Adaptec 2006 Annual Report Download - page 103

Table of Contents
PART II
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
ITEM 9A. Controls and Procedures.
In evaluating the effectiveness of our internal control over financial reporting as of December 31, 2006, we considered the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Internal control over financial reporting cannot
provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that
involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial
reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over financial reporting. 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.
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.
Following the completion of an intensive internal investigation during the second quarter of fiscal 2006, the Company concluded that there were material
accounting errors which resulted from material weaknesses in our internal controls and procedures with respect to a number of stock option grants during the
period 1998 to 2001. Some of these stock options were granted with an exercise price equal to the NASDAQ closing market price for our common stock on the
date set forth on written consents signed by directors or the date communicated by the directors who believed they had appropriate delegated authority to grant
the options. We used the stated date of these consents as the “measurement date” for the purpose of accounting for them under GAAP, and as a result recorded no
compensation expense in connection with the grants.
The Company concluded that a number of written consents were not fully executed or effective on the stated dates and thus that using the stated date as the
measurement date was incorrect. We determined a revised measurement date for each stock option grant based on the information now available to us. Generally,
the changes in measurement dates are due to several kinds of errors:
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