Evaluating The Results of Testing   SEC & PCAOB > PCAOB > Auditing Standard No. 2 > Evaluating the Results of Testing Source: PCAOB Release 2004-001 March 9, 2004 Page 19 8. Evaluating the Results of Testing Both management and the auditor may identify deficiencies in internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow the company's management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. Auditing Standard No. 2 requires the auditor to evaluate the severity of all identified control deficiencies because such deficiencies can have an effect on the auditor's overall conclusion about whether internal control is effective. The auditor also has a responsibility to make sure that certain parties, such as the audit committee, are aware of control deficiencies that rise to a certain level of severity. Under Auditing Standard No. 2, a control deficiency (or a combination of internal control deficiencies) should be classified as a significant deficiency if, by itself or in combination with other control deficiencies, it results in more than a remote likelihood of a misstatement of the company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. A significant deficiency should be classified as a material weakness if, by itself or in combination with other control deficiencies, it results in more than a remote likelihood that a material misstatement in the company's annual or interim financial statements will not be prevented or detected. The definitions of significant deficiency and material weakness focus on likelihood and magnitude as the framework for evaluating deficiencies. The Board anticipates that this framework will bring increased consistency to these evaluations yet preserve an appropriate degree of judgment. Additionally, Auditing Standard No. 2 includes examples of how these definitions would be applied in several different scenarios.