Overstock.com 2005 Annual Report Download - page 61

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed
in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and
communicated to management, including the President (principal executive officer) and Senior Vice President, Finance (principal
financial officer), as appropriate, to allow timely decisions regarding required disclosure.
Management of the Company, under the supervision and with the participation of the Company's President (principal executive
officer) and Senior Vice President, Finance (principal financial officer), has evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in the Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as of December 31, 2005. Based upon
this evaluation and as a result of the material weakness discussed below under "Management's Report on Internal Control Over Financial
Reporting", the Company's management, including its President (principal executive officer) and Senior Vice President, Finance
(principal financial officer), has concluded that its disclosure controls and procedures were not effective as of December 31, 2005. The
Company's management nevertheless has concluded that the consolidated financial statements included in this Annual Report on
Form 10-K present fairly, in all material respects, the Company's financial position, and results of operations and cash flows for the
periods presented in conformity with accounting principles generally accepted in the United States of America.
Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal
control over financial reporting 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.
Under the supervision and with the participation of the Company's President (principal executive officer) and Senior Vice
President, Finance (principal financial officer), management has assessed the effectiveness of the Company's internal control over
financial reporting as of December 31, 2005. In making its assessment of the effectiveness of internal control over financial reporting,
management used the criteria set forth in Internal Control—Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO").
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2005,
the Company did not maintain effective control over its accounting for inventory. Specifically, the Company did not have effective
controls
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