ExpertMedium1 markMultiple Choice
CPA · Question 73 · Area 2: Risk Assessment
Which of the following would be considered a 'Material Weakness' in internal control?
Which of the following would be considered a 'Material Weakness' in internal control?
Answer options:
A.
Absence of a specific control that is compensated for by another effective control.
B.
Ineffective oversight of the financial reporting process by the audit committee.
C.
A deficiency that has a remote possibility of occurring.
D.
Failure to sign off on a purchase order for office supplies.
How to approach this question
Material Weakness = Reasonable possibility of material misstatement. Weak oversight at the top is critical.
Full Answer
B.Ineffective oversight of the financial reporting process by the audit committee.✓ Correct
Ineffective oversight of the financial reporting process by the audit committee.
Indicators of material weaknesses include ineffective oversight by those charged with governance, restatement of previously issued financial statements, identification of fraud by senior management, or identification of a material misstatement by the auditor that was not detected by the entity's internal control.
Common mistakes
Confusing Significant Deficiency with Material Weakness.
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