The Rise in Material Weaknesses

PwC provided an interesting compilation of the state of material weaknesses in public company disclosures in “The resurgence of the material weakness”. They indicate the following:

“The number of material weaknesses disclosed in a company’s 10-K jumped 73% from 2021 to 2022. In the first quarter of 2023, material weaknesses have increased 25% relative to the same period last year.”

The PCAOB provides that a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.