Support.com 2006 Annual Report Download - page 76

A material weakness is a control deficiency or combination of control deficiencies that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected. Based on management’s
assessment of our internal control over financial reporting as of December 31, 2006, we have identified the following material
weakness.
We did not appropriately quantify the currency translation gain or loss upon liquidation of a foreign subsidiary in 2006, nor did we
maintain appropriate controls related to the periodic reconciliation of inter−company balances. Such objectives should have been met
by the internal controls over our accounting for international operations. In connection with our fiscal 2006 year end audit, a
misclassification of the accumulated currency translation adjustments, which balances should have been appropriately classified as an
inter−company balance between the liquidated subsidiary and the U.S. parent company, was identified and a corrective adjustment
was made to our consolidated financial statements. If the misclassification had remained undetected, the gain recognized upon the
liquidation of the foreign subsidiary would have been mistated, impacting “other income” reported in the consolidated statements of
operations.
Because of the material weakness described in the preceding paragraphs, the Company has concluded its internal control over
financial reporting was not effective as of December 31, 2006.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on management’s
assessment of our internal control over financial reporting, which is included herein.
Additional Information and Remediation
The corrective adjustment discussed above had no effect on the consolidated financials statements of any year prior to 2006
because currency translation adjustments are accumulated as a component of stockholders’ equity and misclassifications between
individual entities within the same account have no effect on the consolidated financial statements until the liquidation of a foreign
subsidiary occurs. Furthermore, the misclassification for the liquidated subsidiary was corrected prior to the release of our fourth
quarter and fiscal 2006 financial results reported in our current report on Form 8−K filed with the Securities and Exchange
Commission on February 8, 2007.
We have since evaluated the accumulated currency translation adjustments of our foreign subsidiaries in order to determine the
accuracy of the entity−specific and consolidated balances. At the conclusion of this review, we determined the balances to be properly
stated as of December 31, 2006. Going forward, we will review the reasonableness of our recorded currency translation balances once
a quarter and in connection with the liquidation of a foreign subsidiary.
In March 2007, we discussed the material weakness and remediation described above with our audit committee.
/s/ JOSHUA PICKUS
Joshua Pickus
Chief Executive Officer and President
/s/ KEN OWYANG
Ken Owyang
Chief Financial Officer and
Senior Vice President of Finance and
Administration
72
Source: SUPPORTSOFT INC, 10−K, March 16, 2007