Going public is a major milestone—and a compliance gauntlet. KPMG’s 2024 IPO Material Weakness Study reveals that nearly half of new IPO issuers disclosed internal control issues. For internal auditors, understanding these findings and understanding how audit analytics platforms can be leveraged is key to better risk mitigation and smoother audits.
What the Study Found: Key Takeaways from KPMG
KPMG analyzed 122 traditional IPOs that closed in 2023 and found:
- 44% (54 companies) reported material weaknesses in their initial registration filings (S‑1, S‑4, F‑1 etc.)
- 42% (51 companies) reported material weaknesses in their first 10‑K or 10‑Q filings
- Of those, 14 issuers remediated the material weaknesses by the time of their first 10‑K, but 11 disclosed new weaknesses in subsequent reports
- In total, KPMG identified 65 material weaknesses among these IPOs
Most Common Root Causes (reported as contributing issues):
- Lack of accounting resources or expertise (~68%)
- Issues with systems, technology, and IT general controls (~42%)
- Numerous audit or year‑end adjustments (~20%)
- Control not operating effectively (~20%)
- Risk assessment gaps (~12%)
- Weak control design or lack of control (~6%)
- Segregation of duties problems (~34%)
- Policy and procedural deficiencies (~32%)
Process Areas Most Affected by Material Weaknesses:
- Financial close and reporting – 83% of material weaknesses touched this area
- Non‑routine or complex transactions – 28%
- Systems – 14%
- Control environment – 8%
- Equity, revenue, and tax – each 3–5%
These findings echo prior years’ results–IPO issuers continue to struggle most in close/reporting, complex accounting, and system-related areas. KPMG emphasizes that gaps often stem from design issues, lack of experience, and weak technological support—not simply failed execution.
Why Auditors Should Care
- High likelihood of disclosure: Nearly 4 in 10 IPO issuers report material weaknesses in their initial filings.
- Early remediation matters: Some firms fix issues before the 10‑K, but others surface new control gaps later.
- Risk to reputation and valuation: Material Weaknesses can delay an IPO, lead to bigger audit fees, and harm investor confidence.
- Recurring problems: Even public companies show persistent weak controls in financial close, segregation of duties, IT, and revenue processes.
How Audit Analytics Platforms Can Help
Modern risk discovery and monitoring platforms, also known as audit analytics platforms, like Supervizor help auditors and finance teams address these common weaknesses through clearer visibility and stronger control monitoring. They can achieve this for:
1. Financial Close & Reporting
- Automated reconciliation checks and variance detection flag trends or outliers in close metrics—identifying issues early.
- Dashboard reporting continuously tracks key indicators (e.g., unusual journal entries, incomplete reconciliations), giving proactive awareness.
2. Complex & Non‑Routine Transactions
- Rule‑based analytics spotlight high‑risk transactions—like large non‑recurring entries, unusual revenue recognition, or equity movements.
- Transaction tagging and workflow tracking ensure that non-routine items are reviewed and approved by the right people.
3. Systems and IT Controls
- Analytics can monitor user access changes, system configuration changes, and segregation of duty conflicts in real time.
- Alerts for irregular patterns—like unusual system changes or spreadsheet modifications—improve audit trails and control reliability.
4. Segregation of Duties & Control Environment
- Role‑based dashboards detect conflicts—e.g., one person who makes entries and approves them.
- Control effectiveness tracking monitors if controls are executed as designed, sending reminders or escalation flags.
5. Policies & Procedures
- Audit analytics tools can link control evidence to required policy procedures—tracking documentation completeness.
- Automated evidence gathering, like attaching workflow logs, supports consistent documentation and audit readiness.
Bringing It Together
Imagine a pre‑IPO company using audit analytics platforms during the IPO journey:
- Close reporting module flags unusual manual journal entries or delays in reconciliations, helping prevent financial close weaknesses.
- Transaction analytics highlight complex equity accounting or one‑off tax treatment that demand additional review.
- Access control and segregation dashboards ensure no single individual holds too much financial access—a big red flag in IPO readiness.
- Integrated risk assessment workflows enforce review checkpoints, provide documentation trails, and link evidence directly to control objectives.
By layering these analytics, auditors can move from reactive audits to proactive risk management—identifying design flaws early, monitoring control operation continuously, and validating remediation faster.
Practical Steps for Internal Audit Teams
Below are some practical steps internal audit teams can adopt when preparing to go public or after having recently done so.
- Review control design early in the IPO lifecycle, focusing on close/reporting, non‑routine transactions, IT, and segregation of duties.
- Deploy analytics platforms to monitor key control areas—daily or weekly validation beats annual checks.
- Track remediation in real time—verify whether fixes (e.g. system improvements, staffing changes) are actually executed and working.
- Use dashboards for transparency—present control status clearly to audit committees and stakeholders.
- Build awareness and training—help accounting and IT personnel understand control purpose, not just compliance.
Final Thoughts
KPMG’s 2024 IPO Material Weakness Study confirms a persistent reality: many companies going public struggle with internal control design and operation in key areas. Material weaknesses are common, especially in financial close, non‑routine accounting, and system controls.
As internal auditors, we have a critical role in identifying and reducing these risks. Modern risk discovery and monitoring platforms like Supervizor are practical allies—offering structured monitoring, real‑time alerts, and better evidence capture. When audits lean on analytics rather than spreadsheets, control gaps get caught earlier and correction is more effective.