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Posted: 20 Nov 2008 at 20:30 | IP Logged Quote goalcpa

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?


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Posted: 20 Nov 2008 at 22:31 | IP Logged Quote TheRedRoost3r

Materiality is the amount of error or omission that would affect the judgment of a reasonable person.  The auditor sets a preliminary measure of materiality.

Tolerable error is typically lower than overall financial statement materiality, and is for specific balances, transaction classes, or disclosure items.

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Posted: 20 Nov 2008 at 23:43 | IP Logged Quote late bloomer

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".

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Posted: 21 Nov 2008 at 09:19 | IP Logged Quote lucky0416

Tolerable mistatement is the maximum error the auditor can accept, before issuing qualified or adverse opinion depending on materiality.

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Posted: 21 Nov 2008 at 10:36 | IP Logged Quote dsrajji

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.
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