Overstock.com 2008 Annual Report Download - page 70

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Table of Contents
Under the supervision and with the participation of our CEO (principal executive officer) and Senior Vice President, Finance
(principal financial officer), we have assessed the effectiveness of the Company's internal control over financial reporting as of
December 31, 2008. In making an assessment of the effectiveness of internal control over financial reporting, we used the criteria set
forth in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the "COSO"). Our management concluded that based on its assessment, our internal control over financial reporting was
effective as of December 31, 2008.
The effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, included herein.
Remediation Steps to Address Material Weakness
As previously disclosure in our form 10-Q for the quarter ended September 30, 2008, the Company determined that there were
errors in its accounting for customer refunds and credits and the accounting for gift cards issued to customers. As a result of these
errors, the Company determined that previously issued financial information was no longer reliable and amended its Annual Report on
Form 10-K for the year ended December 31, 2007 to restate (1) its consolidated financial statements as of December 31, 2007 and
2006 and for the years ended December 31, 2007, 2006 and 2005; (2) its selected financial data as of and for the years ended
December 31, 2007, 2006, 2005, 2004 and 2003 and (3) its quarterly results of operations for all quarters in the years ended
December 31, 2007 and 2006 on November 11, 2008. Management concluded that controls were not designed or operating effectively
to ensure all refunds and credits issued to customers and gift cards issued to customers were completely and accurately recorded in the
consolidated financial statements. These control failures impacted accounts receivable and deferred revenue in the consolidated
balance sheet as well as revenue and returns expense (a component of revenue), in the consolidated statements operations.
Management concluded that these deficiencies in the Company's internal control over financial reporting constituted a material
weakness.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected
on a timely basis.
Management of the Company implemented several processes to remediate the material weakness in the Company's internal
control over financial reporting and the ineffectiveness of its disclosure controls and procedures including:
•Employee training on effectively reconciling customer refunds and credits and customer gift cards to a sufficient
level of precision;
•Regular reconciliation of credits and accounts receivable balance to third party statements;
•Review and approval of these reconciliations by a person knowledgeable with the way transactions in these accounts
are processed;
•Controls to ensure changes to peripheral systems are evaluated for effects on data transferred to the ERP system;
•Regular reconciliation of gift cards issued to customers as reported in the ERP system to amounts reported in
peripheral systems.
We operated and tested the above controls at each month end during the fourth quarter of 2008.
We have determined as of December 31, 2008 that the remediation controls discussed above were effectively designed and
demonstrated effective operation for a sufficient period of time to enable us to conclude that the material weakness has been
remediated.
The effectiveness of any controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that
our controls and procedures will detect all errors or fraud. A control, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system will be attained.
We will continue to develop new policies and procedures as well as educate and train our employees on our existing policies and
procedures in a continual effort to improve our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
As described above, there have been changes in our internal control over financial reporting during the quarter ended
December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.
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