This excerpt taken from the CHRD 10-K filed Dec 9, 2005.
MANAGEMENTS 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 September 30, 2005 based on the guidelines established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has excluded from its assessment the internal control over financial reporting of KiQ Limited, which was acquired on December 21, 2004, and whose financial statements reflect total assets and total revenues constituting 7% and 6%, respectively, of related consolidated financial statement amounts as of and for the year ended September 30, 2005, as the Company did not have sufficient time to make an assessment of KiQ Limiteds internal control over financial reporting using the COSO framework. In excluding KiQ Limited from its assessment, management has considered the guidance provided by the Office of the Chief Accountant of the Division of Corporate Finance in the Frequently Asked Questions dated June 24, 2004 with respect to acquisitions consummated during the year of assessment.
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. In connection with the Companys assessment of the effectiveness of internal control over financial reporting, the Company has identified the following material weaknesses that existed as of September 30, 2005:
The material weaknesses identified by management could result in a material misstatement to our annual or interim financial statements that would not be prevented or detected. As a result, management has concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2005.
Based on the results of this evaluation, our management has concluded that our internal control over financial reporting was not effective as of September 30, 2005 due to the material weaknesses identified. We reviewed the results of managements assessment with the Audit Committee of Chordiants Board of Directors.
BDO Seidman, LLP, our independent registered public accounting firm, audited managements assessment and independently assessed the effectiveness of our internal control over financial reporting as of September 30, 2005. BDO Seidman, LLP has issued an attestation report on managements assessment, which is included in Item 9A of this Annual Report on Form 10-K.