Corinthian Colleges (COCO)

Finding of Material Weakness

In connection with reviewing our financial results for the fourth quarter of fiscal 2005, our management reviewed and discussed with the Audit Committee of the Board of Directors, the accounting treatment related to the recognition of tuition revenue with respect to our diploma programs with externships. In connection with these discussions, and following consultation with our independent registered public accounting firm, we determined it was necessary to restate the previously issued financial statements for the periods 2001 through 2004 and the first three quarters of fiscal 2005, to correct for certain errors in such financial statements. Externships are required to be taken at the end of certain academic programs, following the conclusion of in-school instruction, in order to satisfy graduation requirements. The restatement consists of adjustments necessary to reflect the recognition of tuition revenue through the end of the student’s externship period, as opposed to the prior practice of recognizing revenue only over the period of in-school academic instruction. Revenue recognition in the financial statements requires procedures and controls to ensure that all of a company’s revenue arrangements are analyzed, recorded, and monitored in the context of authoritative accounting guidance such that revenue is recognized in accordance with generally accepted accounting principles. In management’s opinion, our procedures and controls in this area were considered to be inadequate, and this deficiency was considered to represent a material weakness in internal control over financial reporting.

Finding of Material Weakness

In connection with reviewing our financial results for the fourth quarter of fiscal 2005, our management reviewed and discussed with the Audit Committee of the Board of Directors, the accounting treatment related to the recognition of tuition revenue with respect to our diploma programs with externships. In connection with these discussions, and following consultation with our independent registered public accounting firm, we determined it was necessary to restate the previously issued financial statements for the periods 2001 through 2004 and the first three quarters of fiscal 2005, to correct for certain errors in such financial statements. Externships are required to be taken at the end of certain academic programs, following the conclusion of in-school instruction, in order to satisfy graduation requirements. The restatement consists of adjustments necessary to reflect the recognition of tuition revenue through the end of the student’s externship period, as opposed to the prior practice of recognizing revenue only over the period of in-school academic instruction. Revenue recognition in the financial statements requires procedures and controls to ensure that all of a company’s revenue arrangements are analyzed, recorded, and monitored in the context of authoritative accounting guidance such that revenue is recognized in accordance with generally accepted accounting principles. In management’s opinion, our procedures and controls in this area were considered to be inadequate, and this deficiency was considered to represent a material weakness in internal control over financial reporting.