2020 IPO material weakness study

Explore causes for materials weaknesses, business processes affected, key takeaways and lessons learned.

Chad A. Poplawski

Chad A. Poplawski

Managing Director, Internal Audit & Enterprise Risk, KPMG LLP


Rebecca Greer

Rebecca Greer

Director, Advisory, Internal Audit, KPMG US

+1 213-817-3126

This research was conducted in order to understand the challenges related to internal controls over financial reporting that companies faced at the time of their initial registration for new securities (form S-1). We looked at 125 U.S. company IPOs listed on the NYSE or NASDAQ that closed between 1/1/2019 and 12/31/2019. Foreign private issuers were not included in the study. Of the 125 companies studied, 33% disclosed material weaknesses. 


Issues contributing to material weaknesses


lack of accounting resources and expertise



inadequate control design or lack of control



inadequate or lack of formal policies and procedures



segregation of duties


systems, technology or IT governance and controls (ITGC)



material/numerous audit or year end adjustments



control not operating effectively



risk assessment


Material weaknesses were often the result of more than one issue. 

Five key takeaways

  1. History - For each of the past four years, 26 to 34 percent of U.S.-based, NYSE and NASDAQ IPOs have disclosed material weaknesses in their S-1/S-1A filings.
  2. Root causes - The root cause of most material weaknesses disclosed in S-1s is a lack of resources with sufficient knowledge to analyze complex transactions for proper accounting treatment, meet reporting requirements of U.S. GAAP, or ensure proper segregation of duty and review procedures.
  3. Accounting complexity - Material weaknesses primarily fall in areas of accounting complexity that require the use of estimates and judgement, such as tax, equity, financial reporting, accounting estimates, revenue, business combinations and non-routine and complex transactions. Private companies often do not have the in-house expertise and/or resources are stretched too thin to appropriately identify, analyze, and account for complex transactions.
  4. Controls - Material weaknesses are typically the result of control gaps or controls and processes that have not been properly designed, rather than controls that fail to operate. Companies should perform a proper risk assessment including identification of “what could go wrongs” and ensure controls are designed at an appropriate precision level and performed by competent personnel. Additionally, companies should pay special attention to the identification of “what could go wrongs” and associated controls in non-routine processes/transactions.
  5. Technology - Companies should not overlook the technology aspect of financial reporting. Often systems used by private companies are not able to scale to the requirements of public companies. Additionally, IT general controls and application controls are not properly implemented to ensure financial information is appropriately safeguarded and accurately processed. A strong IT team and well-implemented and controlled systems are critical in ensuring internal controls over financial reporting.

Read our report 

Download the report to learn more, including:

  • common themes by weakness
  • process areas with the highest concentration of material weaknesses
  • a comparison of material weaknesses reported by IPOs from 2017 to 2019
  • lessons learned and key success factors as found in KPMG's work to help pre-IPO companies through SOX compliance.
2020 IPO material weakness study
This KPMG study, based on S-1 filings, explores causes for material weaknesses and business processes affected. It also offers key takeaways and lessons learned.