Cisco 2006 Annual Report Download - page 14

2006 Annual Report 17
To the Board of Directors and Shareholders of Cisco Systems, Inc.:
We have completed integrated audits of Cisco Systems, Inc.’s 2006 and 2005 consolidated nancial statements and of its internal control
over nancial reporting as of July 29, 2006, and an audit of its 2004 consolidated nancial 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, of shareholders’
equity and of cash ows appearing on pages 43 to 46 present fairly, in all material respects, the nancial position of Cisco Systems, Inc. and
its subsidiaries at July 29, 2006 and July 30, 2005, and the results of their operations and their cash ows for each of the three years in the
period ended July 29, 2006 in conformity with accounting principles generally accepted in the United States of America. These nancial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these nancial 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 nancial statements are free of material misstatement. An audit of nancial statements includes examining, on a test basis, evidence
supporting the amounts and disclosures in the nancial statements, assessing the accounting principles used and signicant estimates
made by management, and evaluating the overall nancial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 2 to the consolidated nancial statements, the Company changed its method of accounting for share-based
compensation in 2006. As also discussed in Note 2 to the consolidated nancial statements, the Company changed its method of classication
of its investments in 2006. As discussed in Notes 2 and 3 to the consolidated nancial statements, effective January 24, 2004, the Company
adopted Financial Accounting Standards Board Interpretation No. 46(R), “Consolidation of Variable Interest Entities.”
Internal Control Over Financial Reporting
Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial
Reporting, that the Company maintained effective internal control over nancial reporting as of July 29, 2006 based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is
fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over nancial reporting as of July 29, 2006, based on criteria established in Internal Control – Integrated Framework
issued by the COSO. The Company’s management is responsible for maintaining effective internal control over nancial reporting and for
its assessment of the effectiveness of internal control over nancial reporting. Our responsibility is to express opinions on management’s
assessment and on the effectiveness of the Company’s internal control over nancial reporting based on our audit. We conducted our audit
of internal control over nancial 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 nancial reporting was maintained in all material respects. An audit of internal control over nancial reporting includes obtaining an
understanding of internal control over nancial 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 nancial reporting is a process designed to provide reasonable assurance regarding the reliability of
nancial reporting and the preparation of nancial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over nancial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of nancial 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 nancial statements.
Because of its inherent limitations, internal control over nancial reporting may not prevent or detect misstatements. 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.
San Jose, California
September 15, 2006
Report of Independent Registered Public Accounting Firm