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

As per the Guidance Note, which of the following best describes a 'material weakness' in internal financial controls over financial reporting?

A material weakness is a deficiency or combination of deficiencies in internal financial control that creates a reasonable possibility that a material misstatement in the financial statements will not be prevented or detected on a timely basis. Size alone or mere existence of a deficiency is not enough.

  1. AA deficiency that has been fully corrected before year end
  2. BAny control deficiency, irrespective of its size, found during testing
  3. CA deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basisCorrect
  4. DA deficiency that affects only the internal audit reports

Explanation

A material weakness is a deficiency or combination of deficiencies creating a reasonable possibility that a material misstatement will not be prevented or detected timely. Ordinary deficiencies are not necessarily material weaknesses. Corrected deficiencies do not remain material weaknesses at the reporting date.

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