To what degree, if at all, is a significant deficiency related to a material weakness?
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For 2007 annual reports, smaller public companies need to assess their internal control over financial reporting. Show It doesn't have to be a chore. Beginning Your EvaluationStep 3 — Reporting Your Conclusions on Overall Effectiveness, and DeficienciesYour company's 2007 annual report will include your assessment of the overall effectiveness of your internal controls. In making your determination of whether the company's internal controls are effective, you should begin by assessing any control deficiencies. Is any of them — alone or in combination — serious enough to be a material weakness? If so, you can't conclude that the company's controls are effective. This puts a significant premium on knowing what constitutes a material weakness. Simply put, a material weakness is one or more control deficiencies that create a reasonable possibility of a material misstatement in your company's annual or interim financial statements. This does not necessarily mean that a material misstatement has occurred, but only that the controls might not be good enough to detect or prevent a material misstatement on a timely basis. The SEC's new guidance highlights the factors that you should consider in deciding whether a control deficiency is a material weakness. For example:
If you identify any material weaknesses, you must describe them in your assessment of the internal controls that appears in your annual report. You should also consider including the following in your assessment:
Finally, you should describe these material weaknesses to the audit committee and your external auditor, along with any control deficiencies you've found that didn't rise to the level of a material weakness, but which you think are important enough to merit their attention. Control deficiencies of this kind are defined as "significant deficiencies" in the SEC's rules. This preview shows page 12 - 14 out of 19 pages. 17.To what degree, if at all, is a significant deficiency related to a material weakness?A. It islesssevere than a material weakness.B. It is more severe than a material weakness.C. It is unrelated to a material weakness.D. It is equivalent to a material weakness.A 18.In an integrated audit of a nonissuer, which of the following is the responsibility of an auditorwith regard to testing controls at a company with multiple business units? Get answer to your question and much more 19.If an auditor performing an integrated examination identifies one or more material weaknessesin a nonissuer's internal control, the auditor should Get answer to your question and much more 20.A registered public accounting firm is conducting an audit of an issuer and initiated its current-year audit on January 1, year 3. Many of the firm's former auditors are now employed by the client.Under which of the following circumstances may the firm perform the audit? Get answer to your question and much more 21.The auditor is required to communicate each of the following items to those charged withgovernance,exceptA.An overview of the planned scope and timing of the audit.B.The auditor's responsibilities to complete the audit in accordance with generally acceptedauditing standards.C.All control deficiencies detected during the course of the audit.D.Any significant findings from the audit.C Upload your study docs or become a Course Hero member to access this document Upload your study docs or become a Course Hero member to access this document End of preview. Want to read all 19 pages? Upload your study docs or become a Course Hero member to access this document Is a material weakness A significant deficiency?3. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
What is considered a significant deficiency?A11. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting.
How do you determine significant deficiency vs material weakness?A significant deficiency is less severe than a material weakness in that it is unlikely to have a material impact on financial statements, but it is, “important enough to merit attention by those responsible for oversight of the company's financial reporting,” according to the PCAOB.
What is considered a material weakness?A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
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