A deficiency in internal control can be either in design or in operation. A Significant Deficiency is one which a company's management concludes warrants their attention and needs to be resolved quickly otherwise it would become an material weakness in internal control. Many of my clients and colleagues ask me what can be the impact of a significant deficiency. Let me put is this way, a significant deficiency noted results in the consequences / actions mentioned below -

1. A significant deficiency has to be reported to the audit committee.

2. Multiple Significant Deficiencies may consititute a material weakness in internal control.

3. Material Weaknesses need to be disclosed to investors.

My personal experience is that a material weakness often leads to panic among investors. The reaction to such news about material weakness is always negative. The consequence is obvious a drop in the share price.

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