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This excerpt taken from the ARTG 10-K filed Mar 16, 2007. 2. Management’s
Annual Report on Internal Control over Financial
Reporting.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f) and
15d-15(f).
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of December 31, 2006 based on the guidelines established
in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. (COSO).
Because of its inherent limitations, internal control over
financial reporting cannot provide absolute assurance of
achieving financial reporting objectives. Internal control over
financial reporting is a process that involves human diligence
and compliance and is subject to lapses in judgment and
breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collision or
improper management override. Because of such limitations, there
is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting. 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 established policies or procedures may
deteriorate.
Our management’s assessment of and conclusions on the
effectiveness of our internal control over financial reporting
did not include the internal controls of eStara, Inc., which we
acquired in October 2006. eStara’s assets and liabilities
and the results of its operations from the date of acquisition
are included in our consolidated financial statements at and for
the year ended December 31, 2006. eStara’s assets
constituted 36.0% of our total assets at December 31, 2006,
and revenue attributable to eStara accounted for 4.5% of our
revenue for the year then ended.
A material weakness is a control deficiency, or a combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. As a
result of our management’s assessment of the effectiveness
of internal control over financial reporting, we have identified
the following material weaknesses that existed as of
December 31, 2006:
In conjunction with the year-end financial close, our procedures
and controls to ensure that accurate financial statements in
accordance with generally accepted accounting principles could
be prepared and reviewed on timely basis were not operating
effectively. Such ineffective procedures and controls include
(a) ineffective review of historical cumulative translation
adjustment balances relative to the timing of substantial
liquidation of foreign
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locations, which resulted in a restatement of our 2002 and 2003
financial statements; (b) inadequate processes to account
for transactions and accounts, such as business combinations,
commissions, restructuring accruals and cumulative translation
adjustments; and (c) insufficient documentation of
accounting policies and procedures and retention of historical
accounting portions. As a result of the above deficiencies,
material and less significant post-closing adjustments were
identified by our independent registered public accounting firm,
Ernst & Young LLP, and recorded in our financial
statements as of and for the year ended December 31, 2006.
These adjustments affected the following financial statement
account line items: current liabilities, cumulative translation
adjustment, stockholders’ equity, operating expenses and
foreign currency exchange gain. This weakness could continue to
affect the balances in the accounts previously mentioned and
affect our ability to timely close our books and review and
analyze our financial statements.
2. Inadequate
staffing within the accounting organization.
During 2006, there were numerous changes in our accounting
personnel. This has led to our not having a sufficient number of
experienced personnel in the accounting organization to provide
reasonable assurance that transactions are being recorded as
necessary to ensure timely preparation of financial statements
in accordance with generally accepted accounting principles,
including the preparation of our Annual Report on
Form 10-K.
We consider this weakness to be a material weakness in the
operation of entity-level controls and operation level controls.
The ineffectiveness of such controls can result in misstatement
to assets, liabilities, revenues, and expenses.
Our management concluded that, due to the material weaknesses
described above, we did not maintain effective internal control
over financial reporting as of December 31, 2006.
Our independent registered public accounting firm,
Ernst & Young LLP, has issued a report on our
assessment of our internal control over financial reporting.
This report appears on the next page.
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