GE 2006 Annual Report Download - page 49

Report of Independent Registered
Public Accounting Firm
To Shareowners and Board of Directors
of General Electric Company
We have audited the accompanying statement of financial position of
General Electric Company and consolidated affiliates (“GE”) as of
December 31, 2006 and 2005, and the related statements of earnings,
changes in shareowners’ equity and cash flows for each of the years
in the three-year period ended December 31, 2006. We also have
audited management’s assessment, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting,
that GE did not maintain effective internal control over fi nancial
reporting as of December 31, 2006, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”).
GE management is responsible for these consolidated fi nancial state-
ments, for maintaining effective internal control over fi nancial reporting,
and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on
these consolidated financial statements, an opinion on management’s
assessment, and an opinion on the effectiveness of GE’s internal
control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reason-
able assurance about whether the financial statements are free of
material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audit of
the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the fi nancial statements,
assessing the accounting principles used and signifi cant estimates
made by management, and evaluating the overall fi nancial statement
presentation. Our audit of internal control over fi nancial reporting
included obtaining an understanding of internal control over fi nancial
reporting, evaluating management’s assessment, testing and evaluat-
ing the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis
for our opinions.
A 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. A company’s internal control over fi nancial reporting includes
those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly refl ect the
transactions and dispositions of the assets of the company; (2) 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 (3) provide reason-
able 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 fi nancial statements.
Because of its inherent limitations, internal control over fi nancial
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 fi nancial statements
will not be prevented or detected. Management has identifi ed and
included in its assessment the following material weakness as of
December 31, 2006: the Company did not have adequately designed
procedures to designate each hedged commercial paper transaction
with the specificity required by Statement of Financial Accounting
Standards 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. This material weakness resulted in restatement
of the Company’s previously issued financial statements as of and for
each of the interim periods ended March 31, 2006, June 30, 2006
and September 30, 2006. The aforementioned material weakness was
considered in determining the nature, timing, and extent of audit tests
applied in our audit of the 2006 consolidated fi nancial statements.
In our opinion, the consolidated financial statements appearing on
pages 68, 70, 72, 74–108 and the Summary of Operating Segments
table on page 53 present fairly, in all material respects, the fi nancial
position of GE as of December 31, 2006 and 2005, and the results of
its operations and its cash flows for each of the years in the three-
year period ended December 31, 2006, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, management’s
assessment that GE did not maintain effective internal control over
financial reporting as of December 31, 2006, is fairly stated, in all
material respects, based on criteria established in Internal Control —
Integrated Framework issued by COSO. Further more, in our opinion,
because of the effect of the material weakness described above on
the achievement of the objectives of the control criteria, GE did not
maintain effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control —
Integrated Framework issued by COSO.
As discussed in note 1 to the consolidated fi nancial statements,
GE in 2006 changed its methods of accounting for pension and other
postretirement benefits and for share-based compensation.
Our audits of GE’s consolidated financial statements were made
for the purpose of forming an opinion on the consolidated fi nancial
statements taken as a whole. The accompanying consolidating infor-
mation appearing on pages 69, 71 and 73 is presented for purposes
of additional analysis of the consolidated financial statements rather
than to present the financial position, results of operations and cash
flows of the individual entities. The consolidating information has been
subjected to the auditing procedures applied in the audits of the con-
solidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the consolidated fi nancial statements
taken as a whole.
KPMG LLP
Stamford, Connecticut
February 9, 2007
ge 2006 annual report 47