Summary
KPMG’s latest material weaknesses study offers a timely signal for CFOs, CAOs, controllers, audit committees, and private equity sponsors: material weaknesses are not just compliance issues. Increasingly, they reflect finance functions that are being asked to support more complexity than their people, systems, processes, and controls were built to handle.
KPMG’s 2025 study analyzed SEC public company filings and found that 238 companies disclosed material weaknesses in FY’25, representing 7% of the 3,307 annual reports filed. While this figure is down from 9% in FY’24, the underlying themes remained familiar and persistent: weak documentation, insufficient accounting resources, IT and access control issues, segregation of duties and control design gaps, and inadequate disclosure controls.
The data suggests that finance leaders should view material weaknesses less as isolated audit findings and more as symptoms of broader finance readiness challenges.
Key Highlights for Finance Functions
Accounting Talent is now a Control Risk:
One of the most notable findings is the increase in material weaknesses tied to lack of accounting personnel, resources, or expertise. KPMG reported that this theme rose from 59% of companies that disclosed material weaknesses in FY’24 to 73% in FY’25. For finance leaders, that points to a larger issue than staffing levels alone. Technical accounting, SEC reporting, SOX readiness, complex transactions, and system transformation all require deeper capabilities than many lean teams currently have.
The Financial Close Remains the Pressure Point:
Financial close and reporting was the process area with the highest concentration of material weaknesses in FY’25, affecting 84% of companies that disclosed material weaknesses, up from 71% in FY’24. Common issues included management review controls, journal entries, account reconciliations, technical accounting, IPE documentation, and oversight of nonroutine transactions.
Technology Risk is a Finance Risk:
KPMG found that IT, software, security, and access issues continued to rise, representing 58% of disclosed material weaknesses in FY’25, up from 54% in 2024 and 31% in 2021. As finance functions modernize through ERP upgrades, automation, reporting tools, and AI-enabled processes, control design needs to be embedded into transformation from the start. User access, change management, segregation of duties, and data integrity are no longer back-office IT concerns. They are core financial reporting risks.
Documentation Remains a Persistent Weakness:
Lack of accounting documentation, policy, or procedure appeared in 98% of companies reporting material weaknesses in FY’25. This reinforces a practical point: a control that cannot be evidenced, reviewed, and repeated may not be a control at all.
Remediation is not Always Sticking:
Between 2021 and 2025, 269 companies reported material weaknesses in multiple years, representing 36% of the 740 unique companies that filed a report with a material weakness during that period. This suggests many companies are addressing symptoms without fixing the underlying operating model issues.
Why it Matters to Finance
Material weaknesses can affect far more than the audit. They can slow reporting timelines, increase audit costs, create lender or investor concern, and complicate transaction readiness.
For public companies, persistent control issues can lead to audit committee scrutiny, investor questions, remediation fatigue, and reputational risk. For private equity-backed companies, the implications can be equally significant. Weak controls can delay audits, undermine confidence in EBITDA adjustments, create friction with lenders, complicate sale processes, and reduce buyer confidence in the quality of financial information.
The broader issue is finance readiness. Many companies have grown, acquired, implemented new systems, changed reporting requirements, or entered more complex markets without making a proportional investment in finance infrastructure. The result is a control environment that may have been adequate at one stage of the business but no longer fits the company’s current complexity.
Finance leaders should use the KPMG study as a prompt to ask three practical questions:
Do we have the accounting expertise required for the complexity of the business?
Complex revenue, acquisitions, impairments, debt modifications, equity compensation, tax accounting, consolidations, and carve-outs require specialized knowledge. Underinvestment in technical accounting can quickly become a reporting risk.
Are systems and controls evolving together?
ERP implementations, automation, and AI adoption should not be treated as separate from internal controls. Control design, access governance, change management, and data integrity need to be part of the transformation agenda from the beginning.
Can we prove our controls operated effectively?
Policies, reconciliations, review controls, disclosure controls, and management review evidence need to be clear, complete, and repeatable. Documentation is not an administrative exercise. It is the evidence that the control environment works.
Source note: This publication is informed by and includes data from KPMG’s Trends in Material Weaknesses.
How Virtas Can Help:
Virtas helps finance leaders strengthen the people, processes, systems, and controls that underpin reliable financial reporting. Whether addressing material weaknesses, preparing for an audit or transaction, improving close and reporting processes, or scaling controls to support growth and transformation, our team brings practical accounting and operational expertise to help organizations identify gaps, remediate issues, and build a finance function that is ready for what comes next.
For situations requiring rapid or targeted support, our On Call Accounting Solution provides direct access to Virtas professionals as an extension of your finance function.
You can contact Virtas Partners here.