Logitech 2014 Annual Report Download - page 246

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 — Restatement and Revision of Previously Issued Consolidated Financial Statements (Continued)
thirty to fifty items per quarter on these lists and there were multiple versions of these lists per quarter, as items
were added, removed and changed. Some of the items on the list were discussed with the Company’s independent
registered public accounting firm while others were not.
As part of the independent investigation, the Company determined that nine historical items from these lists
during a five year period should have been recorded in an earlier period or a different amount should have been
recorded. The largest item relates to the now-discontinued Revue product and is the cause for the restatement. Two
items—the warranty accrual and the amortization of certain intangible assets—were on the lists in prior periods
and were not addressed in a timely manner before the Company corrected them in its revised Form 10-K/A filed
on August 7, 2013. Certain former finance employees signed the May 30, 2013 management representation letter
to the Company’s independent registered public accounting firm without disclosing these issues and, as a result,
the management representation letter was inaccurate on this point. Six items are not material individually or in
aggregate to any of the annual or interim periods reported but are nevertheless being corrected in these restated
consolidated financial statements.
There are two elements to the restatement related to the Revue product: (1) a lower of cost or market
(“LCM”) charge based on the net realizable value of finished goods and work in process on-hand inventory and
non-cancelable orders for such inventory, and (2) an excess and obsolescence charge for non-cancelable orders for
inventory components. The Audit Committee found that certain former members of the finance organization had
information that was not considered, that showed a future loss that was estimable and probable before the filing of
the Form 10-K on May 27, 2011 and that such loss was not recorded in the Company’s fiscal year 2011 financial
statements. Certain former members of the finance organization erroneously accounted for the LCM charge in
fiscal year 2011 based on the current price or on price reductions approved by management instead of considering
available contemporaneous evidence of anticipated future price reductions and losses which were estimable
and probable at the time. In addition, the Audit Committee found that a management representation letter dated
May 27, 2011 to the Company’s independent registered public accounting firm incorrectly stated that probable
future pricing adjustments were considered in the LCM calculation. With respect to the Revue components, certain
former members of the finance organization did not consider all available information and therefore did not record
a charge in the fourth quarter of fiscal year 2011 for non-cancelable orders related to components considered excess
and obsolete. The analysis erroneously assumed the components would be manufactured into finished goods,
though there was information available that showed that the components would not be manufactured into finished
goods. This information was not reflected in the Company’s accounting or provided to the Company’s independent
registered public accounting firm. The Audit Committee found that the Company did not have an adequate basis
for the historical accounting treatment of the components in the fourth quarter of fiscal year 2011.
The restated and revised financial statements included the following adjustments:
(1) Inventory Valuation Reserve—As described above, the Company determined that there was a material
accounting misstatement for Logitech’s now-discontinued Revue product in fiscal years 2012 and 2011.
As a result, the Company recorded an adjustment to increase cost of goods sold, and to increase inventory
valuation reserves and supplier liability for components related to the Company’s now discontinued
Revue product by $30.7 million during fiscal year ended March 31, 2011, with a corresponding decrease
to cost of goods sold during fiscal year ended March 31, 2012.
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