What are the two Financial Reporting Deficiencies?

• A. Minor and Significant
• B. Material and Critical
• C. Deficient and Flawed
• D. Significant and Material

Answer: (D)

Financial reporting deficiencies are weaknesses in internal control over financial reporting that are serious enough to require attention. The two levels auditors use to describe these deficiencies are significant deficiencies and material weaknesses. A material weakness means there is a reasonable possibility that a material misstatement could occur and not be prevented or detected in a timely fashion. A significant deficiency is less severe than a material weakness but still important enough to merit attention by those charged with governance. These two categories together capture the scope of financial reporting deficiencies an auditor communicates. The pairing Significance and Material fits because it reflects the standard two-tier framework auditors rely on, whereas the other options use terms that aren’t the recognized categories.