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Merrill Lynch & Co., the securities firm taken over by Bank of America Corp., said its auditor found “material weaknesses” in its internal controls over accounting.
Deloitte & Touche LLP said Merrill didn’t maintain “effective” internal control over financial reporting as of Dec. 26, 2008, according to a filing today with the Securities and Exchange Commission. Bank of America completed the takeover on Jan. 1 of this year.
Merrill said in the filing that it reflects the items have been corrected. The company is working on a plan to ensure that the material weaknesses are strengthened with a goal of “remediating” the weaknesses in the first quarter, Merrill said in the filing.
“This is not a small thing,” said Charles Mulford, an accounting professor at the Georgia Institute of Technology in Atlanta. “A company like this should have controls in place that provide assurance that the financial statements are correct. It goes to the heart of what Merrill Lynch is, when you’re talking about swaps, hedge accounting.”
Inter-company transactions weren’t properly reflected in consolidated financial statements because two different sets of yield curves were “inappropriately recorded in a third-party account,” Deloitte said in the filing. Some internal controls didn’t work “effectively,” the accountant said.
In the filing, Merrill said its fourth-quarter loss was $15.8 billion, or $9.95 a share, wider than the $15.3 billion, or $9.62, it reported on Jan. 16. Bank of America spokesman Scott Silvestri said the earlier results were preliminary.
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