Material Weaknesses in the Second Quarter

As part of FERF’s and Pathlock Technologies’ ongoing research into ICFR, we have created a program to automatically review all quarterly public filings and highlight those companies that have reported a material weakness. We are aggregating that information into meaningful data to show trends for you to review.

Material weaknesses continued a cyclical pattern of sharply decreasing during the first quarter of the year, before rebounding in the second quarter according to the latest Financial Education and Research Foundation (FERF)/Pathlock Technologies ICFR Tracker.

The total number of public companies filing material weakness disclosures was 1,002 in the second quarter, rising 3.5% from the prior quarter of just 844 in Q1, while decreasing slightly from the same quarter in the year prior when 1,152 filers reported material weaknesses.

As expected, many of the small filers that didn’t file their 10-K in Q1 filed it in Q2, hence the jump from Q1. We did notice, however, that the total filings are down year-over-year (down 639 or 12%); this is primarily due to delayed filings due to COVID-19. The SEC has allowed companies to delay filings due to COVID-19, but they must disclose that they are doing so on in 8-K. To date 915 8-Ks were filed that mentioned the SEC. For the >$1B filers, they dropped from 50 to 46 with 10 new disclosures, however 7 companies that filed in Q1 didn’t file in Q2.

You can view the full charts on the FEI site by clicking here.