World Fuel Services 2005 Annual Report Download - page 45

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of 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 has assessed the effectiveness of our internal control over financial reporting as of
December 31, 2005. In making its assessment of internal control over financial reporting, management used the
criteria described in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
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. Management’s assessment has identified that the following control deficiency:
As of December 31, 2005, we did not maintain effective controls over the accounting and financial reporting
of our derivative program. Specifically, we did not maintain effective controls to ensure the accuracy,
presentation and disclosure of our accounting for derivative instruments. This control deficiency resulted in an
adjustment to the third quarter 2005 consolidated statements within cost of good sold, other comprehensive
income, prepaid and other current assets and accrued expenses and other current liabilities. Additionally, this
control deficiency could result in a misstatement of derivative instruments that could result in a material
misstatement to the annual or interim financial statements that would not be prevented or detected. Accordingly,
management has determined that this control deficiency constitutes a material weakness.
Because of this material weakness, management has concluded that we did not maintain effective internal
control over financial reporting as of December 31, 2005, based on criteria in Internal Control – Integrated
Framework.
Management’s assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered certified public
accounting firm, as stated in their report appearing herein.
Status of Material Weakness Remediation
As of December 31, 2005, we did not remediate the aforementioned material weakness pertaining to the
accuracy, presentation and disclosure of derivatives. This material weakness was first reported in our 2004
Annual Report on Form 10-K. In light of the material weakness described above, we performed additional
procedures to ensure that the consolidated financial statements are prepared in accordance with generally
accepted accounting principles. During the third quarter of 2005, we, with the assistance of an independent third
party consultant, implemented various controls and improved documentation procedures over the accounting and
financial reporting of our derivative program. In the fourth quarter of 2005, we made the decision to engage an
international accounting firm with specialties in derivative accounting, to assist in implementing additional
internal controls over the derivative program in the effort to remediate the material weakness. This firm began
the engagement in January of 2006. Further, in the fourth quarter of 2005, we began the testing stage of our
implementation of a derivative software application designed specifically to strengthen internal controls over
financial reporting relating to the accounting for derivatives. In addition throughout the third and fourth quarters
of 2005, we have improved the derivative knowledge base of all relevant personnel involved in front, middle and
back offices related to derivatives.
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