Audit Readiness for Year End 2025: Insights From PCAOB Inspections, SEC Comment Letters, and Material Weakness Trends

Closing the books doesn’t mean you’re ready for an audit. True audit readiness goes beyond financial statements – it ensures internal controls, documentation, and disclosures can withstand scrutiny from auditors and regulators.

Gaps in accounting, controls, or disclosures can lead to restatements, material weaknesses, and regulatory inquiries. Many organizations don’t discover these issues until an audit or regulatory review brings them to light. 

As year-end approaches, finance and accounting teams must focus on key areas that drive audit success, including common risks, why they matter, and practical steps to address them before they become costly.

The Regulatory Lens

The Public Company Accounting Oversight Board (PCAOB) and the Securities and Exchange Commission (SEC) are two key bodies that shape the audit and reporting landscape for public companies. Their insights and priorities provide a roadmap for where companies need to focus.

PCAOB Inspections: Persistent Deficiencies

While PCAOB inspections target audit firms, many findings, especially around internal control, stem from client-side weaknesses. Auditors frequently cite poorly designed client controls, insufficient documentation, and incomplete management review evidence as key drivers of recurring deficiencies.

Despite improvements in audit quality, issues persist year after year. From 2022 to 2024, two areas continue to stand out:

• Controls with a review element: Auditors often find client review procedures and supporting evidence lacking, particularly for complex estimates like business combinations or goodwill impairment.  
• IT and system-generated data and reports: Reports and data extracted directly from ERP or financial systems aren’t automatically reliable. Auditors expect evidence of completeness and accuracy. Without validation controls, accounting and finance teams risk relying on inaccurate data, a common misconception because these processes feel “automated.”

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SEC Comment Letters: Disclosure Under the Microscope

The SEC reviews filings for compliance and issues comment letters when disclosures are unclear or incomplete. In 2025, the most frequent focus areas include:

• MD&A: Companies often fail to explain why results changed, not just that they changed.
• Non-GAAP measures: Issues with prominence, reconciliations, and misleading adjustments.
• Segment reporting: New ASU 2023-07 rules require disclosure of significant segment expenses and management’s use of reported measures.
• Revenue recognition: Disaggregation and clarity on performance obligations.
• Goodwill and intangibles: Transparency on impairment testing, assumptions, and sensitivity analyses.
• Emerging risks: Cybersecurity, AI, and crypto asset disclosures.

These comments often go beyond presentation. They challenge technical accounting conclusions, such as how revenue is recognized, how segments are defined, or how impairment is assessed. Addressing these areas requires both strong internal controls and robust technical accounting expertise.

Material Weaknesses: The Hidden Risk

Material weaknesses (MWs) remain a growing concern, even for companies not preparing for an IPO. A recent study found that in FY24, 8% of companies disclosed MWs, and 31% had recurring issues across multiple years.

A material weakness occurs when internal controls cannot reasonably prevent or detect a material misstatement. Common causes include inadequate documentation and policies, insufficient accounting expertise, IT and access control gaps, poor segregation of duties, and weak disclosure controls. The most impacted areas are nonroutine or complex transactions such as M&A and restructurings (72%), financial close and reporting processes (31%), and the control environment (48%), which reflects weak oversight and tone at the top. These weaknesses are not just technical; they appear in filings, affect investor confidence, and drive higher audit costs.

Connecting the Dots: How These Issues Intersect

PCAOB findings, SEC comment letters, and material weaknesses share a common thread: technical accounting, internal control, and disclosure quality. Weaknesses in these areas often emerge when processes and accounting judgments fail to keep pace with complexity, growth, or regulatory change.

It’s not just about control. Many SEC comments relate to accounting conclusions, such as revenue recognition, segment reporting, and impairment testing. These areas require both strong documentation and sound technical analysis.

If you’re thinking, “We’ve never had a material weakness, so we’re fine,” consider this: Many companies didn’t know they had issues until auditors identified them.

Practical Steps for Audit Readiness

Here’s how finance teams can take control:

• Strengthen ICFR design and documentation: Review controls for financial close, revenue, and nonroutine transactions. If using manual spreadsheets, implement documented reviews and version control. Validate IT controls and user access. If AI assists with reconciliations, document oversight and logic checks.
• Enhance disclosure quality: Go beyond boilerplate in MD&A and quantify drivers of change. Instead of “Revenue increased due to demand,” disclose “Revenue grew 12% from a 15% volume increase and 3% price adjustment.” If AI drafts MD&A, ensure human review and compliance checks.
• Resource planning: Confirm your team has expertise for complex areas like business combinations and impairment testing. Engage technical accounting specialists for purchase accounting. AI can assist with valuation modeling or scenario analysis, but finance teams must confirm that AI outputs align with GAAP.
• Focus on high-risk areas: Nonroutine transactions need tailored controls. For business combinations, controls should extend to the valuation specialist calculations. If AI is used to identify anomalies or predict risk areas, document how these insights are incorporated into control design and ensure they don’t replace required manual reviews.
• Prepare for emerging risks: Address cybersecurity and AI in risk assessments and disclosures. Example: If using AI for forecasting, disclose governance policies and validation processes. Regulators expect transparency on AI usage and its financial impact.

How CrossCountry Consulting Can Help

CrossCountry Consulting helps finance teams close gaps before auditors find them, through ICFR readiness assessments, technical accounting support, remediation planning, and guidance on new standards like ASU 2023-07. Our approach is practical, collaborative, and focused on reducing risk while enabling confidence.

Ready to strengthen your audit readiness? Contact us today to get started.