Item 4. Controls and Procedures
Item 4. Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act , is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were not effective as of June 30, 2023 due to the material weakness in internal control over financial reporting described below.
As previously disclosed in the Company's 2022 Annual Report on Form 10-K/A, in connection with the preparation of its financial statements for the quarter ended June 30, 2023, the Company's management identified a material weakness in its internal control over financial reporting. Specifically, the Company did not appropriately design the controls for the accrual of product returns to capture the return lag based on the Company's customer returns policy for Auryxia, or Product Return Reserve Material Weakness. While this control deficiency did not result in a material misstatement of the Company's consolidated financial statements, there is a reasonable possibility this control deficiency could have resulted in a material misstatement of the Company's annual or interim consolidated financial statements that would not be prevented or detected on a timely basis. Therefore, management concluded this control deficiency constitutes a material weakness.
Remediation Efforts of Product Return Reserve Material Weakness
Management has taken and plans to continue to take actions to remediate the deficiency in its internal control over financial reporting and implemented new processes, procedures and controls designed to address the underlying causes associated with the material weakness.
For example, we are in the process of: (i) implementing and documenting a new methodology and new controls to help to ensure the completeness and accuracy of our product return reserves, (ii) engaging additional third party subject matter experts and accounting personnel with U.S. GAAP experience specific to product returns accounting and (iii) establishing effective monitoring and oversight controls to help to ensure the completeness and accuracy of our accrued product returns included in our financial statements and related disclosures.
As management continues to evaluate and work to improve our internal control over financial reporting, management may determine it is necessary to take additional measures to address the material weakness. Until the controls have been operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively, the material weakness described above will continue to exist.
Changes in Internal Control over Financial Reporting
Except for the material weakness as noted in the preceding paragraphs, there have been no changes in the Company's internal control over financial reporting during the three months ended June 30, 2023, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act,
Akebia Therapeutics, Inc. | Form 10-Q | Page 38
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that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II—OTHER INFORMATION