ACCA Advanced Audit and Assurance (AAA) Practice Exam

What characterizes a significant deficiency in internal control?

1. A deficiency that does not impact operations

2. A deficiency that is easily rectified

3. A deficiency that merits attention from governance

4. A deficiency that is minor in nature

The correct answer is: A deficiency that merits attention from governance

A significant deficiency in internal control is characterized by its potential to adversely affect an organization’s ability to manage risks effectively and maintain accurate financial reporting. Such deficiencies are critical enough that they warrant attention from governance, including oversight bodies such as the board of directors or audit committees. This significance indicates that while the deficiency may not lead to material misstatements, it still poses a risk that could affect the overall control environment of the organization. Recognizing the importance of governance's attention helps ensure that necessary actions are taken to address and rectify these deficiencies, thereby strengthening the internal control framework. While other types of deficiencies may exist—some being minor or easily rectified—significant deficiencies are distinct because they highlight areas where improvements are crucial for safeguarding the organization’s integrity and operational effectiveness. Therefore, effective governance requires awareness and action on these types of deficiencies to foster accountability and risk management.