HR Block 2005 Annual Report Download - page 145

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND weakness in internal control over financial reporting discussed
PROCEDURES ⬎⬎⬎ We have established disclosure controls and below.
procedures (‘‘Disclosure Controls’’) to ensure that information (b) MANAGEMENT’S REPORT ON INTERNAL CONTROL
required to be disclosed in the Company’s reports filed under the OVER FINANCIAL REPORTING ⬎⬎⬎ Management is responsible
Securities Exchange Act of 1934, as amended, is recorded, for establishing and maintaining adequate internal control over
processed, summarized and reported within the time periods financial reporting, as such term is defined in Exchange Act
specified in the U.S. Securities and Exchange Commission’s rules Rules 13a-15(f). Under the supervision and with the participation
and forms. Disclosure Controls are also designed to ensure that of management, including our Chief Executive Officer and Chief
such information is accumulated and communicated to Financial Officer, we conducted an evaluation of the
management, including the CEO and CFO, as appropriate to effectiveness of our internal control over financial reporting
allow timely decisions regarding required disclosure. Our based on the framework in ‘‘Internal Control – Integrated
Disclosure Controls were designed to provide reasonable Framework’’ issued by the Committee of Sponsoring
assurance that the controls and procedures would meet their Organizations of the Treadway Commission (‘‘COSO’’) as of
objectives. Our management, including the Chief Executive April 30, 2005.
Officer and Chief Financial Officer, does not expect that our Based on our assessment, management determined that a
Disclosure Controls will prevent all error and all fraud. A control material weakness existed in the Company’s internal controls
system, no matter how well designed and operated, can provide over accounting for income taxes as of April 30, 2005.
only reasonable assurance of achieving the designed control Specifically, the Company did not maintain sufficient resources in
objectives and management is required to apply its judgment in the corporate tax function to accurately identify, evaluate and
evaluating the cost-benefit relationship of possible controls and report, in a timely manner, non-routine and complex transactions.
procedures. Because of the inherent limitations in all control In addition, the Company had not completed the requisite
systems, no evaluation of controls can provide absolute historical analysis and related reconciliations to ensure tax
assurance that all control issues and instances of fraud, if any, balances were appropriately stated prior to the completion of the
within the Company have been detected. These inherent Company’s internal control activities. These deficiencies resulted
limitations include the realities that judgments in decision- in errors in the Company’s accounting for income taxes. These
making can be faulty, and that breakdowns can occur because of errors were corrected prior to issuance of the consolidated
simple error or mistake. Additionally, controls can be financial statements as of and for the year ended April 30, 2005. In
circumvented by the individual acts of some persons, by the aggregate, these deficiencies represent a material weakness
collusions of two or more people, or by management override of in internal control over financial reporting on the basis that there
the control. Because of the inherent limitations in a cost- is a more than remote likelihood that a material misstatement of
effective, maturing control system, misstatements due to error or the Company’s annual or interim financial statements will not be
fraud may occur and not be detected. prevented or detected by its internal control over financial
As of the end of the period covered by this Form 10-K, we reporting. Because of this material weakness in internal control
evaluated the effectiveness of the design and operation of our over financial reporting, management concluded that, as of
Disclosure Controls. The controls evaluation was done under the April 30, 2005, the Company’s internal control over financial
supervision and with the participation of management, including reporting was not effective based on the criteria set forth by
our Chief Executive Officer and Chief Financial Officer. Based on COSO.
this evaluation, our Chief Executive Officer and Chief Financial The Company’s external auditors, KPMG LLP, an independent
Officer have concluded that our Disclosure Controls and registered public accounting firm, have issued an audit report on
procedures were not effective as of the end of the period covered our assessment of the Company’s internal control over financial
by this Annual Report on Form 10-K because of the material reporting. This report appears on page 43.
H&R BLOCK 2005 Form 10K
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