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A deficiency that implies that there is a reasonable possibility of misstatement in the financial statements that is significant but not material is:

A) a material weakness.

B) a significant deficiency.

C) an insignificant deficiency.

D) a probable deficiency.

User Greg Owen
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1 Answer

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Final answer:

A deficiency that presents a reasonable possibility of significant misstatement in financial statements, but is not material, is classified as B) a significant deficiency.

Step-by-step explanation:

The student's question pertains to the classification of a deficiency concerning financial statement misstatements. The correct answer is B) a significant deficiency. This is defined as 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 charged with governance.

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 entity's financial statements will not be prevented, or detected and corrected, on a timely basis. An insignificant deficiency is smaller in scale and does not warrant the same level of attention, while a probable deficiency is not an officially recognized term in the context of financial reporting and internal controls.

User Pinku
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