Kodak 2004 Annual Report Download - page 48
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E A S T M A N K OD A K C O M PA N Y
Amaterialweaknessisacontroldeficiency,orcombinationofcontroldeficiencies,thatresultsinmorethanaremotelikelihoodthatamaterialmisstate-
mentoftheannualorinterimfinancialstatementswillnotbepreventedordetected.Thefollowingmaterialweaknesseshavebeenidentifiedandincluded
inmanagement’sassessments:
AccountingforIncomeTaxes
AsofDecember31,2004,theCompanydidnotmaintaineffectivecontrolsovertheaccountingforincometaxesincludingincometaxespayable,deferred
incometaxassetsandliabilitiesandtherelatedincometaxprovision.Specifically,theCompanyhadalackoflocaltaxlawexpertiseorfailuretoengage
localtaxlawexpertiseresultingintheincorrectassumptionofreducedtaxexpenseassociatedwithrestructuringchargesinvariousforeignlocationsin
2004and2003;inadequateknowledgeandapplicationoftheprovisionsofgenerallyacceptedaccountingprinciplesbytaxpersonnelresultinginerrorsin
theaccountingforincometaxes;lackofclarityinrolesandresponsibilitieswithintheglobaltaxorganizationrelatedtoincometaxaccounting;insuf-
ficientorineffectivereviewandapprovalpracticeswithintheglobaltaxandfinanceorganizationsresultingintheerrorsnotbeingpreventedordetected
inatimelymanner;andalackofprocessestoeffectivelyreconciletheincometaxgeneralledgeraccountstosupportingdetailandadequateverifica-
tionofdatausedincomputations.ThismaterialweaknesscontributedtotherestatementoftheCompany’sconsolidatedfinancialstatementsfor2003,
foreachofthequartersintheyearendedDecember31,2003andforthefirst,secondandthirdquartersfor2004,andintheCompanyrecordingaudit
adjustmentstothefourthquarter2004financialstatements.Additionally,thismaterialweaknesscouldresultinamisstatementofincometaxespayable,
deferredincometaxassetsandliabilitiesandtherelatedincometaxprovisionthatwouldresultinamaterialmisstatementtoannualorinterimfinancial
statementsthatwouldnotbepreventedordetected.
AccountingforPensionandOtherPostretirementBenefitPlans
AsofDecember31,2004theCompanydidnotmaintaineffectivecontrolsoverthevaluationandrecordingofitspensionandotherpostretirementbenefit
obligationsandexpenses.Specifically,theCompanyhasadeficiencyinthedesignofcontrolstovalidateactualversusestimatedbenefitpaymentsin
theaccountingforotherpostretirementbenefits.Thedesigndeficiencywasanerroneousbeliefthatactualpaymentdatacouldnotbecapturedatthe
requiredlevelofdetailtoenableadjustmentofactuarialestimatesonaquarterlybasis.Inaddition,theCompanyhadafailuretodemonstrateoperating
effectivenessincontrolssurroundingreconciliationofparticipantcensusdatabetweensourcesystemsandtheplanactuarymodelsforvariousdomestic
andinternationalpensionandotherpostretirementbenefitplans.Whileanalyticalprocedurestovalidatethereasonablenessofcensusdataextractswere
employed,theywerenotsufficientlyrobusttopreventordetecterrorsincensusdata.Thismaterialweaknessresultedinadjustmentsthatwereincluded
intherestatementoftheCompany’sconsolidatedfinancialstatementsfor2003,foreachofthequartersintheyearendedDecember31,2003andfor
thefirst,secondandthirdquartersfor2004,andintheCompanyrecordingadjustmentstothefourthquarter2004financialstatements.Additionally,this
materialweaknesscouldresultinamisstatementofpensionandotherpostretirementobligationsandexpensesthatwouldresultinamaterialmisstate-
menttoannualorinterimfinancialstatementsthatwouldnotbepreventedordetected.
Thesematerialweaknesseswereconsideredindeterminingthenature,timing,andextentofaudittestsappliedinourauditofthe2004consolidated
financialstatements,andouropinionregardingtheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingdoesnotaffectouropinionon
thoseconsolidatedfinancialstatements.
AsdescribedinManagement’sReportonInternalControlOverFinancialReporting,managementhasexcludedtheNexPress-relatedentitiesandScitex
DigitalPrinting(renamedKodakVersamark)fromitsassessmentofinternalcontroloverfinancialreportingasofDecember31,2004becausetheywere
acquiredbytheCompanyinpurchasebusinesscombinationsduring2004.WehavealsoexcludedtheNexPress-relatedentitiesandKodakVersamark
fromourauditofinternalcontroloverfinancialreporting.TheNexPress-relatedentitiesandKodakVersamarkarewhollyownedsubsidiariesoftheCom-
panythatrepresent2%and2%,respectively,ofconsolidatedtotalassetsand1%and1%,respectively,ofconsolidatedrevenueasofandfortheyear
endedDecember31,2004.
Inouropinion,management’sassessmentthatEastmanKodakCompanydidnotmaintaineffectiveinternalcontroloverfinancialreportingasofDecember
31,2004,isfairlystated,inallmaterialrespects,basedoncriteriaestablishedinInternalControl-IntegratedFrameworkissuedbytheCOSO.Also,inour
opinion,becauseoftheeffectsofthematerialweaknessesdescribedaboveontheachievementoftheobjectivesofthecontrolcriteria,EastmanKodak
CompanyhasnotmaintainedeffectiveinternalcontroloverfinancialreportingasofDecember31,2004,basedoncriteriaestablishedinInternalControl
-IntegratedFrameworkissuedbytheCOSO.
PricewaterhouseCoopersLLP
Rochester,NY
April6,2005