when data is being entered manually and referenced from another source. This could include instances where information from an invoice received by accounts payable is entered into the balance sheet inaccurately. It may also occur in instances where checks for debt payments are keyed incorrectly, resulting in an improper payment amount being issued.
A transposition error can occur in any industry where data received in one form must be re-entered into another. This can include a phone number, address, or ZIP code to be entered into a customer’s profile, as well as amounts to be recorded for items ordered or even in medication dosing information.
Identifying Transposition Errors
If a business’s accounting records show a discrepancy, either positive or negative, one easy operation is to divide the discrepancy by 9. If a transposition error is a possibility, the amount will divide evenly by 9. While the amount being divisible by 9 is not a guarantee of a transposition error, this can provide guidance regarding what sort of error should be looked for first prior to more complex possibilities.
In 2014, a Japanese trader accidentally ordered 1.9 billion shares in Toyota in one of the most famous fat-finger trades. Luckily, the order never went through.
Examples of Transposition Errors
When the value of assets is being recorded and a transposition error occurs, this can cause inaccuracies to be reported to various agencies, such as the Internal Revenue Service (IRS) or shareholders. The transposition error can affect areas such as tax liability, should the error create a large enough difference.
For example, an error of record $24.74 as $24.47 would be relatively minor as the error totals only $0.27. Should the amount $1,823,000.00 be recorded as $1,328,000.00, the resulting error has a value of $495,000.
Further examples can include instances where two numbers are interchanged within two accounting fields. For example, say two line items exist that need to be entered into a spreadsheet or other recording mechanism. If the amount from item A is accidentally recorded in the line for item B, or vice versa, this error could be considered a transposition.