Material Weakness
When one or more of a company's internal controls, put in place to prevent significant financial statement irregularities, is considered to be ineffective. If a deficiency in an internal control is thought to be of material weakness, this means that it could lead to a material misstatement in a company's financial statements.
Investopedia Commentary
A material weakness, when reported by an auditor, simply suggests that a misstatement could occur. If a material weakness remains undetected and unresolved, a material misstatement could eventually occur in a company's financial statements, which would have a tangible effect on a company's valuation. For example, a $100 million overstatement in revenue would be a material misstatement for a company generating sales of $500 million annually.
Related Links
Cooking The Books 101
Advanced Financial Statement Analysis
Footnotes: Start Reading The Fine Print
See also: Audit, Cook the Books, Financial Accounting Standards Board - FASB, Internal Audit, Material News, Sarbanes-Oxley Act of 2002 - SOX