Abercrombie & Fitch 2004 Annual Report Download - page 21

Abercrombie &Fitch Abercrombie &Fitch
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ABERCROMBIE & FITCH CO.: We have completed
an integrated audit of Abercrombie & Fitch Co.’s fiscal 2004 consolidated financial statements and of its internal
control over financial reporting as of January 29, 2005 and audits of its fiscal 2003 and 2002 consolidated financial
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Our opinions, based on our audits, are presented below.
CONSOLIDATED FINANCIAL STATEMENTS In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of operations, changes in shareholders’ equity and cash flows present fairly,
in all material respects, the financial position of Abercrombie & Fitch Co. (“the Company”) and its subsidiaries at
January 29, 2005 and January 31, 2004, and the results of their operations and their cash flows for each of the three
years in the period ended January 29, 2005 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits
of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit of financial statements includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
INTERNAL CONTROL OVER FINANCIAL REPORTING Also, we have audited management’s assessment, included
in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that Abercrombie
& Fitch Co. did not maintain effective internal control over financial reporting as of January 29, 2005, because
the Company’s controls over the selection and application of its lease accounting policies related to construction
allowances and the recording of rent between the date the Company takes possession of the property and the
commencement date of the lease were ineffective based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express
opinions on management's assessment and on the effectiveness of the Company's internal control over financial
reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. An audit of internal control over financial reporting includes obtaining an understanding
of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing such other procedures as we consider necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect mis-
statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than
a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and included in management's assessment. As
of January 29, 2005, the Company’s controls over the selection and application of its lease accounting policies
related to construction allowances and the recording of rent between the date the Company takes possession of
the property and the commencement date of the lease were ineffective to ensure that such leasing transactions
were recorded in accordance with generally accepted accounting principles. Specifically, because of the deficiency
in the Company’s controls over the selection and application of its lease accounting policies, the Company failed
to properly classify and account for property and equipment, deferred lease credits from landlords, rent expense,
depreciation expense and the related impact of these items on cash provided by operating activities and cash used
for investing activities in the consolidated statements of cash flows, which resulted in restatements of the Company’s
2003, 2002 and 2001 annual financial statements and 2004 and 2003 interim consolidated financial statements.
Additionally, if the control deficiency is not remediated it could result in a misstatement of the aforementioned
financial statement accounts and disclosures that would result in a material misstatement to annual or interim
financial statements that would not be prevented or detected. Accordingly, management of the Company has
concluded that this control deficiency constitutes a material weakness. This material weakness was considered in
determining the nature, timing, and extent of audit tests applied in our audit of the fiscal 2004 consolidated financial
statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting
does not affect our opinion on those consolidated financial statements.
In our opinion, management's assessment that Abercrombie & Fitch Co. did not maintain effective internal
control over financial reporting as of January 29, 2005, is fairly stated, in all material respects, based on criteria
established in Internal Control – Integrated Framework issued by the COSO. Also, in our opinion, because of the
effect of the material weakness described above on the achievement of the objectives of the control criteria,
Abercrombie & Fitch Co. has not maintained effective internal control over financial reporting as of January 29,
2005, based on criteria established in Internal Control Integrated Framework issued by the COSO.
Columbus, Ohio
April 11, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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