@buddy1981,
Both terms relate to problems with the existence, design or operation of internal controls.
A material weakness means that there is a “reasonable possibility” that a material misstatement COULD occur – and that such a misstatement would not be detected / corrected in a timely manner …..i.e………there are no other compensating controls. Thus, a material weakness in internal control does not require that a misstatement (or fraud) actually has to occur – only a reasonable possibility of such an event happening.
Relating to financial statements – material weaknesses would be tied somewhat to ‘materiality' of possible misstatements. But other weakness might also be considered “material weaknesses” if they relate to: 1) senior management fraud, 2) weak oversight by Board / Audit Committee or 3) restatement of financial statements.
“Significant deficiencies” are weaknesses in internal control that are not ‘material weakness’, but still merit the attention of those in governance (Audit Committee / Board / Senior MGT).
Generally, both material weakness & significant deficiencies need to be communicated in writing to both MGT & those charged with governance (the Audit Committee).
One other key distinction is that nature of the engagement. If this is a financial statement audit, then the purpose of the audit is to issue an opinion on the statements……not on the I/C system. Thus, weaknesses in controls are relevant in that evidence may need to be obtained in another manner.
If the engagement is to issue an opinion on the internal control system (i.e. SOX mandated), then the identification of material weaknesses and significant deficiencies directly impacts the opinion issued.
Sorry for rambling, but hope this helps.
Using Wiley
FAR = 94 Feb 2012
BEC = 92 April 2012
AUD = 95 July 2012
REG = 91 Nov 2012
.