Business Context and Reporting Period
Company: Gran Tierra Energy Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 9, 2008 (Event Date)
Reporting Period: The filing addresses restatements affecting financial statements for the years ended December 31, 2006 and 2007, and interim quarters ended March 31, June 30, and September 30, 2007.
Key Financial Metrics
This filing does not report new revenue, profit, or cash flow figures. Instead, it addresses a misclassification in previously reported cash flow statements.
- Net Change in Cash: No impact on previously reported net change in cash and cash equivalents.
- Balance Sheet & Operations: No impact on previously reported consolidated balance sheets or consolidated statements of operations and accumulated deficit.
- Cash Flow Statement: Misclassification of accounts payable and accrued liabilities resulted in a misstatement of cash flows from operating activities, with a corresponding offset to cash flows from investing activities.
Material Changes Versus Prior Period
The material change is the restatement of the Consolidated Statements of Cash Flow for the "Affected Financial Statements" (2006, 2007, and 2007 interim quarters). The company discovered a misclassification of accounts payable and accrued liabilities. While the total cash position remained unchanged, the allocation between operating and investing activities was incorrect in prior filings.
Guidance, Outlook, Risks, and Unusual Items
Non-Reliance on Financial Statements
Management and the Audit Committee determined the misclassification was material to the Consolidated Statements of Cash Flow. Consequently, the Affected Financial Statements should no longer be relied upon. The company is filing a Form 10-K/A to restate the Statements of Cash Flows for 2006 and 2007.
Internal Control Weakness
Management concluded that disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2007. A material weakness was identified due to the lack of effective controls to prevent the restatement.
Remediation Actions
- Verified data entered into spreadsheets used for calculating cash flow allocations.
- Enhanced procedures for analyzing entries related to accounts payable and accrued liabilities.
- Management cannot affirmatively conclude the weakness is remediated until sufficient testing is completed.
Auditor Withdrawal
Deloitte & Touche LLP withdrew its previous audit report dated March 7, 2008, originally filed in the Form 10-K for the year ended December 31, 2007.
Listing Compliance
The company notified the American Stock Exchange on May 12, 2008, that it is out of compliance with Sections 134 and 1101 of the Amex Company Guide due to the issues disclosed. Management believes the filing of the Form 10-K/A will remediate this non-compliance.
Investor Verification Checklist
- Verify the upcoming Form 10-K/A filing for the restated Statements of Cash Flows for 2006 and 2007.
- Confirm the status of the American Stock Exchange listing compliance following the 10-K/A filing.
- Monitor future filings for management's conclusion on the remediation of the material weakness in internal controls.
- Note that the auditor (Deloitte & Touche LLP) has withdrawn its prior report; verify if a new audit opinion is issued in the amended filing.