TheCorporateCounsel.net

KPMG recently released its 2024 study on material weaknesses and reported on trends over the last five years. Here are some of the data points highlighted in the report:

– Of the 3,502 annual reports filed in the 2023/2024 year, 279 companies (8%) disclosed material weaknesses in their filings.

– The percentage of companies disclosing material weaknesses in 2024 increased slightly as compared to the prior year.

– The top five issues driving material weaknesses were: lack of documentation, policies and procedures; lack of accounting resources or expertise; IT, software, security and access issues; lack of segregation of duties/design controls; and inadequate disclosure controls. (These are consistent with prior years.)

– Material weaknesses related to restatement of company filings decreased by 7% in FY24, and this is also within the typical range that’s been shown over the last several years.

– Perhaps not surprisingly, material weaknesses related to lack of accounting resources/expertise and IT, software, security and access issues have steadily increased from 2021 to 2024.

– Process areas with the highest concentration of material weaknesses include: financial close/reporting; control environment; systems; nonroutine/complex transactions; and revenue.

– Of the 757 companies that filed a report with a material weaknesse between 2020 and 2024, 236 companies (31%) disclosed material weaknesses in multiple years.

I’ve been listening to and loving Dave & Liz’s Mentorship Matters Podcasts. I mostly recently listened to their podcast with Keir Gumbs, and on that and many of their podcasts, they’ve discussed how folks new to securities law can develop foundational skills and knowledge. One of the things it got me thinking about is how I can make blogs more accessible to securities lawyers who are earlier in their careers. So, if that’s you and you’re looking for a commute read (a practice of Keir’s!) to understand internal controls over financial reporting, material weaknesses, significant deficiencies, the related disclosure requirements and other implications, navigate over to our “Internal Controls Disclosure” Handbook when you have a moment.

– Meredith Ervine