Question

Which of the following refers to a deficiency where there is more than a remote possibility that a material misstatement could occur in the financial statements due to a breakdown in the system of internal control?

Answer 1

A material weakness refers to a deficiency in the system of internal control that could result in material misstatements in the financial statements.

Step-by-step explanation:

The deficiency described in the question refers to a material weakness in the system of internal control. A material weakness is a significant deficiency in the design or operation of internal controls that could result in a material misstatement in the financial statements. It means that there is more than a remote possibility of material errors or fraud occurring.

Examples of material weaknesses include inadequate segregation of duties, lack of management oversight, and ineffective monitoring mechanisms. When a material weakness is identified, it is important for the organization to take corrective actions to strengthen its internal control system.