Financial Audit: Review of the Audit of SEMATECH's Financial Statements for 1996

Published by the Government Accountability Office on 1997-09-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to Congressional Committees

September 1997
                  FINANCIAL AUDIT
                  Review of the Audit of
                  SEMATECH’s Financial
                  Statements for 1996

                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Accounting and Information
                   Management Division


                   September 29, 1997

                   The Honorable Strom Thurmond
                   The Honorable Carl Levin
                   Ranking Minority Member
                   Committee on Armed Services
                   United States Senate

                   The Honorable Floyd Spence
                   The Honorable Ronald V. Dellums
                   Ranking Minority Member
                   Committee on National Security
                   House of Representatives

                   The National Defense Authorization Act for Fiscal Years 1988 and 1989
                   (Public Law 100-180) requires that we review the annual audits of the
                   financial statements of SEMATECH, Inc., a consortium of U.S. semiconductor
                   manufacturers and the Department of Defense, and provide comments to
                   you on the statements’ accuracy and completeness. This report presents
                   the results of our review of the audit conducted by Price Waterhouse, an
                   independent public accounting firm, of SEMATECH’s financial statements for
                   the year ended December 31, 1996.

                   Price Waterhouse’s opinion, dated January 31, 1997, stated that SEMATECH’s
Results in Brief   financial statements for the year ended December 31, 1996, are fairly
                   presented in all material respects in conformity with generally accepted
                   accounting principles. Also, as required by generally accepted government
                   auditing standards, Price Waterhouse issued reports on SEMATECH’s
                   internal control structure and its compliance with laws and regulations.
                   These reports disclosed no material internal control weaknesses or
                   noncompliance with laws and regulations.

                   The results of our review disclosed no instances where Price Waterhouse’s
                   opinion on SEMATECH’s 1996 financial statements, its report on internal
                   control structure, or its report on compliance with laws and regulations
                   did not comply, in all material respects, with generally accepted
                   government auditing standards.

                   Page 1                           GAO/AIMD-97-158 Sematech’s 1996 Financial Audit

                  SEMATECH was incorporated in Delaware in August 1987 as a nonprofit
Background        research and development corporation with the objective of advancing
                  semiconductor manufacturing technology. The National Defense
                  Authorization Act for Fiscal Years 1988 and 1989, enacted in
                  December 1987, authorized the Secretary of Defense to make grants to
                  SEMATECH to defray research and development expenses. The act also
                  required the Secretary of Defense to enter into a memorandum of
                  understanding with SEMATECH. The memorandum provided that the total
                  amount of funds made available to SEMATECH by federal, state, and local
                  government agencies for any fiscal year for the support of research and
                  development activities may not exceed 50 percent of the total cost of such
                  activities. The remaining 50 percent is funded by member companies.

                  Our review considered (1) the extent to which SEMATECH has ensured that
Scope and         member company funding was not less than 50 percent of the cost of
Methodology       research and development activities for 1996 and (2) the accuracy and
                  completeness of the financial audit conducted by Price Waterhouse.

                  To determine the extent of funding match, we reviewed SEMATECH’s 1996
                  financial statements and related notes and compared the amounts funded
                  by the member companies, plus interest earned and less any unallowable
                  costs, to amounts funded by federal and state government. There was no
                  local funding.

                  To determine the accuracy and completeness of the independent audit, we

              •   reviewed the auditor’s approach and planning of the audit;
              •   evaluated the qualifications and independence of the audit staff;
              •   reviewed the financial statements and auditor’s reports to evaluate
                  compliance with generally accepted accounting principles and generally
                  accepted government auditing standards; and
              •   reviewed the auditor’s working papers to determine (1) the nature, timing,
                  and extent of audit work performed, (2) the extent of audit quality control
                  methods the auditor used, (3) whether a review was conducted of
                  SEMATECH’s internal control structure, (4) whether the auditor tested
                  transactions for compliance with applicable laws and regulations, and
                  (5) whether evidence in the working papers supported the auditor’s
                  opinion on the financial statements and internal control structure and
                  compliance reports.

                  Page 2                           GAO/AIMD-97-158 Sematech’s 1996 Financial Audit

           Our review, as differentiated from an audit of financial statements
           performed in accordance with generally accepted government auditing
           standards, was not intended to enable us to express, and we do not
           express, an opinion on SEMATECH’s financial statements, a conclusion about
           the effectiveness of its internal controls, or conclusions on compliance
           with laws and regulations. Price Waterhouse is responsible for its report
           on SEMATECH dated January 31, 1997, and the conclusions expressed in its

           Our review was conducted in accordance with generally accepted
           government auditing standards. We discussed the results of our review
           with cognizant Price Waterhouse, SEMATECH, and Defense officials. This
           report does not include a copy of SEMATECH’s 1996 financial statements
           because they contain proprietary information.

           We are sending copies of this report to the Secretary of Defense, the
           Chairman of the Board of Directors of SEMATECH, representatives of Price
           Waterhouse, and other interested parties. Copies will be made available to
           others upon request. Please call me or Roger Stoltz, Assistant Director, at
           (202) 512-9489 if you or your staffs have any questions.

           David L. Clark
           Director, Audit Oversight and Liaison

(911743)   Page 3                           GAO/AIMD-97-158 Sematech’s 1996 Financial Audit
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