Alcoa 2006 Annual Report Download - page 45

Report of Independent Registered Public
Accounting Firm
To the Shareholders and Board of Directors of Alcoa Inc.:
We have completed integrated audits of Alcoa Inc.’s
consolidated financial statements and of its internal control
over financial reporting as of December 31, 2006 in accord-
ance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on
our audits, are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of income,
shareholders’ equity and cash flows present fairly, in all
material respects, the financial position of Alcoa Inc. and its
subsidiaries (Alcoa) at December 31, 2006 and 2005, and
the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2006 in
conformity with accounting principles generally accepted in
the United States of America. These financial statements are
the responsibility of Alcoa’s management. Our responsibility
is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those stan-
dards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in Note A to the consolidated financial
statements, Alcoa changed the manner in which they
account for their benefit plans, stock-based compensation
and mine stripping costs in 2006.
As discussed in Note C to the consolidated financial
statements, Alcoa changed its method of accounting for
conditional asset retirement obligations in 2005.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in
the accompanying Management’s Report on Internal Con-
trol over Financial Reporting, that Alcoa maintained
effective internal control over financial reporting as of
December 31, 2006 based on criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO), is fairly stated, in all material respects, based on
those criteria. Furthermore, in our opinion, Alcoa main-
tained, in all material respects, effective internal control over
financial reporting as of December 31, 2006, based on cri-
teria established in Internal Control—Integrated Framework
issued by the COSO. Alcoa’s management is responsible for
maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on
the effectiveness of Alcoa’s internal control over financial
reporting based on our audit. We conducted our audit of
internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting
was maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control,
and performing such other procedures as we consider neces-
sary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s
internal control over financial reporting includes those poli-
cies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) 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 com-
pany are being made only in accordance with authorizations
of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or dis-
position of the company’s 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.
Pittsburgh, Pennsylvania
February 15, 2007
43