Management’s Report on Internal Control over Financial Reporting
GMAC management is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes 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 the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, 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 Consolidated Financial Statements.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, 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 the policies or procedures may deteriorate.
Management conducted, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria.
A material weakness is a control deficiency or a combination of control deficiencies that result in a more than remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. Management identified the following material weakness in its assessment as of December 31, 2006.
As a result of a recent review of our hedge documentation for certain fair value hedges, management concluded that such documentation and hedge effectiveness assessment methodologies related to particular hedges of callable fixed rate debt instruments funding our North American Automotive Finance operations did not satisfy the requirements of SFAS 133. One of the requirements of SFAS 133 is that hedge accounting is appropriate only for those hedging relationships for which a company has a sufficiently documented expectation that such relationships will be highly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged at the inception of the hedging relationship. To determine whether transactions continue to satisfy this requirement, companies must periodically assess and document the effectiveness of hedging relationships both prospectively and retrospectively.
Management has determined that hedge accounting treatment should not have been applied to these hedging relationships. As a result, we should not have recorded any adjustments on the debt instruments included in the hedging relationships related to changes in fair value due to movements in the designated benchmark interest rate. As such, we determined that our controls over the documentation and effectiveness assessment of SFAS 133 were not sufficiently designed or implemented to ensure that SFAS 133 was properly applied and continued to be applicable to these hedging relationships. Accordingly, we have restated our results to remove such recorded adjustments on these debt instruments from our reported interest expense during the affected periods.
We are restating our historical consolidated financial statements for the quarters ended March 31, 2006 and 2005, June 30, 2006 and 2005, and September 30, 2006 and 2005, the year ended December 31, 2005, the Consolidated Statements of Income, Changes in Equity and Cash Flows as well as selected balance sheet data for the year ended December 31, 2004, and other selected financial data as presented in Item 6 for the years ended December 31, 2003 and 2002.
Based on the assessment performed and solely as a result of the material weakness described above, management concluded that as of December 31, 2006, GMAC’s internal control over financial reporting was not effective based upon the COSO criteria.
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Eric A. Feldstein Chief Executive Officer March 12, 2007 |
Sanjiv Khattri Executive Vice President and March 12, 2007 |