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Governance, Risk, Audit & Privacy · Advanced

Material Weakness

Deficiency in internal control such that a material misstatement may not be prevented or detected timely.

Definition

Under SOX and PCAOB standards, a material weakness is a reasonable possibility of material misstatement of financial statements not being prevented or detected on a timely basis. Material weaknesses must be disclosed in management's report on internal control.

Example

Pervasive failures in change management for the ERP lead to a material weakness disclosure.

Exam tip

Hierarchy: deficiency < significant deficiency < material weakness.

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