Company: CODI-PB
Filing Date: 2025-12-08
Form Type: 10-K/A
Source: 0001345126-25-000078
Chunk: 227

Company: Compass Diversified Holdings
Filing Date: 2025-12-08
Form: 10-K/A
Chunk 227
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COSO”). In our opinion, because of the effect of the material weaknesses described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.

• The Company did not conduct an effective risk assessment of its Lugano subsidiary, resulting in a failure to develop and implement internal controls that adequately address the financial reporting and operational risks at Lugano.

• The compensating and monitoring controls implemented by the Company over its Lugano subsidiary were not designed with an appropriate level of precision and rigor to mitigate the risk of a material misstatement.

• Company management deferred to the former Lugano chief executive officer, allowing the former Lugano chief executive officer to operate with elevated autonomy which created an environment where Lugano failed to properly adhere to SOX Controls.

• The former Lugano chief executive officer did not create or maintain an environment at Lugano committed ethical behavior and compliance (proper tone at the top). In addition, the former chief executive officer colluded with third- parties, circumvented and overrode internal controls, entered into unauthorized transactions, submitted improper expense reimbursements and disregarded directives from the Company’s Audit Committee.

• Segregation of duties, which included broad access to several functions within Lugano’s jewelry store management software, was not maintained at the Lugano subsidiary as it relates to the access the former Lugano chief executive officer had over certain inventory and revenue functions. In addition, compensating controls put in place were overridden or circumvented by the former Lugano chief executive officer and/or were exercised with a lack of due care by Lugano employees in execution of the controls.

• Employees in key roles at Lugano lacked the necessary skills for their responsibilities and did not exercise their responsibilities with an appropriate level of due care.

• Revenue controls at Lugano did not operate effectively due to, among other things, circumvention and override of such controls, a lack of sufficient review and validation over the completeness and accuracy of information used as a basis to record revenue and a failure to maintain adequate documentation to support the recognition of revenue