Know Your Weaknesses: PwC Reports On Disclosing Material Weaknesses During The IPO Process

PwC recently released a study on the effect of disclosing material weaknesses (MWs) during an issuer's initial public offering.  Disclosing material weaknesses, which are defined by the SEC as "a deficiency, or a combination of deficiencies in Internal Control over Financial Reporting (ICFR) such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis," has often had negative consequences for new companies whose performance is not yet well known. PwC's study found, however, that many companies that disclose MWs in conjunction with their IPOs do not experience the same unfavorable consequences during their first few years as a public company.