Nautilus 2006 Annual Report Download - page 59

Table of Contents
is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded as of December 31, 2006 that our disclosure controls and procedures were effective.
Management
’s Report On Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15
(f) under the Exchange Act. This rule defines internal control over financial reporting as a process designed by, or under the supervision of, the
Company’
s Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting
includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
With the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the criteria established in Internal Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that
our internal control over financial reporting was effective as of December 31, 2006.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has
been audited by Deloitte & Touche LLP our independent registered public accounting firm. Its report appears below in Item 9A.
Remediation of Prior Year Material Weakness
As previously disclosed in our Form 10-K for the year ended December 31, 2005, our management concluded that our internal control
over financial reporting was not effective as of December 31, 2005 as the result of the following material weaknesses:
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• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company
’
s assets that could have a material effect on the financial statements.
• Management determined that the controls for testing of and training for the enterprise resource planning (“ERP”) system which was
implemented in the fourth quarter of 2005 for the commercial, retail and specialty channels did not operate effectively. This failure
resulted in material audit adjustments to net sales and cost of sales in the 2005 consolidated financial statements.
• Management also determined that efforts to mitigate the impact of inadequate ERP testing and training resulted in insufficient
resources being devoted to controls over analyzing and recording contingencies. Accordingly, such controls failed to operate
effectively, resulting in material audit adjustments to the 2005 consolidated financial statements.