Kodak 2005 Annual Report Download - page 135

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of the deferred income tax valuation allowance account and the related provision for income taxes that would result in a material misstatement of the
annual or interim fi nancial statements that might not be prevented or detected. Accordingly, management has concluded that this control defi ciency
constitutes a material weakness.
The Company’s independent registered public accounting fi rm has audited management’s assessment of the effectiveness of the Company’s internal
control over fi nancial reporting as of December 31, 2005, as stated in their report which appears on page 64 of this Form 10-K under the heading,
Report of Independent Registered Public Accounting Firm.
Changes in Internal Control over Financial Reporting
As disclosed in the Company’s 2004 Annual Report on Form 10-K, and in its Quarterly Reports on Form 10-Q for each of the fi rst three quarters of
2005, the Company reported material weaknesses in the Company’s internal controls surrounding the accounting for income taxes and in its internal
controls surrounding the accounting for pension and other postretirement benefi t plans. In addition, in the Company’s Quarterly Report on Form 10-Q
for the three and nine-month periods ended September 30, 2005, the Company also reported a material weakness in its internal controls surrounding
the preparation and review of spreadsheets that include new or changed formulas.
As of December 31, 2005, the Company has remediated the previously reported material weaknesses in internal control over fi nancial reporting
related to the accounting for pension and other postretirement benefi t plans and related to the preparation and review of spreadsheets that include
new or changed formulas. With the help of external advisors (other than the Company’s independent registered public accounting fi rm), the following
remedial actions have been undertaken:
Accounting for Pension and Other Postretirement Benefi t Plans
• A root cause analysis was performed on all control defi ciencies. Using the results of this analysis, new processes and procedures, with
appropriate controls, were developed, documented and implemented in the third quarter of 2005 and followed in the third and fourth quarters
of 2005 for all of the relevant processes that are critical to the Company’s quarterly and annual reporting requirements, as well as the annual
actuarial valuations for the Company’s pension and other postretirement benefi t plans.
• In the third quarter of 2005, the Company developed and rolled out clearly defi ned and enhanced roles and responsibilities across the Finance,
Human Resource, Information Technology, and Global Shared Services functions for those individuals with responsibilities in this area.
• The Company completed its implementation and roll-out of a global IT system which will enable the tracking of benefi t arrangements,
collection of census and funding data, assumption-setting and journal entries that are critical to the actuarial valuation and accounting for
pension and other postretirement benefi t plans.
• The Company developed a detailed training protocol, which has been rolled out to the appropriate personnel in the respective functions.
Topics covered in the sessions include accounting for pension and other postretirement benefi t plans, training on the newly developed
processes, procedures, controls and the global IT system, and Sections 302 and 404 of the Sarbanes-Oxley Act of 2002.
• Existing regional resources that have consistently demonstrated strong benefi ts valuation and reporting knowledge have been identifi ed to
provide fi rst-level support to their regional colleagues.
• In preparation for the upcoming annual actuarial valuations, an extensive review of census data quality was undertaken for all material pension
and other postretirement benefi t plans.
In the third and fourth quarters of 2005, the Company has undertaken and completed, as appropriate, its testing to validate compliance with the newly
implemented policies, procedures and controls. The Company has undertaken this testing over these two quarters so as to be able to demonstrate
operating effectiveness over a period of time that is suffi cient to support its conclusion. In reviewing the results from this testing, management has
concluded that the internal controls over the accounting for pension and other postretirement benefi t plans have been signifi cantly improved and that
the above referenced material weakness in internal controls over fi nancial reporting has been remediated as of December 31, 2005.
Preparation and Review of Spreadsheets that Include New or Changed Formulas
• With respect to the specifi c restructuring spreadsheet that produced the issue, the Company has enhanced the template by:
– “locking” cells containing predetermined formulas
– creating exception reporting for items such as individual severance amounts over predetermined dollar thresholds or termination dates that
extend beyond a predetermined time horizon, and
– pre-formatting the spreadsheet to include ratios and analytics.
• With respect to overall spreadsheet controls, the Corporate Controller has issued, on a Company-wide basis, a memo reinforcing the
Company’s outlined and expected controls surrounding spreadsheets
In the fourth quarter of 2005, the Company has undertaken and completed, as appropriate, its testing to validate compliance with the newly
implemented policies, procedures and controls. The Company has undertaken this testing in order to demonstrate operating effectiveness over a