2022 IPO material weakness study

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

Sue King

Sue King

Partner and SOX Solutions Lead, KPMG LLP

+1 213-955-8399

The purpose of our research is to understand the challenges related to internal controls over financial reporting companies faced at the time of their initial registration for new securities. Our scope included IPOs (including SPAC transactions) for U.S. companies listed on the NYSE or NASDAQ (excluded foreign private issuers) that closed between January 1, 2021 and December 31, 2021.


Issues contributing to material weaknesses


Lack of accounting resources and expertise


Inadequate/lack of formal policies and procedures



Inadequate Control Design/Lack of Control


Segregation of duties issue





Risk Assessment



Material/numerous audit or YE adjustment



Control not operating effectively


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

Key takeaways

  1. For each of the past five years, 26 – 42 percent of U.S. based, NYSE and NASDAQ traditional IPOs have disclosed material weaknesses in their S-1/S-1A filings. For 2021, 60 percent of SPACs disclosed material weaknesses in their S-1/S-1A filings (up from 48 percent in 2020), of which fewer were noted as remediated.
  2. 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. 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. 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. 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.
  6. During the last two years, 2020-2021, it was found that SPAC IPO transactions increased by 340% from 2019 to 2020 and 150% from 2020-2021. While the number of SPAC IPO transactions increased, the gross proceeds from these transactions increased by 513% from 2019-2020 and by only 95% from 2020-2021.
Year IPO Count Gross Proceeds ($mms) Average IPO Size ($mms)
2021 613 162,502.7 265.1
2020 258 83,379.5 336.2
2019 59 13,608.3 230.6

Read our report

Download the report to learn more, including:

  • Summary of material weaknesses reported by recent traditional IPOs & SPACs
  • Comparison of material weakness reported by IPOs from 2018 to 2020 (excludes SPACs)
  • Examples of material weaknesses
  • Key takeaways
  • Lessons learned from prior IPOs.
The 2022 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.