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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
 SECURITIES AND EXCHANGE 
COMMISSION,Plaintiff,v.
    
    
    Civil Action No.NORTEL NETWORKS CORPORATION and
NORTEL NETWORKS LIMITED,Defendants.
 CONSENT OF DEFENDANTS NORTEL NETWORKS
CORPORATION AND NORTEL NETWORKS LIMITED
   (a)
    
    permanently restrains and enjoins Defendants from violation of
Section 17(a) of the Securities Act of 1933 (the Securities Act) [15 U.S.C.
§77q(a)], Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the
Securities Exchange Act of 1934 (the Exchange Act) [15 U.S.C. §§




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78j(b), 78m(a), 78m(b)(2)(A), 78m(b)(2)(B) and 78m(b)(5)], and Exchange Act
Rules 10b-5, 12b-20, 13a-1 and 13a-13 [17 C.F.R. §§ 240.10b-5, 240.12b-20,
240.13a-1 and 240.13a-13];(b)
    
    orders Defendant Nortel Networks Corporation to pay
disgorgement in the amount of $1;(c)
    
    orders Defendant Nortel Networks Corporation to pay a civil
penalty in the amount of $35,000,000 under Section 20(d) of the Securities Act
and Section 21(d)(3) of the Exchange Act [15 U.S.C. 15 §§ 77t(d) and
78u(d)(3)]; and(d)
    
    orders Defendants to perform the undertakings identified in
Paragraph 5 below.
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NORTEL NETWORKS CORPORATION and
NORTEL NETWORKS LIMITEDDated: September 28, 2007
    
    By:
    
    /s/ Gordon A. Davies[Name, Title and Address]
    
    Gordon A. Davies,Chief Legal Officer and Corporate Secretary195 The West Mall, Toronto Ontario M9C 5K1
 September 28 Gordon A. Davies Nortel Networks Corporation and Nortel Networks Limited Chief Legal
Officer and Corporate Secretary
 /s/  Anna VentrescaNotary PublicCommission expires:      N/A  /s/ William R. McLucas
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A - 1 EXHIBIT A
 REMEDIATION PLAN REFERRED TO IN PARAGRAPH 5(a) OF THE CONSENT OF NORTEL NETWORKS CORPORATION AND
NORTEL NETWORKS LIMITED
 People:(i)
    
    New executive management has communicated, in multiple ways, consistently and
frequently, its expectation to Nortel employees that all employees will be held
accountable for their conduct. In connection with the inappropriate provisioning and
revenue recognition practices identified by the independent inquiries, appropriate
disciplinary sanctions were developed by management based on the individual conduct and
knowledge of employees that were involved in these practices. After evaluating
individual conduct and knowledge, management has taken further employee disciplinary
actions in 2006.(ii)
    
    Recognizing that Nortel needed to turn a new page with new operational
leaders, in November 2005 the four individuals who headed the business units in 2002
and 2003 and the individual who headed Nortels Global Operations unit during the same
period left the Company.(iii)
    
    Management has made significant progress in upgrading the skill sets and
experience of the Companys Finance organization, both through external hires and
through remedial and on-going training of current employees, and including the
establishment of a new senior Finance management team and appointment of a Controller
with extensive experience in U.S. GAAP. From January 1, 2004 to December 31, 2006, the
Company filled 673 positions with external hires (476 in Control and 197 in Financial
Planning & Analysis (FP&A)), of which 168 (142 in Control and 26 in FP&A) are
certified public accountants. In 2005, the CFO reviewed the job requirements of every
vacancy and new position in the Finance organization to ensure that candidates would
have the appropriate skill sets, experience and professional designations for each such
position. Starting in 2006, Finance leaders are required to review and approve the job
requirements of every
vacancy and new position. As well, the Finance organization has supplemented its
capacity by retaining outside experts on a temporary or project basis.




