Mercury Insurance 2011 Annual Report Download - page 43

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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 effect on
the Company’s financial condition and results of operations.
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 materially 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 of 1934, as amended, 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 the Company’s stock price.
The ability of the Company to attract, develop and retain talented employees, managers and executives,
and to maintain appropriate staffing levels, is critical to the Company’s success.
The Company is constantly hiring and training new employees and seeking to retain current employees. An
inability to attract, retain and motivate the necessary employees for the operation and expansion of the
Company’s business could hinder its ability to conduct its business activities successfully, develop new products
and attract customers.
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