Mercury Insurance 2010 Annual Report Download - page 33

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Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or
other standard-setting bodies may adversely affect the Company’s consolidated financial statements.
The Company’s consolidated financial statements are subject to the application of GAAP, which is
periodically revised and/or expanded. Accordingly, the Company is required to adopt new or revised accounting
standards from time to time issued by recognized authoritative bodies, including the FASB. It is possible that
future changes the Company is required to adopt could change the current accounting treatment that the
Company applies to its consolidated financial statements and that such changes could have a material adverse
effect on the Company’s financial condition and results of operations. See Note 1 of Notes to Consolidated
Financial Statements.
The Company may be required to adopt International Financial Reporting Standards (“IFRS”). The
ultimate adoption of such standards could negatively impact its financial condition or results of operations.
Although not yet required, the Company could be required to adopt IFRS, which differs from GAAP, for the
Company’s accounting and reporting standards. The ultimate implementation and adoption of new standards
could favorably or unfavorably impact the Company’s financial condition or results of operations.
The Company’s disclosure controls and procedures may not prevent or detect acts of fraud.
The Company’s disclosure controls and procedures are designed to reasonably assure that information
required to be disclosed in reports filed or submitted under the Securities Exchange Act is accumulated and
communicated to management and is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms. The Company’s management, including its Chief Executive Officer and
Chief Financial Officer, believe that any disclosure controls and procedures or internal controls and procedures,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in all control systems, the Company
cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have
been prevented or detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized
override of the controls. The design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and the Company cannot assure that any design will succeed in achieving
its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost
effective control system, misstatements due to error or fraud may occur and not be detected.
Failure to maintain an effective system of internal control over financial reporting may have an adverse
effect on the Company’s stock price.
Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the related rules and regulations
promulgated by the SEC require the Company to include in its Annual Report on Form 10-K a report by its
management regarding the effectiveness of the Company’s internal control over financial reporting. The report
includes, among other things, an assessment of the effectiveness of the Company’s internal control over financial
reporting as of the end of its fiscal year, including a statement as to whether or not the Company’s internal
control over financial reporting is effective. This assessment must include disclosure of any material weaknesses
in the Company’s internal control over financial reporting identified by management. Areas of the Company’s
internal control over financial reporting may require improvement from time to time. If management is unable to
assert that the Company’s internal control over financial reporting is effective now or in any future period, or if
the Company’s independent auditors are unable to express an opinion on the effectiveness of those internal
controls, investors may lose confidence in the accuracy and completeness of the Company’s financial reports,
which could have an adverse effect on its stock price.
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