Material weakness definition
/What is a Material Weakness?
A material weakness arises when an internal control over financial reporting is found to be ineffective. When there is a reasonable possibility that an ineffective control could result in a significant misstatement of an entity's financial statements, this is considered a material weakness.
Material Weakness Notifications
When the auditors find a material weakness, they must notify the audit committee of this issue. A likely outcome is that the audit committee will pressure management to correct the identified issue as soon as possible. If the issue is not fixed, the board of directors could replace the chief executive officer, whose replacement would then be tasked with fixing the weakness.