Deficiencies and Material Weaknesses - What Do They All Mean?
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Deficiencies and Material Weaknesses - What Do They All Mean? 
government contractor and technology  business advisory; risk services 

 

By: Phil Philips
Abstract:

A financial statement audit is designed to express an opinion on the financial statements, not on the entity's internal controls. However, obtaining an understanding of these controls remains a key part of every financial statement audit. As part of obtaining that understanding, auditors may identify control gaps or deficiencies. If these deficiencies are significant, the auditor is obligated to report them to company management.

 

Auditors have always been required to communicate control matters to management, so they would either submit a letter to management or review those matters in person with management. However, requirements were set in 2008 that those issues needed to be reported in writing and that auditors needed to report all control deficiencies they identify, not just the significant deficiencies as was previously required.

Internal control deficiencies that were not considered “significant” in the past most likely now meet the definition.

 

 

These requirements could result in one or more of the following developments:

  • Changes to the Definition of "Significant"
  • Reporting Deficiencies From Prior Audits
  • De Facto Significant Deficiencies
  • Increased Emphasis on Internal Control

To learn more about each of these possible developments, download a PDF of the full article below.