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A - 2 
 (iv)
    
    Through its Global Finance Training and Communications (GFTC) group, which
reports to the Assistant Controller, Nortel has developed and offered (on a mandatory
basis for targeted employee populations in 2006) remedial and ongoing training in areas
of financial accounting that were found to be problematic in the restatements,
including provisions and accruals, revenue recognition, foreign exchange and finance
ethics. These training programs include the following:
 
    
    since 2004, a one-day mandatory training program for Finance employees
related to provisioning focusing on SFAS No. 5 and expense accruals under U.S.
GAAP. As of December 31, 2006, 1,373 Finance employees (representing
approximately 89% of the 1,539 Finance personnel designated to take this
mandatory training) have successfully completed the course.
    
    implemented in 2006, a supplemental training session on provisions
accounting based on learnings and specific case study examples from the
Companys restatements which is mandatory for all Control employees with
authority to approve manual journal entry transactions. As of December 31,
2006, 75 Control employees (representing approximately 70% of the 107 Control
employees designated to take this mandatory training) have successfully
completed the course.
    
    a comprehensive three-day revenue recognition training program, which was
made mandatory in 2006 for a targeted population of FP&A and Control employees.
As of December 31, 2006, 568 FP&A and Control employees (representing
approximately 87% of the 650 FP&A and Control employees designated to take this
mandatory training) have successfully completed the course.




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A - 3 
 Nortel retained third party resources and expertise as it considered appropriate to
assist with the development and delivery of these training programs. In addition,
an Executive Global Finance Training Council has been established to oversee and set
priorities for training for Finance employees in accordance with a new Finance
training policy, which details minimum annual training requirements (by level) for
all Finance employees. In addition to direct feedback from the Executive Finance
Training Council (including direction from the Assistant Controller who is a member
of the Council), the GFTC group identifies on-going training needs through a variety
of sources such as: (i) recommendations from the Companys technical accounting
function relative to queries received and errors identified on a consistent basis as
well as emerging issues and new accounting guidance; and (ii) informal feedback from
other Finance leaders. As new accounting guidance, pronouncements and directives on
U.S. GAAP are promulgated, the Controller and other members of the GFTC group now
provide quarterly training and updates, by webcast. Further, Nortel is in the
process of developing a Competency and Training Model to define the necessary skill
sets for key positions and accompanying training requirements in FP&A and Control.
In this connection, Nortel surveyed its Finance leadership team to identify core
skills required to successfully perform certain Finance roles and compared the
identified skills with its existing training curriculum. The Competency and
Training Model will be used to facilitate employee development, evaluate candidates
for vacant positions, provide guidelines on mandatory and elective training
requirements, and further develop and refine the GFTC groups priorities.(v)
    
    The Company initially created separate Offices of Ethics and Compliance, and in
November 2006 combined these functions, which include Internal Audit and Security,
under the responsibility of the Chief Compliance Officer. Nortel believes that this
new structure will allow for more effective coordination of ethics and compliance
activities and is in line with best practices of large multi-national corporations.
The Board has appointed, in its assessment, a highly qualified individual to oversee
these four key functions. Nortel believes that it has put in place a compliance
infrastructure as well as a consistent approach to corporate discipline for breaches of
its policies, procedures and Code of Conduct. The Chief Compliance Officer reports
directly to the CEO and the Audit




