Reportable condition has the same meaning as the term significant deficiency. These two terms are used to define a significant deficiency in the design or operation of internal control that could adversely affect a company’s ability to record, process, summarize, and report financial data consistent with the assertions of management in the company’s financial statements. An aggregation of significant deficiencies could constitute a material weakness.
Material weakness is defined in the auditing literature as a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level risk that misstatements caused by errors or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned duties. Material weakness existing at the fiscal year-end assessment date will be reported publicly.
Compensating controls: Some organizations, by virtue of their size, are not able to implement basic controls such as segregation of duties. In these cases, it is important that management implement compensating controls to cover for the lack of a basic control, or if a basic control is not able to function for some period of time.
