Hertz 2014 Annual Report Download - page 106

Table of Contents
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• reserve estimates associated with probable credit card charge backs;
• accruals for customer rewards programs;
• accrued unbilled revenue;
• reserve estimates associated with allowances for doubtful accounts for the Brazil operations;
• accruals for travel vouchers associated with the Brazil operations;
• Brazil operations litigation reserves;
• other assets and intercompany accounts for the Brazil operations;
• accruals for restoration obligations at the end of facility leases; and
• disclosure of gross equipment and accumulated depreciation balances associated with the capitalization of refurbishment costs.
On November 10, 2014, the Audit Committee, in consultation with management, concluded that additional proposed adjustments arising out of the
review were material to the Company's 2012 and 2013 financial statements and that, as a result, the 2012 and 2013 financial statements also
would require restatement.
The second process, which the Company commenced in June 2014, involved an internal investigation of certain matters related to the accounting
during prior periods. The investigation was undertaken by outside counsel, along with independent counsel for the Audit Committee. Counsel
received assistance from outside consultants and new senior accounting and compliance personnel. The internal investigation is complete,
although the Company's outside counsel and the independent counsel to the Audit Committee continue to provide forensic and investigative
support in connection with certain proceedings discussed in Item 3, "Legal Proceedings," in this Annual Report on Form 10-K and in Note 14,
"Contingencies and Off-Balance Sheet Commitments" to the consolidated financial statements involving the Company's restatements and related
accounting for prior periods.
As part of the Company’s review of its financial records, the Company identified control deficiencies related to the control environment, risk
assessment, information and communication, and monitoring. For further information regarding these control deficiencies, please see   
 in this Annual Report on Form 10-K. The Company’s incorrect accounting was the result of these control deficiencies and
the complex mix of structural and environmental factors. The Company’s investigation found that one of these factors was that an inconsistent
and sometimes inappropriate tone at the top that was present under the then existing senior management that did not in certain instances result in
adherence to GAAP and Company accounting policies and procedures. In particular, the Company’s former Chief Executive Officer’s management
style and temperament created a pressurized operating environment at the Company, where challenging targets were set and achieving those
targets was a key performance expectation. There was in certain instances an inappropriate emphasis on meeting internal budgets, business
plans, and current estimates. The Company’s former Chief Executive Officer further encouraged employees to focus on potential business risks
and opportunities, and on potential financial or operating performance gaps, as well as ways of ameliorating potential risks or gaps, including
through accounting reviews. This resulted in an environment which in some instances may have led to inappropriate accounting decisions and the
failure to disclose information critical to an effective review of transactions and accounting entries, such as certain changes in accounting
methodologies, to the appropriate finance and accounting personnel or the Company’s Board, Audit Committee, or independent registered public
accounting firm. The tone set and pressures imposed by the former Chief Executive Officer were inappropriate in certain instances and may have
been a factor influencing one or more employees to record an accounting entry now determined to be improper. Other factors affecting the overall
historic accounting environment and influencing employees included the distraction caused by the multiple, conflicting business initiatives;
challenges related to managing complex, inefficient legacy systems; the lack of a sufficient complement of personnel with an appropriate level of
knowledge, experience, and training with GAAP; unclear reporting structures, reporting lines, and decisional authority in the organization; and other
matters. Taken together, these factors fostered a control environment that in some instances enabled inappropriate accounting to occur.
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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