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A - 4 Committee and only the Audit Committee can hire or fire the Chief Compliance
Officer. The Ethics function is responsible for recommending changes to and
interpretations of Nortels Code of Conduct, improving employee awareness of the
Code of Conduct, monitoring annual employee certification of the Code of Conduct,
devising and conducting Code-specific and other training for employees, and intake
of employee allegations of Code violations. An updated Code of Conduct was issued
by the Ethics function in September 2006, and mandatory training in the new Codes
provisions and employee certification, where permitted by applicable law, has been
implemented. The Compliance function has the following responsibilities: reviewing
planned activities and transactions to ensure compliance with Company policies and
applicable laws; reviewing policies and procedures to ensure compliance with
applicable laws; developing employee compliance training; conducting compliance
audits of the business units and regions in which compliance risks are assessed;
reviewing findings of compliance audits; monitoring resolution of calls to Nortels
ethics hot line to ensure complaints are promptly and thoroughly investigated and
resolved; identifying risk areas that require additional training; and identifying
potential areas of compliance risk, based on the internal and external environments,
and developing corrective action plans. Nortel has enhanced its anti-fraud
management process, including by establishing an anti-fraud policy and guidance on
how to communicate knowledge of potential fraud under the Code of Conduct. To
ensure that Nortels ethics hot line will remain an effective and active means for
employees to report concerns, Nortel continues to promote the use and effectiveness
of the hot line to employees. A highly visible icon was developed and is placed on
Nortels Global Web home page to provide employees with a daily visible reminder of
the hot line. As a further means of reminding employees of the hot line, posters
advertising the hot line were prepared and placed at major facilities in 2006. A
follow-up poster campaign is contemplated for 2007. Nortels ethics certification
process requires employees to certify annually that they have read, understood and
will comply with the Code of Conduct. The certification process is typically used
as another opportunity to remind employees




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A - 5 
 of the requirement to report actual and suspected violations, and of the existence
of the hot line. In addition, many of Nortels general training sessions are used
to reinforce the existence and importance of the hot line. Specialized training for
Finance employees has also been used to remind Finance employees of the hot line.
In late 2006, Nortel launched an on-line scenario-based ethics training module. The
training is mandatory for all employees. This training module reinforces the
existence and importance of the hot line. One scenario in particular involves using
the hot line to deal with employee concerns. Nortel issues a quarterly Compliance
newsletter which also publicizes the hot line. In addition to the above,
communications from leaders have from time to time reminded employees of the hot
line and encouraged them to use it. To demonstrate the effectiveness of the hot
line, Nortel is implementing measures to communicate generally to employees, to the
extent permitted by privacy laws and Nortels privacy policy, the results of
disciplinary actions arising from reported allegations. This is intended to ensure
employees understand that allegations are taken seriously, will be investigated and
dealt with thoroughly, and employees are treated similarly. The primary vehicle for
communicating such matters to employees will be the quarterly Compliance newsletter.
In addition, employees reporting concerns are advised of the results of
investigations, to the extent permitted by privacy laws and Nortels privacy policy.
The quarterly Compliance newsletter, as well as Nortels annual ethics
certification process, will serve as a continuing means to communicate the
importance of compliance with Nortels Code of Conduct.(vi)
    
    The Company created a Compliance Committee in February 2006 to oversee the
effectiveness of Nortels compliance program, policies, procedures and the Code of
Conduct and provide direction to the Office of Compliance. The Compliance Committee is
now composed of Nortels CEO, CFO, Chief Compliance Officer, Chief Legal Officer, and
Executive Vice President, Corporate Operations, in order to ensure coordination of
legal, compliance, ethics and risk management programs and activities throughout the
Company. The Compliance Committees oversight responsibilities include: ensuring that
the Companys compliance program is well




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A - 6 communicated; regularly reviewing policies, procedures and other internal systems to
ensure they are in compliance with the Code of Conduct, relevant laws, and are in
alignment with the overall compliance program; receiving reports on calls to the
ethics hot line and other sources to verify that each complaint is properly
reviewed, investigated and resolved; monitoring on-going compliance training and
awareness programs; reviewing the results of compliance audits and actions taken to
address audit findings and recommendations; reviewing all reports of fraud or
related unethical activities to ensure they are brought to the attention of the
Audit Committee and investigated as appropriate; reviewing the compliance risk
assessments and proactive actions to address the risks; and monitoring of discipline
imposed by the Company to ensure that discipline is fair and consistent across the
Company. The Chief Compliance Officer reports on the activities of the Compliance
Committee to the Audit Committee on a quarterly basis, including the volume of usage
of the ethics hot line and any areas identified by the Compliance function as
requiring additional training or potential areas of compliance risk.Processes:(vii)
    
