Audiovox 2004 Annual Report Download - page 114

and review by independent individuals) and unrestricted access to data
and business applications. Accordingly, management concluded that
these matters represent a material weakness as controls over
information security and access to data and applications are necessary
to have an effective control environment;
2. As a result of the divestiture of the Wireless business and the
classification of ACC as a discontinued operation, there was a lack of
appropriate review of significant transactions and the lack of
documented controls over the year−end financial closing process at ACC
resulting in a number of audit adjustments recorded by management
prior to the issuance of the financial statements. Accordingly,
management concluded that this matter represents a material weakness
at November 30, 2004, even though ACC will no longer be a significant
component of the Company's control environment or continuing operating
activities as substantially all the assets and liabilities of ACC have
been sold on November 1, 2004;
3. A deficiency in the controls related to the Company's sales cut−off
procedures resulted in an audit adjustment recorded by management
prior to the issuance of the fiscal 2004 fourth quarter financial
statements. The impact of this audit adjustment resulted in a
reduction of net sales and accounts receivable of approximately $1,134
and a reduction to income from continuing operations before income
taxes of $64 ($37 on an after tax basis) for the fiscal year ended
November 30, 2004. This adjustment occurred at one of the Company's
public warehouses on the last day of the fiscal fourth quarter. The
Company properly recorded this audit adjustment during fiscal 2004;
4. A deficiency in the lack of evidential documentation supporting the
approval of divisional journal entries and the inadequate segregation
of duties as it relates to entering and approving corporate journal
entries existed. The divisional deficiency is a result of the
reconciliation of the manual journal entries to the Company's ERP
system not being signed as evidence of review by the individual
performing the review and the corporate deficiency relates to the
reconciliation of the manual journal entries to the Company's ERP
system being performed by the same individual who processes the
journal entries into the system. Accordingly, management concluded
that this matter represents a material weakness as controls over
journal entries may materially impact all significant accounts and
business processes;
5. A deficiency in the design of the controls pertaining to the
processing of non−routine customer sales orders existed. These sales
orders, which represent 1% of consolidated net sales, require the
expedited shipment of the Company's merchandise to the customer. The
specific control deficiency identified relates to the lack of evidence
supporting the approval of these non−routine sales orders.
Accordingly, management concluded that this matter represents a
material weakness as it may have a potential material impact on net
sales, accounts receivable and the Company's inventory balances;
6. A deficiency in the lack of evidential documentation supporting the
oversight and monitoring activities of the financial statements and
the internal control environment of the Company's international
subsidiary in Germany existed. The Germany subsidiary, which was
acquired in July 2003, accounted for approximately 6% of the Company's
total consolidated assets and approximately 10% of consolidated net
sales as of and for the year ended November 30, 2004. The specific
control deficiencies identified relate to the lack of evidence
documenting the review of significant transactions, account analysis
and accounting entries by the appropriate personnel and the lack of
evidence documenting the Company's oversight and monitoring activities
of its German operations even though the review process was indeed
performed. Accordingly, management concluded that these matters
represent a material weakness to the Company's overall control
environment.
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