This excerpt taken from the LUX 20-F filed Jun 29, 2007.
Board of Directors and Stockholders of
We have audited Management's assessment, included in the accompanying Managements Report on Internal Control over Financial Reporting appearing in Item 15 of this Form 20-F, that Luxottica Group S.p.A. and its subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Managements Report, Management excluded from its assessment the internal control over financial reporting the 2006 acquisitions. These acquisitions included Shoppers Optical, a 74 store optical chain in Canada, for approximately Euro 48.7 million; three retailers in China operating 274 retail stores, for approximately Euro 69.2 million; several retailers in Australia and New Zealand operating 49 stores, for approximately Euro 9.4 million; the purchase of the remaining 49% stake of the Turkish-based distributor Luxottica Gozluk Ticaret A.S. for approximately of Euro 15 million and the merger of the Turkish-based distributor with Standard Gozluk Industri Ve Tircaret A.S., a Turkish wholesaler, for total consideration of approximately Euro 46.7 million. As of year end, each of these acquired businesses was a separate control environment. As such, these businesses were excluded from Management's report on internal controls over financial reporting, as permitted by SEC guidance, for the year ended December 31, 2006 as the acquisitions were not material to the consolidated operations.
The Company's Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on Management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating Management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys Board of Directors, Management, and other personnel 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 financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect 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 reasonable 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 financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper Management override of control, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness of the internal control over financial reporting 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.
In our opinion, Management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule of the Company as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 and our report dated June 28, 2007 expressed an unqualified opinion on those financial statements and financial statement schedule, and included an explanatory paragraph related to the change in the Companys method of accounting for share-based payments upon adoption of Statement of Financial Accounting Standard (SFAS) No. 123(R), Share-Based Payment as well as the Companys changed its method of accounting for pensions and other postretirement benefits to adopt the recognition and disclosure provisions of SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an Amendment of FASB Statement No. 87, 88, 106 and 132R.