Trends in material weaknesses for non-IPO companies
A 2023 KPMG study of public companies reveals common themes and business process areas associated with material weaknesses.
The study analyzed annual filings released by SEC-registered public companies between July 2018 and June 2023. Data was reviewed from the third-party research database Audit Analytics, and all MWs reported were aggregated and then summarized based on the underlying themes and affected business processes related to the MW.
For purposes of this report, the 2023 year considers MWs reported in any public company filing that was released between July 2022 and June 2023. The MWs reported in this year’s study came from companies with year-ends through June 30, 2023. KPMG notes that the data set underlying this study does not include S-1s for IPO companies that were first time filers during the time period of the report, but includes all companies once they have filed a 10-K.
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Trends in material weakness themes reported
Notable changes between FY’23 and FY’22 trends in MWs
MWs related to lack of segregation of duties, IT, software, security & access, and inadequate disclosure controls (timely, accuracy, completeness) issues all showed significant increases in 2023, while the lack of accounting documentation, policy and/or procedure showed the first decrease in the five-year period. All these issues were primary themes in 2022 and 2023.
Lack Segregations of duties/ design of controls
34%
2022
40%
2023
IT, software, security & access issues
40%
2022
55%
2023
Inadequate disclosure controls (timely, accuracy, completeness)
21%
2022
43%
2023
Lack of accounting documentation, policy and/or procedure
100%
2022
79%
2023
- Material weaknesses reported were often the result of more than one overlapping issue/challenge.
- Percentages are calculated by dividing the number of companies with material weaknesses in a category by total number of reports in the stated year. Individual companies may be reported in multiple years.
Provided by KPMG US Market Intelligence
Source(s): Audit Analytics, SEC Edgar filings
Trends in material weakness themes reported (continued)
The following issues contributing to MWs showed notable trends over the last five years from 2019 - 2023, as depicted below.
79%
Lack of documentation, policies & procedures
Held steady at 99%-100% between 2019-2022 and declined to 79% in 2023. This means that at least one of the root causes for the MW was related to lack of documentation, policies and procedures; but additional causes may also be identified for each MW.
55%
Lack of accounting resources/expertise
Steadily increased from 2021 through 2023. This issue was at a 5-year low of 34% in 2021, followed by an increase to 48% in 2022 and 55% in 2023.
13%
Non-routine transaction control issues
Steadily decreased from 11% to 8% between 2019 and 2021, followed by an increase back to 12% in 2022 and 13% in 2023.
14%
Journal entry control issues
Increased for 3 consecutive years from 2019-2021 from 7% to 12%, followed by a decrease to 9% in 2022, with a subsequent increase to 14% in 2023.
- Material weaknesses reported were often the result of more than one overlapping issue/challenge.
- Percentages are calculated by dividing the number of companies with material weaknesses in a category by total number of reports between 2019-2023 (1,107). Individual companies may be reported in multiple years.
Provided by KPMG US Market Intelligence
Source(s): Audit Analytics, SEC Edgar filings
Read the report
Download the report to learn more, including:
- 2019-2023 material weaknesses study – background statistics
- 2023 material weaknesses study – background statistics
- Summary of material weakness themes reported
- Trends in material weakness themes reported
- Summary of material weaknesses reported in 2023
- Material weakness in multiple years and examples
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