Company: CODI-PB
Filing Date: 2025-12-08
Form Type: 10-K/A
Source: 0001345126-25-000078
Chunk: 215

Company: Compass Diversified Holdings
Filing Date: 2025-12-08
Form: 10-K/A
Chunk 215
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 to manipulate or create inventory and customer information and records and other information and records that would be incorporated into the Company’s financial statements. Compensating controls implemented to account for the former Lugano chief executive officer’s system failed to operate as designed due the issues discussed above.

4. Inadequate Skillsets Among Key Lugano Employees

Employees in key roles at Lugano who were in a position to detect the actions of the former Lugano chief executive officer often lacked necessary skills for their responsibilities, the ability to implement and execute effective controls, or sufficient professional maturity to resist the Lugano chief executive officer’s authority, raise concerns with Company management, or set an appropriate “tone at the top” for other employees.

5. Revenue Controls

Revenue controls did not operate effectively during the period, due to circumvention and override by the former Lugano chief executive officer, lack of sufficient review and validation procedures over the completeness and accuracy of key revenue inputs (including contract terms, customer acceptance criteria, and delivery confirmations), and failures to maintain adequate documentation or evidence to demonstrate Lugano management’s review of revenue transactions in accordance with accounting standards.

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6. Inventory Controls

Inventory, cost of sales, and purchase-to-pay controls to identify issues with respect to Lugano’s diamond and jewelry inventories did not operate effectively due to circumvention and override by the former Lugano chief executive officer and his collusion with third parties, and failures to maintain adequate documentation or evidence to demonstrate the acquisition, ownership, existence, or value of inventory. Controls were not adequately designed to inform management of Lugano's rights, obligations, and ownership with respect to Lugano's inventory.

8. Expense Controls

Business expense controls (including travel and entertainment, corporate credit card usage, and employee reimbursement processes) were inadequate or did not sufficiently prevent or detect improper, unsupported, or misclassified business expenses on a timely basis by Lugano executives.

Collectively, these material weaknesses resulted in the restatement of our consolidated financial statements for the fiscal years ended December 31, 2024, 2023, and 2022, and the unaudited interim financial information within each of the years then ended. These material weaknesses also resulted in adjustments to our disclosures for the 2024, 2023 and 2022 annual periods and each of the interim periods within these annual periods.

In Management’s Report on Internal Control over Financial Reporting in the Original Filing, management previously concluded that it maintained effective internal controls over financial reporting at the reasonable assurance