Material weakness

A material weakness arises when an internal control over financial reporting is found to be ineffective. When there is a reasonable possibility that an ineffective control could result in a significant misstatement of an entity's financial statements, this is considered a material weakness. When the auditors find a material weakness, they must notify the audit committee of this issue. A likely outcome is that the audit committee will pressure management to correct the identified issue as soon as possible.

Related Courses

Accounting Controls Guidebook