Fannie Mae 2006 Annual Report Download - page 174

these material weaknesses under the heading “Description of Remediation Actions—Actions Relating to
Material Weaknesses Remediated as of December 31, 2006.” This section then describes the remediation
activities undertaken in 2005, 2006 and 2007 through the date of this filing with respect to material
weaknesses in internal control over financial reporting that were remediated as of the date of this filing before
concluding with the remaining remediation activities underway as of the date of this filing.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, or the Exchange Act, management
has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. In
addition, management has performed this same evaluation as of the date of filing this report. Disclosure
controls and procedures refer to controls and other procedures designed to ensure that information required to
be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to
be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding our required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control objectives,
and management was required to apply its judgment in evaluating and implementing possible controls and
procedures.
Management identified material weaknesses in our internal control over financial reporting, which
management considers an integral component of our disclosure controls and procedures. The Public Company
Accounting Oversight Board’s (PCAOB) Auditing Standard No. 2 defines a material weakness as 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
PCAOB has revised the definition of material weakness for audits of fiscal years ending on or after
November 15, 2007. The revised definition, under the PCAOB’s Auditing Standard No. 5, changes the
standard from “more than a remote likelihood,” to “a reasonable possibility,” that a material misstatement of
annual or interim financial statements will not be prevented or detected on a timely basis. Although we use
the Auditing Standard No. 2 definition of material weakness for this Item 9A, we do not expect that the
revised definition would have affected management’s assessment of internal control over financial reporting in
this report. We have not filed periodic reports on a timely basis, as required by the rules of the SEC and the
NYSE, since June 30, 2004. Our review of our accounting policies and practices in 2005 and 2006, and the
restatement of our consolidated financial statements for the years ended December 31, 2003 and 2002, has
resulted in an inability to timely file our Annual Reports on Form 10-K for the years ended December 31,
2004, 2005 and 2006, and our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2004,
March 31, 2005, June 30, 2005, September 30, 2005, March 31, 2006, June 30, 2006, September 30, 2006,
March 31, 2007 and June 30, 2007. We filed our 2005 Form 10-K on May 2, 2007. As a result of these
material weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were not effective at a reasonable assurance level as of December 31, 2006 or as of
the date of filing this report.
We have made progress toward achieving effectiveness at a reasonable assurance level in our internal control
over financial reporting. Specifically, we have taken, and are taking, the actions described below under
“Remediation Activities and Changes in Internal Control Over Financial Reporting” to remediate the material
weaknesses in our internal control over financial reporting. In addition, during 2006, we made enhancements
to other disclosure controls, which include:
• revision and adoption of a new charter by the Disclosure Committee;
• an annual review of the Disclosure Committee charter;
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