Kodak 2005 Annual Report Download - page 136

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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 preparation and review of spreadsheets that include new or changed formulas has 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.
Remediation Efforts on the Internal Controls Surrounding the Accounting for Income Taxes
During the year ended December 31, 2005 the Company has made signifi cant progress in executing the remediation plans that were established to
address the material weakness in its internal controls surrounding the accounting for income taxes. This resulted in material improvements in the
Company’s internal control over fi nancial reporting. With the help of external advisors (other than the Company’s independent registered public
accounting fi rm), the following remedial actions have been undertaken:
• Effective July 11, 2005 and August 1, 2005, the Company hired a new Chief Tax Offi cer and Tax Accounting Controller, respectively.
• 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 the processes that are critical to the Company’s income tax provision calculations refl ected in its periodic fi nancial reporting.
• In the third quarter of 2005, the Company developed and rolled out clearly defi ned and enhanced roles and responsibilities across the
worldwide income tax organization.
• A detailed, quarterly income tax reporting package, which collects tax-sensitive data and information at the jurisdictional level, was developed
and rolled out in the third quarter of 2005. This package was appropriately utilized in connection with the preparation of the year-end income
tax provision and the income tax related balance sheet accounts.
• In August and September 2005, the Company held training sessions for the worldwide income tax organization, as well as certain Controller’s
personnel. Topics covered in the sessions included accounting for income taxes, training on the newly developed processes, procedures,
internals controls and the income tax reporting package, and Sections 302 and 404 of the Sarbanes-Oxley Act of 2002.
• Management is utilizing personnel from a third-party professional services fi rm with expertise in accounting for income taxes to assist in the
preparation and review of the Company’s income tax provision and the income tax related balance sheet accounts.
As demonstrated by the above, the Company has made signifi cant progress in its efforts to remediate this material weakness during 2005. This is
further supported by the Company’s overall positive results from its 2005 internal control compliance testing required by the Sarbanes-Oxley Act of
2002, which was carried out by the Company in the third and fourth quarters of 2005. In making its determination as to the status of the remediation
of this material weakness, the Company has considered all of the factors outlined above and has concluded that the internal controls surrounding the
accounting for income taxes are effectively designed, however, as a result of the audit adjustments identifi ed, the Company has not demonstrated
operating effectiveness with respect to controls over the completeness and accuracy of its deferred income tax valuation allowance account.
Accordingly, as discussed in “Management’s Report on Internal Control Over Financial Reporting” above, the Company reported this as a material
weakness as of December 31, 2005.
In order to remediate this defi ciency in internal controls, the Company will continue its training and education efforts in this area so that operating
effectiveness can be demonstrated over a period of time that is suffi cient to support the conclusion that the material weakness has been remediated.
In addition, to further enhance the controls surrounding the accounting for income taxes, the Company continues to progress with the implementation
of an IT solution to enable the collection, tracking and bookkeeping of detailed tax information on a global basis. Further, the Company will continue
its efforts with respect to (1) enhancing the overall design of the worldwide income tax organization, (2) further upgrading its tax personnel, and
(3) developing an effective and effi cient forecasting process for purposes of determining its effective tax rate.
Except as otherwise discussed above, there have been no changes in the Company’s internal control over fi nancial reporting during the most
recently completed fi scal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
fi nancial reporting.
ITEM 9B. OTHER INFORMATION
None.