American Eagle Outfitters 2004 Annual Report Download - page 75

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Part II
identified the material weakness in the Company's internal control that arose in connection with the Company’s
change in lease accounting practices described above, pursuant to which Management determined to restate
previously issued annual and interim financial statements. 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.
As described above, in response to the SEC Letter, the Company’s Management initiated a review of its lease-related
accounting practices (see Note 2 of the Consolidated Financial Statements for additional information). Upon
completion of this review, Management determined that the Company’s historical method of accounting for rent
holidays and tenant allowances was not in accordance with GAAP as set forth in the SEC Letter.
As a result of changing its historical lease accounting practices to conform to GAAP as set forth in the SEC Letter,
Management concluded that the Company's previously reported fixed assets and deferred lease credits had been
understated and that previously issued annual and interim financial statements should be restated. Although the
Company corrected these errors prior to the filing of its Form 10-K for Fiscal 2004, thus remediating its only
material weakness, they were not effectively remediated prior to January 29, 2005. Because of the change in its
lease accounting practices, the Company concluded that it had a material weakness in the effectiveness of controls
over the selection and monitoring of appropriate practices used in accounting for leases and tenant allowances.
Based solely on the change in lease accounting practices, Management concluded that the Company's internal control
over financial reporting was not effective as of January 29, 2005.
Management's assessment of the effectiveness of internal control over financial reporting as of January 29, 2005, has
been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited the
Company's consolidated financial statements. Ernst & Young's attestation report on management's assessment of the
Company's internal control over financial reporting is located below.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting during the quarter ended January
29, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over
financial reporting.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
American Eagle Outfitters, Inc.
We have audited management's assessment, included in the accompanying Management's Annual Report on Internal
Control over Financial Reporting, that American Eagle Outfitters, Inc. did not maintain effective internal control
over financial reporting as of January 29, 2005, because of the effect of the Company's ineffective controls over the
selection and monitoring of appropriate assumptions and factors affecting the accounting for leases and tenant
allowances, based on criteria established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO control criteria). American Eagle Outfitters,
Inc.’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 an
opinion on management's assessment and an opinion on the effectiveness of the company's internal control over
financial reporting based on our audit.
We conducted our audit 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. Our audit included
obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing