Could anyone please tell me the difference between Material Level & Tolerable Misstatement, in real simple words?

Also can anyone please tell me the difference between Significant deficiency and material weakness?

Thanks

Tolerable misstatement is the level of misstatement the auditor is willing to accept and issue unqualified opinion.

Significant deficiencies and material weaknesses-both involves "more than likelihood"; the only difference relates to the amount. Significant deficiencies refers to "a misstatement that is more than inconsequential"; whereas Material weakness refers to "a material misstatement".

dsrajji wrote: Significant deficiency and material weakness:  Significant deficiency is a control deficiency eg. a supervisor who approves time sheets of employees has the custody of paychecks and is allowed to distribute them to the employees. This is improper segregation of duties. Material weakness is a significant deficiency: only if the supervisor misuses his authority or custodial functions it will result in a fraud and cause misstatement, which can be material or inconsequential. Only those significant deficiencies that cause material misstatements to go undetected or fail to prevent are material weaknesses There may be better examples but I tried to explain the hierarchy here: all material weakness result from significant deficiency but not all significant deficiency go ahead to make material weakness. I appear for this section on Saturday .... so would really appreciate if someone corrects me if I am not getting this right.

I think Significant deficiency and material weakness, both are control deficiency. Significant deficiency is less serious than material weakness. The key word for significant deficiency is "Inconsequential", which is lower than material weakness. Please correct me if I am wrong. Thanks.

This is what I got when I tried searching it on the net yesterday, but I felt this was a bit complicated, it would be great if anyone can interpret and explain it to us in simple words.

The Difference Between a Deficiency and a Material Weakness?

An internal control deficiency may consist of a design or operating deficiency. A design deficiency exists when a necessary control is missing or an existing control is not properly designed, so that even when the control is operating as designed the control objective is not always met. An operating deficiency exists when a properly designed control either is not operating as designed or the person performing a control does not possess the necessary authority or qualifications to perform the control effectively. Internal control deficiencies relevant to internal control over financial reporting could adversely affect the entity’s ability to initiate, record, process and report financial data consistent with the assertions of management in the financial statements. A significant deficiency is an internal control deficiency in a significant control or an aggregation of such deficiencies that could result in a misstatement of the financial statements that is more than inconsequential.

A material weakness is a significant deficiency or an aggregation of significant deficiencies that preclude the entity’s internal control from providing reasonable assurance that material misstatements in the financial statements will be revented or detected on a timely basis by employees in the normal course of performing their assigned functions. The inability to provide such reasonable assurance results from one or more significant deficiencies. The design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by errors or fraud in amounts that would be material in relation to the financial statements may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.

Therefore, the existence of a material weakness precludes the responsible party from concluding that internal control is effective and the practitioner from issuing an unqualified opinion that internal control is effective. Note that management is not permitted to conclude that the company’s internal control over financial reporting is effective, if there are one or more material weaknesses in the company’s internal control over financial reporting.

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