IBM 2004 Annual Report Download - page 11

REPORT OF MANAGEMENT
International Business Machines Corporation and Subsidiary Companies
09
ibm annual report 2004
management responsibility for financial information
Responsibility for the integrity and objectivity of the financial information presented in this
Annual Report rests with IBM management. The accompanying financial statements have
been prepared in accordance with accounting principles generally accepted in the United
States of America, applying certain estimates and judgments as required.
IBM maintains an effective internal control structure. It consists, in part, of organizational
arrangements with clearly defined lines of responsibility and delegation of authority, and
comprehensive systems and control procedures. An important element of the control
environment is an ongoing internal audit program. Our system contains self-monitoring
mechanisms, and actions are taken to correct deficiencies as they are identified.
To assure the effective administration of internal controls, we carefully select and train
our employees, develop and disseminate written policies and procedures, provide appro-
priate communication channels, and foster an environment conducive to the effective
functioning of controls. We believe that it is essential for the company to conduct its business
affairs in accordance with the highest ethical standards, as set forth in the IBM Business
Conduct Guidelines. These guidelines, translated into numerous languages, are distributed
to employees throughout the world, and reemphasized through internal programs to
assure that they are understood and followed.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, is
retained to audit IBM’s consolidated financial statements and management’s assessment of
the effectiveness of the company’s internal control over financial reporting. Its accompany-
ing report is based on audits conducted in accordance with the standards of the Public
Company Accounting Oversight Board (United States).
The Audit Committee of the Board of Directors is composed solely of independent,
non-management directors, and is responsible for recommending to the Board the
independent registered public accounting firm to be retained for the coming year, sub-
ject to stockholder ratification. The Audit Committee meets periodically and privately
with the independent registered public accounting firm, with the company’s internal
auditors, as well as with IBM management, to review accounting, auditing, internal con-
trol structure and financial reporting matters.
management’s report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control
over financial reporting of the company. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
The company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accu-
rately and fairly reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit prepa-
ration of financial statements in accordance with accounting principles generally accepted
in the United States of America, 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 financial statements.
Because of its inherent limitations, internal control over financial 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.
Management conducted an evaluation of the effectiveness 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.
Based on this evaluation, management concluded that the company’s internal control over
financial reporting was effective as of December 31, 2004. Management’s assessment of the
effectiveness of the company’s internal control over financial reporting as of December 31,
2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included herein.
Mark Loughridge
SENIOR VICE PRESIDENT
CHIEF FINANCIAL OFFICER
FEBRUARY 22, 2005
Samuel J. Palmisano
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
FEBRUARY 22, 2005