Methodology
What this is
Material Weakness Watch reads SEC filings from NYSE and Nasdaq companies and records what they disclose about their own internal control over financial reporting. We extract the company's exact words, link to the filing, and apply a fixed, published scoring rubric. We do not interpret, predict, or opine.
Sources
SEC EDGAR full-text search and filing archives: Forms 10-K, 10-Q, 8-K (Items 4.01 and 4.02), NT 10-K, NT 10-Q, 20-F and 40-F, plus amendments. Company identity and exchange come from the SEC's company-ticker file. We poll EDGAR every two hours on business days.
Extraction
Filings are scanned for control-related language. An AI model classifies passages into seven kinds (material weakness, controls not effective, restatement or non-reliance, auditor change, auditor change with disagreements, late filing, remediation). Every excerpt must match the filing text character-for-character; any excerpt that does not is discarded before it is stored. Risk-factor boilerplate (“we may identify material weaknesses in the future”) is excluded.
Scoring rubric (v1)
Each company starts at 100. Over the trailing 24 months of filings:
| Material weakness disclosed (per distinct weakness, max 3) | −20 each |
| ICFR concluded not effective in a 10-K (max 2) | −15 each |
| Restatement / non-reliance, Item 4.02 (max 2) | −25 each |
| Auditor change with disagreements, Item 4.01 | −20 |
| Auditor change without disagreements | −5 |
| Late filing, NT 10-K / NT 10-Q (max 3) | −10 each |
| Weakness open in more than 4 quarters | −10 |
| Explicit remediation disclosed | +15 each, capped at prior deductions |
Floor 0, cap 100. Grades: A ≥ 90, B 75–89, C 60–74, D 40–59, F below 40. Every card shows the components so the arithmetic can be checked. Rubric changes are versioned and all scores are recomputed.
Limitations
- Coverage is NYSE and Nasdaq registrants only at launch.
- Extraction is automated. It can miss a disclosure or mis-classify one. Corrections are welcome and acted on.
- A score describes disclosed control events, not financial health, fraud, or management quality.
- History begins November 2024. Earlier events are not reflected.
Corrections
If you represent a company and believe an entry is wrong, submit the ticker and what is wrong. The affected disclosure is hidden from the card while the correction is open, and we respond within five business days.
Derived from public SEC filings. Not investment advice. Material Weakness Watch is an independent project published by Sentralis LLC d/b/a Material Weakness Watch.