Deficiency Analysis 
Use
Deficiency analysis enables you to analyze the effects of deficiencies on various aggregation levels and evaluate their impact potential.
As part of this process, you divide deficiencies into various deficiency types; you specify the impact potential of the deficiency; and you define the likelihood of the deficiency occurring. Based on these entries and your Customizing settings, the system determines the magnitude of the deficiency and classifies it as one of the following:
● Deficiency
● Significant deficiency
● Material weakness
According to the Sarbanes-Oxley Act, you are required to report material weaknesses in your financial statements.
Deficiency analysis is a preparatory measure for sign-off.
Prerequisites
● You specified the levels in the organizational hierarchy on which you want to perform deficiency analysis.
● You performed the IMG activities under Deficiency Analysis in Customizing for Management of Internal Controls:
○ In the Make Settings for Deficiency Analysis activity, you specified how the magnitude is calculated based on deficiency types, and you specified the aggregation types. You can also change the names of attribute values for the deficiency analysis.
○ In the Copy Issues and Set Threshold activity, you specified the dataset and the point in time you would like to use as a basis for performing the analysis. In addition, you specified the threshold value that determines the magnitude of an issue.
● The persons who are to perform the deficiency analysis have authorization for one of the following tasks:
○ Perform Deficiency Analysis on Corporate Level (PERF-DFACP)
○ Perform Deficiency Analysis on Organizational Unit Level (PERF- DFAOU)
Features
The person, who has authorization for the Perform Deficiency Analysis on Organizational Unit Level (PERF-DFAOU) task on the lowest level specified in the organizational hierarchy, begins the deficiency analysis. From that point the analysis continues from the bottom-up on the designated levels of the organizational hierarchy.
The deficiency analysis encompasses the list of issues copied in Customizing. The following input fields are available for each issue:
● Account Group
Enter the account group on which the issue can have an effect. If an issue can affect several account groups, you can add another entry for the issue and select an additional account group for each one needed.
● Deficiency Type
You can choose from three deficiency types. You define the names of these deficiency types in Customizing. In Customizing you also define the deficiency types for which the system calculates the magnitude of the issue. The Impact Potential and Likelihood fields are only ready for input for deficiency types where automatic calculation was specified.
● Impact Potential
Specify what financial impact can be caused by the issue.
● Likelihood
Specify how likely the potential financial impact is.
● Mitigation
Specify if there are factors that could mitigate the deficiency. This field is ready for input for all issues, but making an entry has an effect only on deficiency types with automatic calculation.
● Magnitude
For deficiency types for which automatic calculation is not possible, enter the magnitude manually.
● Aggregation Type
Select one of the aggregation types that were created in Customizing. You can sort the list of issues using the aggregation type. The total of all values for an aggregation type appears in the subtotals row.
● Comment per row
You can enter a comment for each row. Once you choose Save and Submit, it is no longer possible to change the comment, not even on a higher level.
Based on these entries, the system determines the values for the following fields:
● Magnitude
For deficiency types with automatic calculation, the system calculates the magnitude using the threshold specified in Customizing along with the impact potential.
● Classification
The system calculates the classification based on the magnitude (either calculated automatically or entered manually) and the likelihood.
The figure below depicts these relationships:
The system calculates the classification as follows:
Likelihood |
Link |
Magnitude |
Classification |
Remote |
OR |
Inconsequential |
Deficiency |
More than remote |
AND |
More than inconsequential |
Significant deficiency |
More than remote |
AND |
Material |
Material weakness |
If you entered a mitigation, the effect is as follows:
Mitigation |
Improvement of Deficiency |
Improvement of Significant Deficiency |
Improvement of Material Weakness |
Yes |
No improvement |
Significant deficiency becomes a deficiency |
Material weakness becomes a deficiency |
Partial |
No improvement |
Significant deficiency becomes a deficiency |
Material weakness becomes a significant deficiency |
No |
No improvement |
No improvement |
No improvement |