An internal control that is ineffective to the extent that it might not prevent the financial statements from being materially misstated is referred to as a
A) significant risk
B) substantive error
C) material weakness
D) tolerable misstatement

Question

Quizplus · Accepted Answer

A material weakness is a deficiency or combination of deficiencies in internal control that results in a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected. Therefore, an ineffective internal control that might not prevent the financial statements from being materially misstated qualifies as a material weakness. A significant risk refers to a risk of material misstatement that requires special audit consideration. A substantive error is an error in the financial statements that is material in amount or nature. A tolerable misstatement is the maximum amount of misstatement in a particular account balance or class of transactions that the auditor can tolerate.

An Internal Control That Is Ineffective to the Extent That