Opinion ID: 1038518
Heading Depth: 3
Heading Rank: 3

Heading: Weak Internal Accounting Controls

Text: Ricker alleges that Zoo’s awareness of its weak internal controls particularly the lack of adequate finance staff supports a strong inference that it recklessly issued the 10-Qs. Zoo disclosed the following in its challenged 10-Qs: -5- No. 12-3951 Ricker v. Zoo Entm’t Inc. Our management has determined that we have a material weakness in our internal control over financial reporting related to not having a sufficient number of personnel with the appropriate level of experience and technical expertise to appropriately resolve non-routine and complex accounting matters or to evaluate the impact of new and existing accounting pronouncements on our consolidated financial statements while completing the financial statements close process. We are committed to addressing this in 2010 and we will reassess our accounting and finance staffing levels to determine and seek the appropriate accounting resources to be added to our staff to handle the existing workload. (E.g., R. 17-7, Zoo 2010 Q1 10-Q at 7.) Ricker alleges that because revenue recognition is “routine and non-complex,” this disclosure should not shield Zoo’s revenue-recognition error; Zoo acted with scienter by failing to also “alert investors that the most basic accounting matters were, themselves, suspect.”