In some of my previous posts on material weakness I have discussed the
definition of material weakness, how one can identify material weaknesses and steps that can be taken to remediate such material control weaknesses. Today, I would be discussing as to how you can classify material weaknesses so as to address them correctly. For simplicity, I normally categorize material weaknesses into two types.

The first type of weaknesses relate to company level controls. Examples
of such company level control weaknesses include ineffective control
environment, ineffective personnel, weak financial reporting processes
etc. In a recent survey conducted by Moody's, major company level control weakness faced by companies is ineffective accounting personnel without adequate capabilities to complete financial reporting processes.

The second type of control weaknesses faced by companies relate to
specific account balances and transaction level processes. Examples would include control lapses or weakness relating to income tax accounting, revenue recognition, accrual of liabilities etc. For both the types of weaknesses noted above, a strong remediation plan with specified timelines can help keep a company's credibility intact. A control weakness categorization on the above lines can definetly help companies racing against the sarbanes oxley dislosure timelines.

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