Pep Boys 2007 Annual Report Download - page 129

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of The Pep Boys-Manny, Moe and Jack (the Company) is responsible for establishing
and maintaining adequate internal control over financial reporting. The Company’s internal control
over financial reporting is a process designed under the supervision of the Company’s principal
executive officer and principal financial officer to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the Company’s 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 policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and
(3) 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.
As of February 2, 2008, management assessed the effectiveness of the Company’s internal control
over financial reporting as of February 2, 2008 based on the criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, management determined that the Company’s internal
control over financial reporting as of February 2, 2008 was not effective due to a material weakness in
the design and operating effectiveness of the Company’s controls over the financial close and reporting
process. This material weakness, originally determined in the second quarter of fiscal 2007, resulted in
errors in our supplemental guarantor information note and statements of cash flows presentation, for
which previously issued annual and interim financial statements were restated, an error in the recording
of our third quarter fiscal 2007 impairment charge for our store closures and an error in its analyses
and documentation supporting the realizability of the Company’s net deferred tax asset included in the
annual financial statements. A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be prevented or detected
on a timely basis. Because of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has issued
an attestation report, which is included on page 84 herein, on the Company’s internal control over
financial reporting as of February 2, 2008.
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10-K