Question

A ________ exists if one or more control deficiencies exist that are less severe than a material weakness, but are important enough to merit attention by those responsible for oversight of the company's financial reporting.

A) potential misstatement
B) significant weakness
C) significant deficiency
D) fraud symptom

Answer 1

The correct answer is C) significant deficiency. It is an issue that is less severe than a material weakness but still important enough to merit attention for the oversight of financial reporting.

Step-by-step explanation:

A significant deficiency exists if one or more control deficiencies exist that are less severe than a material weakness, but are important enough to merit attention by those responsible for oversight of the company's financial reporting. Therefore, the correct answer to this question is C) significant deficiency.

Significant deficiencies are a tier below material weaknesses in terms of severity and do not necessarily indicate that a material misstatement has occurred or is likely. However, they require attention because they could lead to material misstatements if not addressed. These issues in internal control over financial reporting are brought to the attention of those charged with governance (such as the audit committee) and management so they can take the necessary corrective action.