    In response to the finding of the Independent Review that historically Nortel
Finance employees responsible for meeting EBT targets, rather than employees in the
Control organization, had authority to record and release provisions, the Board
directed management to end that practice by separating the FP&A and Control functions
and by vesting the Control organization with sole responsibility for accounting
decisions and accounting entries. With the exception of joint venture entities and
Nortel Government Solutions, Inc. (a variable interest entity for accounting purposes,
which is subject to a hold separate arrangement to comply with U.S. national
industrial security requirements), the Company implemented the new segregated structure
over a six-month period, from September 2005 to February 2006, and the FP&A functions
are now separate from the Control function, and the Control organization has had the
exclusive authority to approve and post general ledger entries commencing with the
closing of Nortels books
and records for the quarter ended March 31, 2006, other than tax-related entries
which are approved by the Companys Tax organization.




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A - 7 (viii)
    
    Management has restructured the Companys technical accounting function into two
groups to provide technical accounting guidance: one for revenue recognition issues,
called Global Revenue Governance (GRG), and one for all other accounting issues,
called Global Technical Accounting (GTA). Both GRG and GTA report directly to the
Assistant Controller. The mandate of GRG is to render binding guidance on the
accounting for revenue recognition for contracts and contract amendments and to serve
as the final authority on revenue recognition decisions. The mandate of GTA is to make
binding decisions for the accounting on all technical non-revenue issues, including
issues related to provisions. Important issues arising out of either GRG or GTA are
required to be raised with the Controller for resolution. Internal finance process
guidelines (FPGs) have been adopted to formalize the authority of GRG and GTA. These
FPGs contain matrices with dollar thresholds above which the Assistant Controller or
the Controller, as applicable, must approve the accounting guidance. New directors of
both GRG and GTA, with appropriate technical qualifications, have been recruited from
outside Nortel. Management has also increased the staffing of GRG and GTA and upgraded
the technical qualifications of their respective personnel.(ix)
    
    Since April 2004, responsibility for drafting and revising Nortels internal
accounting and finance process guidelines has been vested in the Global Finance
Policies & Process (GFPP) group, led by a certified public accountant. The mandate
of GFPP is to keep Nortels internal accounting guidance current and in compliance with
U.S. GAAP, to make that guidance user-friendly with real life examples of practical
applications where appropriate and to identify changes to U.S. GAAP and update Nortels
accounting policies accordingly. As at December 31, 2006, GFPP has developed
twenty-five accounting guidelines on various topics, including accruals, provisions,
revenue recognition and foreign exchange. In addition, GFPP has developed thirteen
FPGs on various topics,




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A - 8 including manual journal entries, balance sheet reviews, revenue recognition
documentation and account reconciliations. Further, as at March 31, 2007, GFPP has
reviewed and, where necessary, revised all key internal accounting guidelines and
included real life examples of practical applications of such guidance where it
was considered appropriate. Monthly newsletters to Finance employees are issued on
new policies, accounting guidelines and FPGs.(x)
    
    As part of its remediation efforts and to compensate for the material
weaknesses in Nortels internal control over financial reporting, management undertook
intensive efforts in 2005 and early 2006 to improve its internal controls and
procedures relating to revenue recognition. These efforts included, among other
measures, an extensive collection and review by GRG of documentation on customer
contracts, comprising approximately 75% of 2005 revenues, to determine whether Nortels
revenue recognition accounting policies were being applied properly and consistently
across the organization. As a result of these and other efforts, various revenue
recognition errors were identified and adjusted in the 2005 Annual Report, as described
in more detail in paragraphs 45-47 of the Settlement Agreement. In the first quarter
of 2006, Nortel issued a new FPG requiring a review by GRG for all new contracts and
amendments to existing contracts having a total revenue impact in excess of $5 million.
The review is required to be completed by the time of the Audit Committee meeting in
respect of the quarter in which the delivery of product, or performance of services or
fulfillment of other contractual obligations, occurs. Additional measures have been
implemented in an effort to ensure that all contracts are submitted to GRG for binding
accounting guidance. For example, GRG is now provided with a quarterly confirmation of
all contracts, and incremental approval from the Controller is required for amendments
or superseding contracts that change the timing of revenue recognition. Both GRG and
Nortels Contract Assurance group, which groups mandate is to accurately execute on
the application of U.S. GAAP and GRG guidance issued pursuant to the new FPG, now
report to the Assistant Controller.




