Material weakness
Also known as: Significant deficiency (related, though typically less severe), Critical control failure, Material deficiency
A material weakness is a deficiency in internal controls where there is a reasonable possibility that a significant error, omission, or fraud will not be prevented or detected and corrected on time. It represents the most severe level of control failure because it indicates a systemic breakdown rather than an isolated incident.
In practice
An auditor identifies a material weakness when they find a missing critical control—such as a total lack of segregation of duties in financial reporting—that could allow substantial misappropriation of assets to go unnoticed.