Financial Audit: Review of the Audit of SEMATECH's Financial Statements
for 1996 (Letter Report, 09/29/97, GAO/AIMD-97-158).
Pursuant to a legislative requirement, GAO reviewed the financial
statement audit of SEMATECH, Inc., for the year ending December 31,
1996.
GAO found that: (1) Price Waterhouse's opinion, dated January 31, 1997,
stated that SEMATECH's financial statements for the year ended December
31, 1996, are fairly presented in all material respects in conformity
with generally accepted accounting principles; (2) also, as required by
generally accepted government auditing standards, Price Waterhouse
issued reports on SEMATECH's internal control structure and its
compliance with laws and regulations; (3) these reports disclosed no
material internal control weaknesses or noncompliance with laws and
regulations; and (4) the results of GAO's review disclosed no instances
where Price Waterhouse's opinion on SEMATECH's 1996 financial
statements, its report on internal control structure, or its report on
compliance with laws and regulations did not comply, in all material
respects, with generally accepted government auditing standards.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-97-158
TITLE: Financial Audit: Review of the Audit of SEMATECH's
Financial Statements for 1996
DATE: 09/29/97
SUBJECT: Financial statement audits
Defense industry
Auditing procedures
Financial records
Internal controls
Electronic equipment industry
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Cover
================================================================ COVER
Report to Congressional Committees
September 1997
FINANCIAL AUDIT - REVIEW OF THE
AUDIT OF SEMATECH'S FINANCIAL
STATEMENTS FOR 1996
GAO/AIMD-97-158
Sematech's 1996 Financial Audit
(911743)
Abbreviations
=============================================================== ABBREV
SEMATECH -
Letter
=============================================================== LETTER
B-278040
September 29, 1997
The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate
The Honorable Floyd Spence
Chairman
The Honorable Ronald V. Dellums
Ranking Minority Member
Committee on National Security
House of Representatives
The National Defense Authorization Act for Fiscal Years 1988 and 1989
(Public Law 100-180) requires that we review the annual audits of the
financial statements of SEMATECH, Inc., a consortium of U.S.
semiconductor manufacturers and the Department of Defense, and
provide comments to you on the statements' accuracy and completeness.
This report presents the results of our review of the audit conducted
by Price Waterhouse, an independent public accounting firm, of
SEMATECH's financial statements for the year ended December 31, 1996.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Price Waterhouse's opinion, dated January 31, 1997, stated that
SEMATECH's financial statements for the year ended December 31, 1996,
are fairly presented in all material respects in conformity with
generally accepted accounting principles. Also, as required by
generally accepted government auditing standards, Price Waterhouse
issued reports on SEMATECH's internal control structure and its
compliance with laws and regulations. These reports disclosed no
material internal control weaknesses or noncompliance with laws and
regulations.
The results of our review disclosed no instances where Price
Waterhouse's opinion on SEMATECH's 1996 financial statements, its
report on internal control structure, or its report on compliance
with laws and regulations did not comply, in all material respects,
with generally accepted government auditing standards.
BACKGROUND
------------------------------------------------------------ Letter :2
SEMATECH was incorporated in Delaware in August 1987 as a nonprofit
research and development corporation with the objective of advancing
semiconductor manufacturing technology. The National Defense
Authorization Act for Fiscal Years 1988 and 1989, enacted in December
1987, authorized the Secretary of Defense to make grants to SEMATECH
to defray research and development expenses. The act also required
the Secretary of Defense to enter into a memorandum of understanding
with SEMATECH. The memorandum provided that the total amount of
funds made available to SEMATECH by federal, state, and local
government agencies for any fiscal year for the support of research
and development activities may not exceed 50 percent of the total
cost of such activities. The remaining 50 percent is funded by
member companies.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
Our review considered (1) the extent to which SEMATECH has ensured
that member company funding was not less than 50 percent of the cost
of research and development activities for 1996 and (2) the accuracy
and completeness of the financial audit conducted by Price
Waterhouse.
To determine the extent of funding match, we reviewed SEMATECH's 1996
financial statements and related notes and compared the amounts
funded by the member companies, plus interest earned and less any
unallowable costs, to amounts funded by federal and state government.
There was no local funding.
To determine the accuracy and completeness of the independent audit,
we
-- reviewed the auditor's approach and planning of the audit;
-- evaluated the qualifications and independence of the audit
staff;
-- reviewed the financial statements and auditor's reports to
evaluate compliance with generally accepted accounting
principles and generally accepted government auditing standards;
and
-- reviewed the auditor's working papers to determine (1) the
nature, timing, and extent of audit work performed, (2) the
extent of audit quality control methods the auditor used, (3)
whether a review was conducted of SEMATECH's internal control
structure, (4) whether the auditor tested transactions for
compliance with applicable laws and regulations, and (5) whether
evidence in the working papers supported the auditor's opinion
on the financial statements and internal control structure and
compliance reports.
Our review, as differentiated from an audit of financial statements
performed in accordance with generally accepted government auditing
standards, was not intended to enable us to express, and we do not
express, an opinion on SEMATECH's financial statements, a conclusion
about the effectiveness of its internal controls, or conclusions on
compliance with laws and regulations. Price Waterhouse is
responsible for its report on SEMATECH dated January 31, 1997, and
the conclusions expressed in its report.
Our review was conducted in accordance with generally accepted
government auditing standards. We discussed the results of our
review with cognizant Price Waterhouse, SEMATECH, and Defense
officials. This report does not include a copy of SEMATECH's 1996
financial statements because they contain proprietary information.
---------------------------------------------------------- Letter :3.1
We are sending copies of this report to the Secretary of Defense, the
Chairman of the Board of Directors of SEMATECH, representatives of
Price Waterhouse, and other interested parties. Copies will be made
available to others upon request. Please call me or Roger Stoltz,
Assistant Director, at (202) 512-9489 if you or your staffs have any
questions.
David L. Clark
Director, Audit Oversight and Liaison
*** End of document. ***