Tri-Valley to Add More Accountants to Comply With New Accounting Law
BAKERSFIELD, Calif. With new rules promulgated by the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB), some aspects of Tri-Valley Corporation's (AMEX: TIV - News) accounting and internal controls have been deemed no longer adequate. As a result, as required by the Sarbanes-Oxley Act of 2002 (SOX), Tri-Valley expects that its independent auditors will issue an adverse opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2004. The adverse opinion will be based on a finding that a material weakness existed in Tri-Valley's internal control on that date and is a separate report from the audited financials, on which the Company expects an unqualified opinion. None of these deficiencies has affected Tri-Valley's cash flow ability to meet its obligations.
However, not only have all such items since been corrected, the Company notes that its existing internal controls caught, corrected and disclosed the accounting issues on a pro-active, voluntary basis without prompting or comment from any agency. This included a new definition of timing for revenue recognition and correcting an item that had been expensed twice. These items were reported in the third quarter 10-Q. The Company has developed and implemented a plan for internal controls consistent with the new rules for 2005.
One other issue of ineffective segregation of duties stemmed from Tri-Valley's historically lean staff wherein individual management members each "wear several hats." This was resolved after December 31, 2004 by expanding the internal accounting staff to conform to an effective separation of check signing, access to financial information, bank reconciliation and journal entry duties in compliance with the new rules for internal controls.
Internal control over financial reporting is the process designed by senior management to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements. Fiscal 2004 is the first year for which Tri-Valley's management was required to make an assessment and report on the company's internal control as required under SOX and new rules promulgated by the SEC and the PCAOB.
To prepare its assessment, Tri-Valley's chief executive and chief financial officers spent a significant amount of time during 2004 documenting the design and testing of its controls to assure that the company's financial reporting system. Tri-Valley also hired an independent accounting consultant to assist in the design and testing.
In the course of assessing internal control, Tri-Valley identified a couple of significant deficiencies, one related to book entry of accounts and another related to revenue recognition policies, and the company corrected these deficiencies during the third quarter of 2004. In addition, as the year closed, the company decided that additional staff were needed to provide assurance that duties of authorizing and recording financial entries were sufficiently separate to provide adequate internal control. However, the company was unable to hire the required additional staff and make the desired internal control changes prior to December 31, 2004, to provide this additional assurance.
Since the company's efforts to segregate duties effectively were not completed until after the December 31 close of the 2004 fiscal year, the first annual assessment of the company's internal control over financial reporting will probably note these items as a material weakness. Again, this issue was resolved by expanding the accounting staff in March, 2005, when the Company was able to hire a suitable candidate and measures of remediation are underway to demonstrate resolution over successive quarters as reassignment of duties take effect.
"We view this strengthening of internal controls important and welcome improvement in our financial and operational controls. We believe our past efforts have fairly represented the Company's position and complied with prior standards of disclosure. We continue to seek and institute measures that will strengthen our internal controls and accounting in behalf of our shareholders and project investors as well as complying with all rules and regulations," said Thomas J. Cunningham, chief financial officer.
Cunningham noted that the Company submits its quarterly reports to outside auditors for review as well as having a full audit by independent accountants annually, which includes review of management and accounting practices, as required by the rules of the American Stock Exchange and the SEC and has always received unqualified opinions on its financials from its independent auditors.
Tri-Valley Corporation is in its 42nd year of business as a successful operating company and for 33 years has been a full reporting 12 (g) publicly traded Delaware Corporation. The Company's stock is publicly traded on the American Stock Exchange under the symbol "TIV" in the United States and is also traded in Europe on the Frankfurt Stock Exchange under the symbol "TVC WKN 911919." Our company websites, which include all SEC filings, are http://www.tri-valleycorp.com and http://www.tri-valley.de .
This press release contains forward-looking statements that involve risks and uncertainties. Actual results, events and performance could vary materially from those contemplated by these forward-looking statements which includes such words and phrases as exploratory, wildcat, prospect, speculates, unproved, prospective, very large, expect, potential, etc. Among the factors that could cause actual results, events and performance to differ materially are risks and uncertainties discussed in the company's quarterly report on Form 10-Q for the quarter ended September 30, 2004, and the annual report on Form 10-K for the year ended December 31, 2003. |
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