Question

The person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. This is an example of?

1) A material weakness.
2) A design deficiency.
3) A deficiency in operation.
4) This is not an internal control deficiency.

Answer 1

The person in charge of authorizing credit not understanding what constitutes a credit risk is an example of a material weakness.

Step-by-step explanation:

The correct answer is 1) A material weakness.

A material weakness refers to a significant deficiency in internal controls that could lead to a material misstatement in a company's financial statements. In this case, the person in charge of authorizing credit not understanding what constitutes a credit risk is a major weakness in the company's credit risk management process.

This deficiency can have serious consequences for the company, such as higher credit losses and financial instability.