Item 4. Controls and Procedures
Item 4. Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit 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 our management, including our 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 our management, our principal executive officer and principal financial officer have concluded that our 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, 2024 due to the material weakness in internal control over financial reporting described below.
As previously disclosed in our Annual Report on Form 10-K, that was filed with the SEC on March 14, 2014, or 2023 Form 10-K , as of December 31, 2023, our management identified a material weakness in our internal control over financial reporting. Specifically, we did not maintain effective controls related to (i) the review of inventory reconciliations, (ii) the validation of the inventory costing, (iii) the classification of inventory within the balance sheet and cost of product and other revenue related costs in the statement of operations, (iv) the calculation of estimated excess firm purchase commitment liability and (v) the verification that the existence of all inventories subject to physical inventory counts were accurately counted.
Remediation Efforts of the Material Weakness — Inventories
Akebia Therapeutics, Inc. | Form 10-Q | Page 39
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Our management has taken and plans to continue to take actions to remediate the deficiency in our internal control over financial reporting and has 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 new processes and controls to help ensure the completeness and accuracy of our inventory reconciliations, (ii) engaging additional third-party subject matter experts and accounting personnel with U.S. GAAP experience specific to inventory accounting, (iii) enhancing the accuracy of key reports used to calculate the firm purchase commitment liability; and (iv) establishing effective monitoring and oversight controls to help to ensure the completeness and accuracy of inventory included in our financial statements and related disclosures.
As our management continues to evaluate and work to improve our internal control over financial reporting, our 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 our 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
We implemented a new enterprise resource planning, or ERP , system and a gross-to-net, or GTN , system during the three months ended June 30, 2024. The implementation of the ERP and GTN systems are expected to, among other things, further automate a number of accounting and reporting processes and activities, thereby decreasing the number of manual processes previously required. Except for the implementation of the ERP and GTN systems, there have been no changes in our internal control over financial reporting (as defined by Rule 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION