Trends in Material Weaknesses
2025 material weaknesses study
The purpose of this study was to identify the common themes and business process areas associated with material weaknesses (MW) reported by public companies. The statistics that follow stem from a study performed by KPMG in the summer of 2025.
The study analyzed annual filings released by public companies registered with the Securities and Exchange Commission (SEC) for Fiscal Year 2025 (FY'25). 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 FY’25 year considers MWs reported in any public company filing that was released in Fiscal Year 2024 (FY’24). The MWs reported in this year’s study came from companies with year-ends through June 30, 2025. KPMG notes that the dataset underlying this study does not include S-1s for initial public offering companies that were first-time filers during the time period of the report, but includes all companies once they have filed a 10-K. Applicable filing types included 10-K, 10-K/A, 20-F, 20-F/A, 40-F, 40-F/A, 6-K, and 8-K.
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2021–2025 material weaknesses study – background statistics
Comparison of MW percentages over the last five years of the study
2025 material weaknesses study – Background statistics
Industry breakdown of companies that disclosed MWs in their filings in FY’25
As a percentage of MWs reported compared to the size of the industry sector, Products shows the highest incidence of MWs, and Government and Healthcare shows the lowest incidence. These percentages are consistent with the trend noted in prior years.
Starting in 2024, the categorization has been restructured as follows:
Products includes consumer and retail, energy, industrial manufacturing, and life sciences; government and healthcare covers federal government, healthcare, and state and local education; financial services comprises banking & finance, capital markets, and insurance.
Industry insights:
Companies in Products, like life sciences, automotive, chemicals, and mining companies, have been forced into rapid, tactical supply chain reshuffling, placing strain on the control environment, especially around inventory and cost of sales controls. In addition, the high volume of nonroutine transactions in the Products sector often outpaces the technical expertise of lean accounting teams, who are simultaneously undergoing large enterprise resource planning (ERP) upgrades to support artificial intelligence (AI) integration.
Lower incidence of MWs in government and healthcare points to entities operating under a more rigid reporting framework. These sectors faced a peak of reporting challenges during the COVID-19 period in 2021—2022 and have entered a remediation plateau with more stable control environments.
Summary of material weaknesses themes reported
Issues contributing to MWs in 2025
Apart from the top five primary themes of MWs noted below, 8% of companies have reported issues related to restatement or nonreliance on company filings.
Trends in material weakness themes reported
Notable changes between FY’25 and FY’24 trends in MWs
While MWs related to the restatement of previous 404 disclosures decreased by 5% in FY’25, they remain within the typical range observed over the last several years as 2024 was a spike year for this theme. MWs related to inadequate accounting resources increased by 14% in FY’25 compared with FY’24, and MWs related to journey entry controls increased by 3%. MW themes in other areas remained consistent with the prior year, showing less than a 5% change in either direction.
- MWs 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.
Trend insights: Companies are feeling the effects of several contributing factors to the spike in MWs related to lack of accounting resources/expertise. The “Pipeline Problem” continues to grow as the decline in accounting graduates meets a rise in CPAs reaching retirement age. There’s also been regulatory scope creep that has increased workloads with new mandates. In addition, the surge of companies going public in 2021—2022 with lean back offices are now hitting their Sarbanes-Oxley (SOX) 404(b)attestation deadlines and are being flagged with insufficient technical accounting strength, especially as companies move toward heavier AI usage requiring technical and IT knowledge around controls.
Trends in material weaknesses themes reported (continued)
The following issues contributing to MWs showed notable trends over the last five years from 2021—2025, as depicted below.
- MWs reported were often the result of more than one overlapping issue/challenge.
- Percentages are calculated by dividing the number of companies with MWs in a category by total number of reports between 2021 and 2025 (1,176). Individual companies may be reported in multiple years.
Trends in material weaknesses process areas
Process areas with highest concentration of MWs in 2025
The graphs below represent the percentage of MWs by process area reported in 2025, with percentage changes from the prior year indicated next to each process area. The level of MWs related to the control environment and business combinations declined compared to the prior year, while MWs related to financial close, inventory, and systems increased in the current year.
- Material weaknesses reported often impacted multiple process areas.
- Percentages are calculated by dividing the number of companies with material weaknesses in a category by total number of companies that reported MWs (238) in 2025.
Trend insights (Financial Close/Reporting):
The most frequently cited issue related to financial close/reporting was related to lack of precision, timeliness, and adequate oversight of management review controls. Failures were also noted around proper handling of nonroutine transactions, applying technical standards correctly and developing reliable accounting estimates. SOD and proper documentation of completeness and accuracy of Information Produced by the Entity were cited, along with weaknesses in the review of journal entries and account reconciliations.
Trend insights (Systems):
The most frequently cited issue related to Systems concentrated around IT general controls. A vast majority reported issues in managing user access, including inappropriate access rights, failure to timely manage terminated users, and inadequate access reviews. Failures were also noted related to inadequate overall IT risk assessment, change management controls, lack of enforcement of proper SOD.
Trend insights (Inventory):
The most frequently cited issue related to Inventory was valuation and costing, including issues with calculating reserves, applying correct costing methods, and assessing net realizable value. Ineffective cycle count programs, user access to inventory systems, and completeness and accuracy of underlying data in inventory-related calculations were also reported.
Summary of material weaknesses reported in 2025
Number of companies by total material weaknesses disclosed
Material weaknesses in multiple years
Trends in MWs over multiple years
Between 2021 and 2025, 269 companies reported MWs in multiple years, representing 36% of all companies that filed a report with an MW during this period.
Examples of material weaknesses
Common themes in 2025
Examples of material weaknesses (Continued)
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