Digital River 2006 Annual Report Download - page 64

objectives of the control system are met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of the control. The design of
any system of controls also is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-
effective control system, misstatements due to error or fraud may occur and not be detected.
Management conducted an evaluation of the effectiveness of the system of internal control over financial
reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management
concluded that our internal control over financial reporting was effective as of December 31, 2006, 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. That evaluation excluded
the business operations of MindVision, Inc. acquired on June 15, 2006. The acquired business operations
excluded from the evaluation together constituted less than three percent of total assets at December 31, 2006,
and approximately one percent of revenues and net income, for the year then ended. Management’s assessment
of the effectiveness of our internal control over financial reporting has been audited by Ernst & Young LLP,
an independent registered public accounting firm, as stated in their report in which they expressed an
unqualified opinion, which is included herein.
(c) Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2006, there was no change in our internal control over financial
reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
(d) Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Digital River, Inc.
We have audited management’s assessment, included in the accompanying Management’s Annual Report
on Internal Control Over Financial Reporting, that Digital River, Inc. and subsidiaries maintained effective
internal control over financial reporting as of December 31, 2006, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Digital River, 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 and evaluating the design and operating effectiveness of internal control,
and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
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