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A - 9 (xi)
    
    Starting in 2004, Nortels management has implemented significant controls
around manual journal entries (MJEs) in an effort to reduce their susceptibility to
human error and manipulation. These controls include the development and adoption of
FPGs that specify the supporting documentation that must be provided before a MJE can
be approved and posted to the general ledger, the authority level of individuals
authorized to approve MJEs and the segregation of duties among the initiator, approver
and poster of the MJE. MJEs and all supporting documentation are required to be loaded
into a database to facilitate both record retention and access by all appropriate
parties, such as the compliance reviewers, Internal Audit and the external auditors.
Also, Finance employees received training on the application of the new MJE controls
and their requirements. With the exception of joint venture entities and Nortel
Government Solutions, Inc., incremental compliance reviews were commenced in 2005 for
all MJEs over a specified dollar value for compliance with the new documentation
requirements for MJEs. In 2006, Nortel established the Global MJE Center of Excellence
to implement a consistent global compliance review process and global compliance
reporting under the leadership of the Companys U.S. Regional Controller, who reports
directly to the Controller. Under this global incremental review process, any MJE that
fails to satisfy one or more of the substantive requirements (such as failure to attach
complete, relevant supporting documents or appropriate approvals) is required to be
rejected by the reviewer and returned to the initiator of the MJE for remediation and
subsequent validation by the reviewer.(xii)
    
    Beginning with the filing of Nortels 2004 Form 10-K, management adopted and
began to implement a series of improved internal controls on the preparation and review
of post closing adjustments (PCAs). Because all PCAs are MJEs submitted after the
initial consolidation of the financial statements, management determined to apply all
of the control requirements governing MJEs to PCAs. To eliminate the potential for
inappropriate corporate initiation of PCAs, PCAs must be initiated in the regions or
business units, with the exception of normal and appropriate corporate tax,
consolidation and elimination entries. Once approved, proposed PCAs are subject to the
same incremental compliance review as MJEs.




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A - 10 All of the materials relevant to each PCA are loaded into a database that is
accessible by all appropriate parties including Nortels external auditors. The
Director of Corporate Consolidations (the Director) is required to review each
proposed PCA for materiality and, based on that analysis, recommend to the
Controller the proposed PCAs that should be posted and those that should be placed
on a list of unadjusted differences. The Director and Controller then review those
recommendations and the underlying accounting rationale, and the Controller must
determine which adjustments to record. Any unadjusted differences remaining at the
end of this process which have been deemed to be immaterial are required to be
reported to the Audit Committee. Managements goal is to remediate the gaps in
controls which do not operate effectively to prevent late entries. During 2006, the
Corporate Consolidations group commenced a process to review the root causes of
PCAs. This process has evolved and, starting in 2007, Corporate Consolidations,
with assistance from the SOX group, collects information on each PCA to determine
the root cause of the PCA, in particular what (if any) internal control deficiency
gave rise to the PCA, and a remediation plan is developed and implemented by the
initiator of the PCA, as appropriate, with specific timelines for completion of the
required remedial activity. Corporate Consolidations is responsible for tracking
the remedial actions against plans and timelines.(xiii)
    
