Insight

Trends in material weaknesses for non-IPO companies

A 2020 KPMG study of public companies reveals common themes and business process areas associated with material weaknesses.

Sue King

Sue King

Partner, US SOX Solution Leader, KPMG US

+1 213-955-8399

This study analyzes annual filings released by all SEC-registered public companies over a five year period, between November 2015 and April 2020. Data was reviewed from the third-party research database Audit Analytics, and all materials weaknesses reported were aggregated and then summarized based on the underlying themes and affected business processes related to the materials weakness. For purposes of this report, the 2019 year considers materials weaknesses reported between November 2019 and April 2020.

 

Notable changes between FY19 and FY18  

Of the 3,005 annual reports filed in 2019, 142 companies, five percent (5%) disclosed materials weakenesses in their filings. Over the last five years, consistently 5% to 7% of companies disclose weaknesses.

 

 

Material and/or numerous auditor or year end adjustments decreased.

 

63% 2018
58% 2019

 

Lack of accounting resources and expertise increased.

 

44% 2018
50% 2019

 

IT software, security and access issues increased.

 

39% 2018
49% 2019

 

Non-routine transaction controls decreased.

 

10% 2018
4% 2019

Material weaknesses reported were often the result of more than one overlapping issue/challenge.

Non-routine transaction controls was removed as a primary materials weaknesses theme for 2019. Other primary root causes include lack of documentation, policies and procedures; inadequate disclosure controls; and segregation of duties/design of controls. 

 

Read the report

Download the report to learn more, including:

  • trends in material weakness process areas
  • trends in multiple weaknesses across multiple years
  • examples of materials weaknesses
  • industry breakdown of companies that disclosed materials weaknesses in their 2019 filings.
Trends in material weaknesses for non-IPO companies
A 2020 KPMG study of public companies reveals common themes and business process areas associated with material weaknesses.