Company: CODI-PB
Filing Date: 2025-12-08
Form Type: 10-K/A
Source: 0001345126-25-000078
Chunk: 213

Company: Compass Diversified Holdings
Filing Date: 2025-12-08
Form: 10-K/A
Chunk 213
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 establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. The Company's management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013 framework). Based on this assessment, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2024, due to the material weaknesses described below.

An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error, the overriding of controls, and fraud. Because of these inherent limitations, internal control over financial reporting may not prevent or detect all misstatements and can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The control deficiencies identified below constitute material weaknesses, either individually or in the aggregate.

Control Deficiencies Identified at the Company

1. Incomplete Risk Assessments Concerning Lugano

Due to the Company’s lack of prior specific experience with the diamond industry, Company management did not conduct an effective risk assessment of Lugano, resulting in an incomplete understanding of the risks and the manner and means of fraud and loss associated with the industry, including the practice of inventory sharing and the loaning of high-value diamonds among vendors. As a result of the incomplete risk assessment, the Company failed to develop and implement internal controls that adequately addressed the risk that existed at Lugano.

2. Inadequate Monitoring Controls and Control Environment for Lugano

Compensating and monitoring controls implemented by the Company’s management over Lugano lacked the necessary precision and rigor to effectively mitigate the risk of material misstatement. In addition, enhancements of these controls that were implemented at Lugano by the Company were insufficient due to,

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among other things, the circumvention of Lugano's controls, collusion