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CMA Intermediate · Corporate Accounting and Auditing · Report on Internal Financial Control over Financial Reporting

An auditor reporting on internal financial controls over financial reporting finds that a control deficiency exists, but a reasonably possible misstatement arising from it would be less than material and important enough to merit only the attention of those charged with governance. How is this deficiency best classified?

The deficiency is a significant deficiency. It is less severe than a material weakness, which would allow a material misstatement to go unprevented or undetected on a timely basis, yet it is important enough to be communicated to those charged with governance for their attention.

  1. AMaterial weakness
  2. BSignificant deficiencyCorrect
  3. CFraud risk indicator
  4. DScope limitation

Explanation

A significant deficiency is less severe than a material weakness but important enough to merit attention of those responsible for oversight. A material weakness would create a reasonable possibility that a material misstatement is not prevented or detected on a timely basis. The facts stated here exclude that, so it is a significant deficiency.

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