Stein Mart 2012 Annual Report Download - page 25

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The above material weaknesses could result in further misstatement of the financial statements or disclosures that would result in a
material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
The effectiveness of the Company’s internal control over financial reporting as of February 2, 2013 has been audited by
PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, as stated in their report which is included on
page F-1 herein.
Remediation Efforts to Address Material Weaknesses
In November 2012, our Board of Directors created an Accounting Review Committee to review the accounting errors that led to our
financial statement restatement. The Accounting Review Committee focused its attention on the issue of inventory markdowns. The
Accounting Review Committee retained a national law firm, which engaged a national consulting firm that specializes in accounting
services, to commence a full review of the Company’s past practices for inventory markdowns. Based upon its review, the Accounting
Review Committee found no misconduct or intention to misstate financial results by current or former employees or directors.
Our management has discussed the material weaknesses described above with our Audit Committee and external auditors. To remediate
the material weaknesses we have implemented, are implementing and/or plan to implement a number of measures, including those listed
below.
Identified in 2012:
Inventory Markdowns: We are implementing the following activities in 2013 to remediate the markdown material weaknesses noted above:
1) Merchandising and financial management will update the existing policies and procedures to reflect the agreed upon characteristics of
markdowns as promotional or permanent; 2) At quarter end, financial management will review markdown activity to determine if all items
have been recorded in accordance with markdown policies; 3) At quarter end financial management will meet with merchandising
management to review the seasonal inventory levels. Based on this analysis they will assess comparability and appropriateness of
permanent markdowns and related markdown levels; 4) Financial management will review promotional markdowns in detail to determine
whether pricing actions before and after quarter end indicate situations where markdowns should be more appropriately identified as
permanent; and 5) Financial management will approve changes, if any, in seasonal merchandise mark out-of-stock dates.
Leasehold improvement costs: We are implementing the following activities in 2013 to remediate the leasehold accounting material
weakness noted above: 1) The existing policy and procedures related to leases will be updated to reflect the proper accounting treatment
of lease terms and financial management will review the terms of all new leases that contain TIA in accordance with the new policy to
determine that leasehold improvements and deferred rent credits are correctly recorded; 2) The finance department will meet with real
estate management annually to review the lease accounting policy and validate the underlying assertions made by the real estate
department upon which the policy is predicated; and 3) We will be purchasing a software application that in addition to streamlining our
processes for tracking and recording leases will facilitate communication between finance and our real estate department.
Compensated absences (paid vacation): We are implementing the following activities in 2013 to remediate the compensated absences
(paid vacation) material weakness noted above: The accounting policy for recording accrued vacation will be updated by the finance
department to reflect the proper accounting treatment of compensated absences (paid vacation) in accordance with the Company’s
vacation policy and changes to the Company’s vacation policy will require approval by the finance department. Additionally, financial
management will review and approve the vacation accrual on a quarterly basis and determine that the accrual calculation is consistent with
the Company’s vacation policy.
Indirect overhead cost capitalization: We are implementing the following activities in 2013 to remediate the indirect cost capitalization
material weakness noted above: The accounting policy for recording the indirect cost capitalization adjustment will be changed to include
quarterly review of the indirect overhead rate assumptions and preparation of the resulting inventory adjustment on a quarterly basis.
Additionally, financial management will review and approve the indirect cost capitalization adjustment on a quarterly basis.
Software assets amortization periods and retirements: In the fourth quarter of 2012, we implemented the following activities to remediate
the software assets amortization periods and retirements material weaknesses noted above: Financial management reviews software
asset additions with IT personnel and approves the software asset amortization period and capitalization prior to recording in the fixed
asset subledger. For retirements, we added procedures for IT personnel and financial management to review the software assets listing to
identify assets no longer in use on an annual basis.