TASER Int'l (TASR) Discloses Material Weakness in Internal Financial Controls

August 10, 2016 9:48 AM EDT

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TASER Int'l (NASDAQ: TASR) is weaker off the open (-1%) after disclosing material weakness in internal control over financial reporting.

From the 10-Q:

During the second quarter of fiscal 2016, we identified a material weakness in our internal control over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

During the first six months of fiscal 2016, we identified deficiencies in our internal controls over the identification and recording of liabilities that resulted in the Company recording out-of-period adjustments that should have been recorded in the fourth quarter of 2015. Additionally, during the second quarter of fiscal 2016, we identified deficiencies in our internal controls over revenue recognition and reporting for deferred revenue. These deficiencies in internal control over financial reporting resulted from the lack of certain preventative and detective controls which resulted in the Company not recording these transactions correctly. The timing of the Company’s financial close and reporting process has been adversely impacted by the continued growth in both the volume and complexity of transactions, and as such, the aggregation of these deficiencies resulted in a material weakness in our account reconciliations and monitoring processes which resulted in the adjustments noted above.


To remediate the material weakness described above, we are working to design and implement new controls and procedures to properly ensure transactions are identified and recorded timely and accurately. Specifically:

• we continue to add staff to support the growing operations of the Company. Since March 31, 2016, we have added additional resources to our revenue accounting and general accounting teams to ensure that we have the knowledge and resources to properly execute revenue recognition in accordance with GAAP;

• we are implementing additional internal reporting procedures, including those designed to add depth to our detailed review processes of revenue transactions;

• we are evaluating the implementation of additional system controls that would help prevent data entry errors of transactional information within the Company’s general ledger system, as well as adding and refining existing system reports that would help isolate outliers within the Company’s transactional data for further review;

• we are improving the communication and coordination among our finance and accounting departments and we have expanded cross-functional involvement and input into period-end accruals; and

• we are in the process of documenting, assessing and testing our internal control over financial reporting as part of our efforts to comply with Section 404 of the Sarbanes-Oxley Act.

The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of these deficiencies will be completed prior to the end of fiscal year 2016. As remediation has not yet been completed, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2016 at a level that provides reasonable assurance as of the last day of the period covered by this report.



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