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Material weakness disclosures in an IPO

October 2021

When a public company first identifies and discloses material weaknesses (MWs) in its Internal Control over Financial Reporting (ICFR), consequences may include, negative press, loss of investor confidence, lower analyst ratings and increased costs, which may lead to declines in share price and, potentially, company value. Newly public companies are especially vulnerable because, without a long history of stock market performance, their market value is more sensitive to surprises.

Since 2016, an average of 43% of companies going public have disclosed at least one MW before going public. Furthermore, disclosure of MWs has increased significantly in the last few years with 47% of companies disclosing a MW in 2020, 44% in 2019 and 45% in 2018, up from 31% in 2017, and 50% of companies disclosing an MW in the first half of 2021. The frequency with which pre-IPO companies are disclosing MWs indicates there is some market expectation that companies have an understanding of their internal controls prior to their IPO.

PwC researched MW disclosures in domestic and foreign issuer IPOs since 2016. Explore the trends in MW disclosures as your company prepares for an IPO.

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Mike Bellin

Partner, Consulting Solutions, US IPO Co-leader, PwC US

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IPO Services Co-Leader, PwC US

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