Explorer

During the year the issuer entered into certain equity-related agreements; the issuer accounted for each of these agreements as one or more derivatives. The following deficiencies were identified: · The firm did not identify and evaluate the issuer's omission of certain disclosures required under FASB ASC Topic 820 related to the valuation of these derivatives at issuance and year end. (AS 2810.30 and .31)

The issuer held a portfolio of derivatives and investment securities (collectively 'investments') which were carried at fair value. - The firm selected for testing two automated controls over the calculation of interest from and valuation of certain investment securities. The firm's testing of these automated controls using a sample of only one instance of the controls' operation was not sufficient because the firm did not test the configuration or programming of these controls or perform other procedures that would have provided sufficient appropriate audit evidence that these controls were designed and operating effectively. (AS 2201.42 and .44)

The issuer was party to a contract with one of its customers that required the issuer to provide a minimum monthly volume of oil produced from a defined area within one of its properties. The issuer determined that the contract represented a derivative contract and qualified for the scope exception for normal purchases and normal sales under FASB ASC Topic 815 Derivatives and Hedging. The contract included a provision that allowed the issuer to defer any payments owed to the customer for any production below the minimum monthly volumes over the life of the contract ('volume payment') until the end of the contract. Subsequent to year end but prior to the issuer filing its financial statements the issuer renegotiated certain terms of the contract and determined that these changes were enforceable as of year end. With respect to the firm's control testing over and substantive procedures related to whether the contract qualified for the derivative accounting scope exception for normal purchases and normal sales the following deficiencies were identified: · The firm did not identify and test any controls over the issuer's evaluation of the changes to the terms of the contract and the potential implications on the issuer's accounting for the contract in accordance with FASB ASC Topic 815. (AS 2201.39)

The issuer was party to a contract with one of its customers that required the issuer to provide a minimum monthly volume of oil produced from a defined area within one of its properties. The issuer determined that the contract represented a derivative contract and qualified for the scope exception for normal purchases and normal sales under FASB ASC Topic 815 Derivatives and Hedging. The contract included a provision that allowed the issuer to defer any payments owed to the customer for any production below the minimum monthly volumes over the life of the contract ('volume payment') until the end of the contract. Subsequent to year end but prior to the issuer filing its financial statements the issuer renegotiated certain terms of the contract and determined that these changes were enforceable as of year end. With respect to the firm's control testing over and substantive procedures related to whether the contract qualified for the derivative accounting scope exception for normal purchases and normal sales the following deficiencies were identified: · The firm did not identify and test any controls over the issuer's ongoing evaluation of whether its physical delivery of the contractually required volumes of oil to the customer would be probable. (AS 2201.39)

With respect to the firm's control testing over and substantive procedures related to the consideration of the contract terms and the implications of these terms on revenue recognition the following deficiencies were identified: · The firm selected for testing certain controls over the issuer's evaluation of contracts including changes to existing contracts for revenue recognition under FASB ASC Topic 606 Revenue from Contracts with Customers. The firm concluded that these controls were designed and operating effectively but it did not identify that the issuer did not evaluate (1) the accounting implications of the changes to the terms of the contract and (2) whether the revenue derived from the contract included an element of variable consideration that may have required the issuer to constrain revenue and record a contract liability. (AS 2201.42 and .44)

The firm performed substantive procedures to evaluate the categorization of the issuer's available-for-sale securities within the fair value hierarchy and to test the valuation of these securities. The firm did not evaluate evidence obtained through these procedures that may have suggested that certain securities categorized as level 2 within the fair value hierarchy lacked observable market data. (AS 2502.43; AS 2810.03)