Overstock.com 2005 Annual Report Download - page 72

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control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
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.
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. The following material
weakness has been identified and included in management's assessment. As of December 31, 2005, the Company did not maintain
effective control over its accounting for inventory. Specifically, the Company did not maintain effective control designed and in place
to ensure that inbound freight costs were completely and accurately capitalized as a component of inventory costs in accordance with
generally accepted accounting principles. This control deficiency resulted in the restatement of the Company's annual consolidated
financial statements as of and for the years ended December 31, 2004, 2003 and 2002 and the interim consolidated financial
statements for each of the quarters within the years ended December 31, 2005, 2004 and 2003. Additionally, this control deficiency
could result in a misstatement of the Company's inventory and cost of goods sold that would result in a material misstatement to the
annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined
that this control deficiency constitutes a material weakness. This material weakness was considered in determining the nature, timing
and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and our opinion regarding the effectiveness
of the Company's internal control over financial reporting does not affect our opinion on those consolidated financial statements.
In our opinion, management's assessment that Overstock.com, Inc. did not maintain effective internal control over financial
reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—
Integrated Framework issued by the COSO. Also, in our opinion, because of the effect of the material weakness described above on
the achievement of the objectives of the control criteria, Overstock.com, Inc. did not maintain effective internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the COSO.
/S/ PRICEWATERHOUSECOOPERS LLP
Salt Lake City, Utah
March 16, 2006
F-3