| name | audit-support-deficiency |
| description | Sub-skill of audit-support: Deficiency (+4). |
| version | 1.0.0 |
| category | business |
| type | reference |
| scripts_exempt | true |
Deficiency (+4)
Deficiency
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
Evaluation factors:
- What is the likelihood that the control failure could result in a misstatement?
- What is the magnitude of the potential misstatement?
- Is there a compensating control that mitigates the deficiency?
Significant Deficiency
A deficiency, or combination of deficiencies, that is less severe than a material weakness yet important enough to merit attention by those charged with governance.
Indicators:
- The deficiency could result in a misstatement that is more than inconsequential but less than material
- There is more than a remote (but less than reasonably possible) likelihood of a material misstatement
- The control is a key control and the deficiency is not fully mitigated by compensating controls
- Combination of individually minor deficiencies that together represent a significant concern
Material Weakness
A deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis.
Indicators:
- Identification of fraud by senior management (any magnitude)
- Restatement of previously issued financial statements to correct a material error
- Identification by the auditor of a material misstatement that would not have been detected by the company's controls
- Ineffective oversight of financial reporting by the audit committee
- Deficiency in a pervasive control (entity-level, IT general control) affecting multiple processes
Deficiency Aggregation
Individual deficiencies that are not significant individually may be significant in combination:
- Identify all deficiencies in the same process or affecting the same assertion
- Evaluate whether the combined effect could result in a material misstatement
- Consider whether deficiencies in compensating controls exacerbate other deficiencies
- Document the aggregation analysis and conclusion
Remediation
For each identified deficiency:
- Root cause analysis: Why did the control fail? (design gap, execution failure, staffing, training, system issue)
- Remediation plan: Specific actions to fix the control (redesign, additional training, system enhancement, added review)
- Timeline: Target date for remediation completion
- Owner: Person responsible for implementing the remediation
- Validation: How and when the remediated control will be re-tested to confirm effectiveness
