Eversource 2004 Annual Report Download - page 48

46
To the Board of Trustees and Shareholders of Northeast Utilities:
We have audited management’s assessment, included in the accompanying
Company Report on Internal Controls Over Financial Reporting, that
Northeast Utilities and subsidiaries (the “Company”) did not maintain
effective internal control over financial reporting as of December 31,
2004, because of the effect of the material weakness identified in
management’s assessment based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. 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 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 opinions.
A company’s internal control over financial reporting is a process designed
by, or under the supervision of, the company’s principal executive and
principal financial officers, or persons performing similar functions,
and effected by the company’s board of directors, management, and
other personnel 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 (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) 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 (3) 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 the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the 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 significant deficiency, or combination of
significant 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: deficiencies
existed in both the design and operating effectiveness of controls
associated with the application of derivative accounting rules related to
certain wholesale natural gas contracts entered into by the wholesale
marketing portion of NU Enterprises’ merchant energy segment. These
deficiencies resulted in restatements of net income included in the
Company’s reports on Form 10-Q for June 30 and September 30, 2004
of $1.1 million and $47 million, respectively. Numerous account balances
were affected by these material misstatements, primarily fuel, purchased
and net interchange power, income tax expense, derivative assets,
derivative liabilities, retained earnings, and accumulated other
comprehensive income. Until these deficiencies are corrected, material
misstatements in the account balances and related disclosures associated
with this material weakness may occur. This material weakness was
considered in determining the nature, timing, and extent of audit tests
applied in our audit of the consolidated financial statements as of and
for the year ended December 31, 2004, of the Company and this report
does not affect our report on such financial statements.
In our opinion, management’s assessment that the Company did not
maintain effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on
the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, because of the effect of the material
weakness described above on the achievement of the objectives of the
control criteria, the Company has not maintained effective internal
control over financial reporting as of December 31, 2004, based on the
criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
We have not examined and, accordingly, we do not express an opinion
or any other form of assurance on management’s statements in the
fourth and fifth paragraphs of the Company Report on Internal Controls
Over Financial Reporting.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
financial statements as of and for the year ended December 31, 2004,
of the Company and our report dated March 16, 2005 expressed an
unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
March 16, 2005
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM