What changed in this filing

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Item 9A. Controls and Procedures

2021-02-26 compared with 2020-03-02 · 61 added, 50 removed, 163 unchanged (41% of the section changed)

4 unchanged sentences

As required by Rule 13a-15(b) under the Exchange Act, our management, including our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.

Based on that evaluation, our CEO and our CFO have concluded that as of December 31, 2019, our disclosure controls and procedures were not effective because of the material weaknesses in internal controls, and as disclosed below.

Notwithstanding these material weaknesses, our management, including our CEO and CFO, has concluded that our consolidated financial statements, included in the 2019 Annual Report on Form 10-K, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles, and that they can still be relied upon.

Based on that evaluation, our CEO and our CFO have concluded that as of December 31, 2020, our disclosure controls and procedures were not effective at the reasonable assurance level because of the material weakness in internal controls previously disclosed and discussed below.

Notwithstanding the material weakness, our management, including our CEO and CFO, has concluded that our consolidated financial statements, included in the 2020 Annual Report on Form 10-K, fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.

In light of the material weakness described below, the Company performed additional analysis and other post-closing procedures to determine its consolidated financial statements are prepared in accordance with generally accepted accounting principles.

Accordingly, management concluded that the financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act.

Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2019 using the criteria established in “Internal Control—Integrated Framework” (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 using the criteria described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Based on that assessment, our management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2019 because of the following material weaknesses in internal control over financial reporting, disclosed in the Company’s 2018 Annual Report on Form 10-K, which continue to exist as of December 31, 2019:

We did not design or maintain an effective control environment commensurate with our financial reporting requirements.

Given the rapid growth in the size and complexity of the business, we failed to maintain a sufficient number of professionals with an appropriate level of accounting and internal control knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately.

This material weakness contributed to the additional material weaknesses below.

• We did not effectively execute our controls over our financial statement close process, to ensure the prevention or detection of a misstatement that could be material.

Specifically, we concluded we did not have an effective business performance review control used to monitor the completeness and accuracy of the financial results and to identify potential failures in lower level controls.

This control may not detect errors in a timely manner that could be material

to our interim or annual financial statements.

This material weakness contributed to additional material weaknesses, previously disclosed and remediated, as discussed below.

In aggregate, these material weaknesses resulted in the misstatement of our revenues, revenue reserves, bad debt expense, property and equipment, research and development

expense and related financial disclosures, and in the revision of the Company’s consolidated financial statements for the years ended December 31, 2017, December 31, 2018, and each interim period therein as well as the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019.

Additionally, this material weakness could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Based on this assessment and because of this material weakness, we concluded that the Company's internal control over financial reporting was not effective as of December 31, 2020.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 8 of this Annual Report on Form 10-K.

Remediation Plan Activities

As it relates to the material weakness that continues to exist as of December 31, 2020, we performed the following actions:

• Increased the depth and experience of our Finance organization by increasing the number of management and staff members, expanding our technical experience in accounting, auditing and reporting matters, and performing internal controls training for management and staff members.

• Hired two Internal Audit Directors (one with broad Finance experience and one with relevant control experience over information technology environments).

These individuals are focused on the development, maintenance and monitoring of our overall control environment and system of key internal controls over financial reporting.

We remain committed to the continued hiring and on-boarding of additional members of the organization supporting the internal control over financial reporting.

As of December 31, 2020, we have filled key positions within the Finance organization and will continue to add skilled talent as complexities grow and needs arise.

These investments in resources have significantly improved the stability of our accounting organization.

While significant progress has been made in response to the material weakness in the control environment, key remediation plan activities include additional training programs and hiring of additional resources in support of certain control activities.

Additionally, time is needed to demonstrate sustainability as it relates to our internal control over financial reporting and improvements made to our complement of resources, including demonstrating sustained operating effectiveness of our internal controls.

Remediation of Previously Disclosed Material Weaknesses

Additional material weaknesses were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 and the following elements have been remediated as of December 31, 2020:

• Material weakness related to the financial statement close process

We did not effectively execute our controls over the financial statement close process, to ensure the prevention or detection of a misstatement that could be material.

Specifically, we previously concluded we did not have an effective business performance review control used to monitor the completeness and accuracy of the financial results and to identify potential failures in lower level controls.

This control may not have detected errors in a timely manner that could be material to our interim or annual financial statements.

Additionally, we did not have appropriate control over the review of journal entries to ensure that they were properly supported and recorded completely and accurately.

• Material weakness related to the accounting for revenue and related accounts receivables and reserves

We did not maintain effective controls with respect to the review of the accounting for revenue and related accounts receivable, including maintaining effective controls to prevent or detect errors in the assessment of bad debt and revenue reserves.

Specifically, we did not detect errors within the contractual allowance and bad debt expense analyses which resulted in immaterial misstatements to revenue, accounts receivable and bad debt expense.

These material weaknesses resulted in the misstatement of our revenues, revenue reserves, bad debt expense, property and equipment, research and development expense and related financial disclosures, and in the revision of the Company’s consolidated financial statements for the years ended December 31, 2017, December 31, 2018, and each interim period therein as well as the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019.

Additionally, these material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in Part IV, Item 15 of this Annual Report on Form 10-K.

Remediation Plan Activities

Management continues to execute its action plan to remediate the underlying causes that gave rise to the material weaknesses.

The following steps were performed as of December 31, 2019 to enhance our internal control environment:

• Increased the depth and experience of our Finance organization by hiring individuals with technical experience in accounting, auditing and reporting matters and provided several internal control trainings to Finance staff and managers;

• Hired an Internal Audit Director who is focused on enhancing the effectiveness of our overall control environment and system of controls over financial reporting;

• Enhanced the design of key controls in the order to cash cycle;

• Implemented a business performance review control to monitor the completeness and accuracy of the financial results and to identify potential failures in lower level controls;

• Enhanced the design of key controls over journal entries and the accuracy and completeness of key reports used in the preparation of our consolidated financial statements.

We will continue to build on the progress we have made in our remediation efforts.

In particular, we will focus on strengthening and enforcing controls in the financial close process, filling the remaining key roles in the Finance organization, and providing more internal control and accounting training for Finance staff and managers.

However, the material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time for management to conclude, through testing, that such controls are operating effectively.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within a company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Projections of any evaluation of controls effectiveness to future periods are subject to risks.

Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

During the year ended December 31, 2020, we completed the testing and evaluation of the operating effectiveness of the newly designed and implemented and enhanced controls and concluded these material weaknesses have been remediated as of December 31, 2020.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our principal executive officer and principal financial officer, has evaluated our internal control over financial reporting to determine whether any changes to our internal control over financial reporting occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Based on that evaluation, other than the changes discussed above in connection with the changes designed and implemented as a result of our remediation plan of the previously identified material weakness, there were no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting for the year ended December 31, 2019.

There have been no changes in internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting has inherent limitations.

Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.

Internal control over financial reporting can also be circumvented by collusion or improper management override of the controls.

Projections of any evaluation of controls effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with policies or procedures.

Other Information.

11 unchanged sentences

(a) List the following documents filed as a part of this Annual Report on Form 10-K:

(i) All financial statements;

(ii) Those financial statement schedules required to be filed by Item 8 of this form, and by paragraph (b) below.

All financial statements;

Those financial statement schedules required to be filed by Item 8 of this form, and by paragraph (b) below.

All financial statement schedules are omitted because they are not applicable or the amounts are immaterial or the required information is presented in the consolidated financial statements and notes thereto in Part II, Item 8 above.

(iii) Those exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter) and by paragraph (b) below.

Those exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter) and by paragraph (b) below.

Identify in the list each management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(b) of this report.

101 unchanged sentences

10-Q 333-213773 10.39 December 23, 2019

10.40 Executive Change in Control and Severance Policy

10-Q 333-213773 10.40 August 7, 2020

10.41 Underwriting Agreement by and among iRhythm Technologies, Inc.

Morgan Securities LLC and Morgan Stanley & Co.

LLC as representatives of the several underwriters named therein, dated August 18, 2020.

8-K 333-213773 10.41 August 21, 2020

21.10 List of Subsidiaries of Registrant.

18 unchanged sentences

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 2, 2020 By:

February 26, 2021 By:

/s/ Michael Coyle

Michael Coyle

President and Chief Executive Officer

2 unchanged sentences

Name Title Date

King President, Chief Executive Officer and Director

/s/ Michael Coyle President, Chief Executive Officer and Director

(Principal Executive Officer)

March 2, 2020

/s/ Matthew C.

Garrett Chief Financial Officer

February 26, 2021

Michael Coyle

/s/ Douglas J.

Devine Chief Financial Officer

(Principal Financial Officer)

March 2, 2020

Bodaken Director March 2, 2020

February 26, 2021

Bodaken Director February 26, 2021

/s/ Ralph Snyderman M.D.

Director March 2, 2020

Director February 26, 2021

Ralph Snyderman M.D.

Noel Bairey Merz, M.D.

Director March 2, 2020

Director February 26, 2021

Noel Bairey Merz, M.D.

Rubash Director March 2, 2020

Rubash Director February 26, 2021

/s/ Raymond W.

Scott Director March 2, 2020

Scott Director February 26, 2021

/s/ Renee Budig Director February 26, 2021

King Director February 26, 2021

/s/ Abhijit Y.

Talwalkar Director and Chairman of the Board March 2, 2020

Talwalkar Director and Chairman of the Board February 26, 2021

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures