Significant Deficiency or Material Weakness: How Serious Is the Control Problem?
Classification focuses on the potential magnitude and likelihood of misstatement, not just whether an error happened this year.
Control deficiency
A control deficiency exists when a control does not prevent, detect, or correct misstatements as intended.
Significant deficiency
More severe than an ordinary deficiency and important enough to merit attention by those charged with governance, but less severe than a material weakness.
Material weakness
A material weakness involves a reasonable possibility that a material misstatement will not be prevented, or detected and corrected, on a timely basis.
Actual misstatement not required
A material weakness can exist even if no material misstatement was discovered.
Communication
Applicable deficiencies must be communicated to appropriate parties under the relevant standards.
The takeaway
Severity is about potential magnitude and likelihood, not only the error found.
Related Summit guides
FAQ
Is every control deficiency a material weakness?
No.
Can a material weakness exist without a discovered material misstatement?
Yes.
Which is more severe?
Material weakness.