Explorer

During the year the issuer acquired a business and engaged a specialist to determine the fair value of the acquired loans. The company's specialist determined this fair value based on discounted cash flows it developed using various inputs and assumptions including expected credit losses loan risk ratings certain loan attributes and whether certain loans should be designated as purchased with credit deterioration. The following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's review of the accuracy and completeness of certain data related to the acquired loans but did not test the aspects of these controls that addressed the accuracy of certain loan attributes that the company's specialist used. (AS 2201.42 and .44)

During the year the issuer acquired a business and engaged a specialist to determine the fair value of the acquired loans. The company's specialist determined this fair value based on discounted cash flows it developed using various inputs and assumptions including expected credit losses loan risk ratings certain loan attributes and whether certain loans should be designated as purchased with credit deterioration. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of acquired loans that were designated as purchased with credit deterioration. The firm did not identify and test any controls over the accuracy and completeness of the loan information that the control owner used in the operation of this control. (AS 2201.39)

The firm's internal inspection program had inspected this audit and reviewed these areas but did not identify the deficiencies below. During the year the issuer acquired a business. The acquired assets primarily consisted of oil and gas properties that had oil and gas reserves assigned. The issuer used company-employed specialists to estimate the issuer's oil and gas reserves that were used in the (1) valuation of the acquired oil and gas properties and (2) calculation of depletion expense for these acquired oil and gas properties. The issuer determined the fair value of the acquired oil and gas properties based on discounted cash flows it developed using various assumptions including future production volumes. The company's specialists used financial and non-financial data produced by the issuer and assumptions developed by the issuer or the company's specialists to estimate the oil and gas reserves underlying the future production volumes. The following deficiencies were identified: · The firm selected for testing a control that included the issuer's review of the future production volume assumptions. In evaluating the design of this control the firm did not identify that the control owner did not evaluate the methods assess the accuracy and completeness of the non-financial data and evaluate the reasonableness of the non-financial assumptions used by the company's specialists. (AS 2201.42)

The firm's internal inspection program had inspected this audit and reviewed these areas but did not identify the deficiencies below. During the year the issuer acquired a business. The acquired assets primarily consisted of oil and gas properties that had oil and gas reserves assigned. The issuer used company-employed specialists to estimate the issuer's oil and gas reserves that were used in the (1) valuation of the acquired oil and gas properties and (2) calculation of depletion expense for these acquired oil and gas properties. The issuer determined the fair value of the acquired oil and gas properties based on discounted cash flows it developed using various assumptions including future production volumes. The company's specialists used financial and non-financial data produced by the issuer and assumptions developed by the issuer or the company's specialists to estimate the oil and gas reserves underlying the future production volumes. The following deficiencies were identified: · The firm did not perform procedures to test or sufficiently test controls over the accuracy and completeness of the non-financial data used by the company's specialists. (AS 1105.A8a)

During the year the issuer acquired a business. The firm selected for testing a control that consisted of the issuer's review of the valuation of certain assets acquired and liabilities assumed. The firm did not identify and test any controls over the accuracy and completeness of a system-generated report that the control owners used in the operation of this control for certain liabilities assumed. (AS 2201.39)

During the year the issuer completed a business combination and used various significant assumptions including reserves and resources estimates from a report (“technical report”) prepared by external specialists engaged by the acquired company to estimate and record the fair value of an acquired asset and assumed liability. The issuer utilized internal specialists (the “company's employed specialists”) to assess the reasonableness of the reserves and resources estimates reflected in the technical report by remodeling the estimates and comparing the results to the estimates reflected in the technical report. The firm selected for testing a control that consisted of the issuer's review of the financial and non-financial assumptions including the reserves and resources estimates reflected in the technical report that were used by the issuer to estimate the fair value of the acquired asset and assumed liability. This control used the remodeled reserves and resources estimates developed by the company's employed specialists. The following deficiency was identified: • The firm did not identify and test any controls over the accuracy and completeness of the reserves and resources estimates remodeled by the company's employed specialists that were used in the operation of this control including the (1) accuracy and completeness of issuer-produced non-financial data and (2) relevance and reliability of external data all of which were utilized by the company's employed specialists to remodel the reserves and resources estimates. (AS 2201.39)

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows that assumed significant revenue growth and improved gross margins. The following deficiencies were identified: · With respect to the revenue growth rate assumptions the firm used information produced by the issuer and information from external sources including industry data and growth rates for comparable companies to evaluate the reasonableness of these assumptions. The firm did not perform any procedures to test or in the alternative test any controls over the accuracy and completeness of certain information produced by the issuer. (AS 1105.10)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • For the valuation of certain intangible assets the firm did not perform procedures to test the financial projections including taking into account the issuer's intent and ability to carry out the projections used in determining the fair values beyond tracing the projections for certain years to issuer-prepared schedules or comparing them to certain historical financial statements. (AS 1105.A8b; AS 2501.16 and .17)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate the reasonableness of certain other significant assumptions developed by the company's specialists in the valuation of certain acquired assets and assumed liabilities because its procedures were limited to comparing the assumption to either (1) external data (without evaluating the relevance and reliability of the data as noted above) (2) the same assumption used to value another acquired asset or (3) issuer-prepared schedules. (AS 1105.A8b)

During the year the issuer acquired a business. The firm selected for testing a control that consisted of management's review of the reasonableness of the significant inputs and assumptions used to record the business combination. The firm did not identify and test any controls over the accuracy and completeness of certain issuer data and the relevance and reliability of external data used in the operation of the control. (AS 2201.39)

During the year the issuer acquired two businesses and determined the fair values of certain acquired intangible assets using cash-flow forecasts. For one business combination the issuer engaged a specialist to determine the fair values of certain acquired intangible assets and contingent consideration. The firm's approach for substantively testing the fair values of these intangible assets and the contingent consideration was to test the issuer's process. The following deficiencies were identified: · The firm did not perform any procedures to test or test any controls over the accuracy and completeness of the historical financial information that (1) it used in evaluating the reasonableness of the significant assumptions discussed above and (2) the company's specialist used in determining the fair value of the contingent consideration. (AS 1105.10 and .A8a)

During the year the issuer completed a business combination. The firm used issuer-prepared schedules in its substantive testing of this transaction but did not perform any procedures to test or test any controls over the accuracy of certain of these schedules. (AS 1105.10)