What is the material weakness?

Material weakness is a significant mistake or irregularity found in financial information or internal inspections of the company. Internal checks are rules and instructions established by companies to protect their accounting information from material weakness. If weaknesses of material are found in the company's accounting process, the whole process can be considered ineffective in proper recording and reporting financial information. Material weaknesses found in the company's internal inspection process may indicate inefficient internal inspections or that the accounting management has failed to protect financial information from errors and irregularities.

Generally accepted accounting principles (GAAP) are the highest authority for accounting principles that the United States (US). While companies must adhere to these principles when recording and reporting financial information, GAAP does not provide specific information about what is considered to be a material weakness. If there is an error or irregularity with the NACIt throws a specific account of the main book or is recorded in the company's accounting book, the current accounting industry is the rule of 5 percent. The 5 percent rule states that the material weakness must exceed 5 percent of the dollar amount in the main book account or the incorrectly entered amount in the company's general accounting book. This 5 percent rule allows companies to receive smaller errors de minimis or insignificant errors that do not significantly affect financial information.

The weaknesses of internal control are often considered to be more significant errors in the accounting operation. Incorrect record numbers in the main book can occur through a simple data entry error from the accounting. The weaknesses of the internal control suggest that the inspections of the accounting developed by the company management were not able to protect the financial information from. Material weakness related to internal controlsThe AMI may allow the company's employees to have fraud or embezzlement. Publicly held companies must be very careful with the weaknesses of internal control, as managers must sign a statement stating that the managerial review of internal control has not found significant weakness in the company's accounting operation.

External financial audits are a common tool used to detect the possibility of material weakness existing in society. These audits test the company's financial information and internal controls to ensure that all the rules of the company are observed when recording and reporting financial information. The auditors also test the company's financial information against GAAP and other instructions in external accounting. If there is a material weakness, the auditors notice the weaknesses in their final report and discuss the problem of society management. This meeting can help companies correct material weaknesses and ensure that no future financial statementsOr the information did not contain errors from the error.