Tucows 2014 Annual Report Download - page 35

Forecasting our tax rate is complex and subject to uncertainty.
We are subject to income and other taxes in a number of jurisdictions and our tax structure is subject to review
by both domestic and foreign tax authorities. We must make significant assumptions, judgments and estimates to
determine our current provision for income taxes, deferred tax assets and liabilities and any valuation allowance that may
be recorded against our deferred tax assets. Although we believe that our estimates are reasonable, the ultimate
determination of our tax liability is always subject to review by the applicable tax authorities. Any adverse outcome of
such a review could have a negative effect on our operating results and financial condition in the period or periods for
which such determination is made. Our current and future tax liabilities could be adversely affected by:
• international income tax authorities, including the Canada Revenue Agency and the U.S. Internal Revenue
Service, challenging the validity of our arms- length related party transfer pricing policies or the validity of
our contemporaneous documentation.
• changes in the valuation of our deferred tax assets; or
• changes in tax laws, regulations, accounting principles or the interpretations of such laws.
We have identified material weaknesses in our internal control over financial reporting that could, if not
remediated, result in material misstatements in our financial statements. In addition, current and potential
stockholders could lose confidence in our financial reporting, which could cause our stock price to decline.
In connection with the audit of our consolidated financial statements as of and for the year ended
December 31, 2014, we have concluded that there are material weaknesses relating to our internal control over
financial reporting. 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 company’s annual or
interim consolidated financial statements will not be prevented or detected on a timely basis.
Specifically, we identified material weaknesses relating to (i) manual journal entries and (ii) account
analysis and support, primarily due to the limited number of personnel in our accounting group to ensure segregation
of duties. With respect to manual journal entries, we determined that the design and operating effectiveness of our
controls were inadequate to ensure that manual journal entries were independently reviewed and approved for
validity, accuracy and completeness. With respect to account analysis support, we determined that the design and
operating effectiveness of our controls were inadequate to ensure detailed reviews and verification of inputs and
calculations related to the analysis of accounts or transactions and schedules supporting financial statement amounts
and notes. For additional information on these matters, see Part II, Item 9A of this Annual Report on Form 10-K. As a
result of these material weaknesses, management has determined that our disclosure controls and procedures and
internal control over financial reporting were not effective as of December 31, 2014.
In light of the material weaknesses identified, we performed additional analysis and other post-closing
procedures to ensure that our consolidated financial statements were prepared in accordance with GAAP and
accurately reflected our financial position and results of its operations as of and for the year ended
December 31, 2014. Subsequent to our December 31, 2014 fiscal year end, we began taking a number of actions,
including designing and implementing new controls and revising existing controls, in order to remediate the
material weaknesses described above. We expect to continue our remediation efforts, including testing of
operating effectiveness of new controls during the fiscal year ending December 31, 2015. We expect to incur
additional costs remediating these material weaknesses.
Although we believe we took appropriate actions to remediate the control deficiencies we identified and to
strengthen our internal control over financial reporting, we may need to take additional measures to fully mitigate the
material weaknesses, and the measures we have taken, and expect to take, to improve our internal controls may not be
sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that the
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