Significant Deficiency vs Material Weakness
Lesson:
In the context of an audit, the terms Significant Deficiency and Material Weakness refer to the severity of issues found in a company's Internal Control over Financial Reporting
- Significant Deficiency - A flaw in the design or operation of an internal control that prevents management or employees from preventing, or detecting and correcting, misstatements on a timely basis during their normal work duties.
- Material Weakness - A flaw resulting in a reasonable possibility that a material misstatement of the company’s financial statements will not be prevented or detected on a timely basis.
You're trying to figure out how to classify an issue discovered on an audit.
The only relevant information you've discovered is as follows:
- The issue is commonly denoted as 'Important but not material'
Which type of issue classification is the best fit (Material Weakness or Significant Deficiency)?
Answer:
- Significant Deficiency
Explanation:
-
A flaw in the design or operation of an internal control that prevents management or employees from preventing, or detecting and correcting, misstatements on a timely basis during their normal work duties.