    Commencing in 2005, the Controller initiated weekly meetings, held throughout the
quarter-close process until the financial statements are filed, in which technical
accounting issues are discussed, monitored and resolved. These meetings are attended
by the Controller, Assistant Controller, senior managers in GRG and GTA and other
employees, depending on the issues under discussion, and the external auditors.(xiv)
    
    Starting in 2005, Nortels management has implemented an enhanced balance
sheet review (BSR) process in recognition that timely and thorough BSRs provide an
effective internal control. With the exception of tax (which is the responsibility of
the Companys Tax organization), all balance sheet line items




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A - 11 have been assigned an owner within the Control organization who is responsible for
overseeing all transactional activity within the account, including determining the
propriety of all such activity in compliance with U.S. GAAP and for preparing
documentation about the account prior to each quarterly BSR. The BSR process
includes a comprehensive evaluation of activity within key liability accounts and a
specific focus on the review of provisioning activity as well as cumulative foreign
exchange translation adjustment movements. The process also includes a review of
restructuring charges, the monitoring of which has been centralized within the
Control function. Each balance sheet account owner must explain the activity in the
account and identify the triggering events for all substantial activity. The
controls and review processes around current liability balances and related releases
have been enhanced through the development of improved continuity schedules (which
track quarterly changes in accrued liabilities accounts) with narrative explanation
for substantial additions and identification of the triggering events for all
substantial releases. The continuity schedules are required to be reviewed and
analyzed by Nortels Corporate Consolidations group and presented by the Controller
to the Audit Committee quarterly.(xv)
    
    Beginning in 2005, management enhanced the reviews conducted during its
internal quarterly profit and loss meetings (Results Calls) to provide a forum for
discussion of the results for each of its business units separately and the results on
a consolidated basis, and discuss the variance analysis to budget, to the prior period
and to the prior year. In the Results Calls for each business unit, the finance leader
of the business unit, FP&A and the applicable Regional Controller are called upon to
identify and discuss significant technical accounting issues, including revenue
recognition items, that arose during the period that could affect the results for that
period. Where technical accounting issues remain outstanding, they are discussed
during the Results Calls as well as during the Controllers accounting issues meetings.
To the extent technical accounting issues have not been resolved at the time of the
Results Calls, such issues are to be resolved and reported on during the BSRs, which
occur prior to the filing of the financial statements.




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A - 12 (xvi)
    
    Recognizing that timely and accurate account reconciliations are a priority,
Nortels new management has implemented a policy requiring timely account
reconciliations to confirm the accuracy and completeness of ending balances in each
general ledger account. In the third quarter of 2006, management issued a new global
FPG on the account reconciliation process to outline the requirements for account
reconciliations, and which requires quarterly reconciliation of each balance sheet
account. Certain accounts determined to be high risk, based on an account risk
analysis by the appropriate Control leader, must be reconciled prior to the Audit
Committee meeting for the applicable reporting period. Reports are prepared to monitor
the timely preparation and review of reconciliations.(xvii)
    
    With respect to foreign exchange, in 2005, Nortels management enhanced its annual
functional currency study which ultimately determines the methodology for translating
subsidiary foreign currency results to U.S. dollar reporting currency. The enhanced
study improved the analysis and documentation to substantiate the functional currency
determination, and is reviewed and approved by the appropriate regional Controller and
corporate Controller. In addition, in 2005, management implemented a quarterly process
to analyze inter-company balances for compliance with SFAS No. 52, paragraph 20. The
Treasury function reviews inter-company loans quarterly and inter-company trade
positions annually to assist Control in determining if any balances are of a long-term
investment, whereby foreign exchange would be recorded in equity. Systems have been
automated to support the translation of a significant operating subsidiarys foreign
currency results to U.S. dollar reporting.(xviii)
    
    The Audit Committee has established new priorities for the Internal Audit
organization relating to the evaluation of risk exposures for financial reporting, and
management has amended the charter for the internal audit function to include oversight
responsibilities for the adequacy and effectiveness of financial reporting controls.
The Audit Committee realigned the reporting responsibilities for Internal Audit and
directed senior management to strengthen significantly the internal audit function in
the first quarter of 2004, and also hired a new Internal




