Which of the following would be considered a 'Material Weakness' in internal control?

Answer options:

Absence of a specific control that is compensated for by another effective control.

Ineffective oversight of the financial reporting process by the audit committee.

A deficiency that has a remote possibility of occurring.

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

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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