Auditor warns Compass reporting may not be correct
Compass is in a critical window to resolve issues, known as material weaknesses, which outside experts say are unusual for a company of its size and time in the public markets.
Material weaknesses can take many forms. The disclosure generally refers to a systemic problem at a company that threatens the accuracy of its financial reporting. Many companies have material weaknesses in their earnings reports, but they’re more commonly seen in companies with limited funding that are new to the public markets.
The weaknesses were identified before Compass went public and have been present in each report since the company’s IPO in April 2021. So far, Compass has not had to issue a misstatement, or a disclosure following an earnings report that corrects the record, because its numbers have been accurate. But experts say Compass is rolling the dice with each quarter it fails to resolve the issues.
The SEC allows companies to go public with material weaknesses. Firms with a market cap over $700 million — like Compass — must come into compliance with regulations regarding internal controls over financial reporting after one annual report, according to Wharton accounting lecturer Francine McKenna’s analysis of the Sarbanes-Oxley Act, a federal law that mandates financial disclosure practices.
“These weaknesses are not actually weaknesses,” said one Compass executive. “They don’t matter. This is nonsense.”
More to come
Source: The Real Deal