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A - 13 Audit leader as of July 2005. The head of Internal Audit reports directly to the
CEO and the Audit Committee to ensure that Internal Audit is independent from the
activities it reviews. Beginning in 2005, Internal Audit work plans include a focus
on accounting for transactions, financial reporting and financial reporting
controls. Starting in 2006, the Internal Audit work plan includes an assessment of
the adequacy and degree of compliance with financial, operational and system
controls.(xix)
    
    As part of the efforts to increase awareness of and timely and appropriate
remediation of internal controls, in the second quarter of 2006 Nortel established a
SOX Steering Committee comprised of senior management from Finance, Legal, Human
Resources, Internal Audit, Information Services and Operations. Regular reporting of
remediation activities to senior management, including an escalation process to address
areas where remediation planned dates were not met was implemented. The SOX vice
president regularly meets with Internal Audit and reports to the Audit Committee on the
ongoing development, implementation and progress of remedial measures. Training is
provided for teams that document and administered controls to improve control design
competencies. In addition, the SOX team implemented a revised SOX 404 scope, a
comprehensive methodology redesign and changes to the documentation requirements to
greatly improve the quality of the SOX 404 documentation. As a result of all of these
activities, there was significant remediation in 2006 of internal control deficiencies
identified in various business processes that impact the Companys internal control
over financial reporting.(xx)
    
    The Board has implemented processes for Nortels management to provide
quarterly assessments in respect of the overall quality and transparency of the
Companys financial reporting and suggestions for improvements in its form and content,
which Nortels external auditors have the opportunity to review and comment on. These
processes include quarterly reporting by the CFO and Controller to the Board and by the
SOX vice president and head of Internal Audit to the Audit Committee. Further, the
presidents of the business units are expected




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A - 14 to take full responsibility for the respective financial results of their businesses
and, commencing in 2007, will be required, on a quarterly rotation basis, to provide
presentations to the Board with the Vice President, Finance on the financial results
of their respective business units. In addition, the Audit Committee will
periodically hold separate executive sessions with the Vice President, Finance to
discuss financial issues specific to each business unit.Technology:(xxi)
    
    In an effort to improve Nortels financial reporting systems and capabilities,
to simplify its multiple accounting systems, and to reduce the number of MJEs, Nortel
retained an outside consulting firm to advise on the appropriateness of implementing a
Systems, Application and Products (SAP) platform worldwide that would consolidate
many of Nortels systems into a single integrated financial software system. Based on
that advice, Nortel adopted the SAP platform to integrate its processes and systems,
and undertook an assessment of existing financial systems and processes to determine
the most effective implementation of standard SAP software. The finance design and
build for the initial scope of the SAP system, including general ledger functionality,
was completed by the end of August 2006, and these processes are planned to be tested
and fully deployed during 2007. Once fully deployed, Nortel estimates that MJEs will
be reduced by approximately 30%. Processes for additional activities will be built
upon this first phase of functionality. Process design for these additional activities
has been completed and management expects that the build, testing and deployment will
be completed by the third quarter of 2007.(xxii)
    
    The Companys general computing control (GCC) environment has been strengthened
with the implementation of new and enhanced controls. During 2006, numerous control
deficiencies were remediated across applications, interfaces and the infrastructure
impacting internal control over financial reporting. In particular, Nortel established
a standard user management process that facilitates the approval of all user access
requests and the removal of accounts when appropriate and implemented regular reviews
of business user accounts.




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A - 15 Further, Nortel implemented standard and enhanced controls regarding change
management to applications to ensure the changes are appropriately tested, approved
and implemented. In addition, enhanced security protection of data files used to
transfer data from one application to another were implemented. Segregation of
duties was improved in the GCC environment by restricting the number of operating
system administrators with privileged access maintaining an audit trail of software
changes that are made to some key information system applications.