ADT 2002 Annual Report Download - page 33

• Continued to initiate a process of conducting intensified internal audits, detailed controls and
operating reviews, and reported the results of such audits and reviews;
• Development of an accounting policy and procedures manual to ensure conformity with GAAP;
• Development of a treasury department policies and procedures manual to ensure appropriate
utilization of funds;
• Expanded the resources and responsibilities of the internal audit function, with a senior internal
audit officer who reports directly to the Audit Committee of the Board of Directors; and
• Created disclosure committees that include senior personnel from the legal, finance and human
resources departments throughout our businesses, and which are responsible for reviewing
results of operations, evaluating compliance with policies and procedures and communicating
material findings to the Company’s CEO and CFO.
Although the framework has been put in place to materially improve the control structure of Tyco,
it will take some time to realize all of the benefits from our initiatives. Our Board of Directors and
new senior management are committed not only to a sound internal control environment but also to be
recognized as a leader in corporate governance. We have committed considerable resources to date on
the aforementioned reviews and remedies. A review of controls of a company the size of Tyco, which
includes approximately 2,300 subsidiaries, is not a one-time event. We are committed to ongoing
periodic reviews of our controls and their effectiveness, the results of which will be reported to our
shareholders.
As disclosed in the Company’s previously filed Form 10-Q for the quarter ended March 31, 2003,
the Company conducted intensified internal audits and detailed controls and operating reviews that
resulted in the Company identifying and recording pre-tax charges of $434.5 million in the quarter for
charges related to prior periods. This amount has since been adjusted to $506.0 million. These charges
resulted from capitalizing certain selling expenses to property, plant and equipment and other
non-current assets, mostly in the Fire and Security segment, and reconciliation items relating to balance
sheet accounts where certain account analysis or periodic reconciliations were deficient, resulting in
adjustments primarily related to the Engineered Products and Services segment. Additionally, charges
related to the correction of balances primarily related to corporate pension and deferred compensation
accruals, asset reserve adjustments and other accounting adjustment (i.e., purchase price accounting
accruals, deferred commissions, accounting related to leases in the Fire and Security Services and
Engineered Products and Services segments). The restatement includes adjustments to reverse the
charges recorded in the quarter ended March 31, 2003 and reflect those charges in the historic periods
in which they relate.
Our controls are improving and new senior management has no reason to believe that the financial
statements included in this report are not fairly stated in all material respects. There can be no
assurances, however, that new problems will not be found in the future. We expect to continue to
improve our controls with each passing quarter. It will take some time, however, before we have in
place the rigorous controls that our Board of Directors and new senior management desires and our
shareholders deserve.
Within the past 90 days, an evaluation was performed of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures by senior management. Based on that
evaluation, the Company’s management, including the CEO and CFO, concluded that these procedures
and controls are effective, given the cautions stated above. Other than as described above, this quarter,
there have been no significant changes in the Company’s internal controls or in other factors that could
significantly affect internal controls. The Company will continue to make ongoing assessments of these
controls and procedures periodically.
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