Explorer

The issuer reported convertible debt agreements that included embedded conversion options; the issuer accounted for these options as derivative liabilities. The firm's approach for substantively testing the fair value of the derivative liabilities was to test the issuer's process. The following deficiencies were identified: · The firm did not evaluate the reliability of certain data the issuer used to determine the fair value of the derivative liabilities. (AS 1105.04 and .06)

The issuer reported convertible debt agreements that included embedded conversion options; the issuer accounted for these options as derivative liabilities. The firm's approach for substantively testing the fair value of the derivative liabilities was to test the issuer's process. The following deficiencies were identified: · The firm did not perform sufficient substantive procedures to evaluate whether the method used by the issuer to develop the fair value of the derivative liabilities was in conformity with the requirements of GAAP and appropriate for the nature of the account including whether the data was appropriately used and significant assumptions were appropriately applied under GAAP because the firm did not test the formulas embedded in the issuer's schedules to determine whether they produced substantially the same result as the model the issuer purportedly used. (AS 2501.10)

The firm did not perform any substantive procedures to test investments and derivatives at certain of the issuer's business units. (AS 2301.08)

The firm did not evaluate whether the issuer had appropriately calculated and presented certain derivative losses in the statement of cash flows. (AS 2301.08)

The firm did not perform any substantive procedures to evaluate the reasonableness of the issuer's categorization of these derivatives within the fair value hierarchy. (AS 2502.43)

The issuer determined that certain of its derivative contracts qualified for the scope exception for normal purchases and normal sales under FASB ASC Topic 815 Derivatives and Hedging and recorded revenue for transactions related to these contracts. The firm did not perform any procedures to evaluate whether the issuer's accounting for these contracts including the revenue recognized was appropriate. (AS 2301.08)

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 perform any substantive procedures to evaluate whether considering the issuer's past production trends and expected future production the minimum monthly volumes per the contract could reasonably be met. (AS 2301.08)

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 contract included a provision that required the issuer to make a partial payment if at any time the issuer's estimate of the volume payment at the end of the contract exceeded a certain amount. In the year under audit the issuer's estimate of future forecasted production indicated that the volume payment would exceed this amount in the following year. The firm did not perform any substantive procedures to evaluate whether this potential partial volume payment would contradict the issuer's assertion that it was probable that the contract would not result in a net settlement. (AS 2810.03)

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 perform any substantive procedures to evaluate whether a change to certain terms of the contract that would allow the issuer to reduce any volume payment would be a form of net settlement. (AS 2301.08)

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 evaluate whether the issuer's determination of the contract-end date was appropriate and whether the issuer's physical delivery of the contractually required volumes of oil to the customer by this date would be probable. (AS 2301.08)

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 did not perform any substantive procedures to test the forecasted production that the issuer used to determine the estimated volume payment. (AS 2501.11)

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 did not perform sufficient substantive procedures to evaluate the estimated volume payment at the end of the contract. Its procedures to test the forecasted production for the defined area were limited to (1) comparing the issuer's prior-year estimate of forecasted production for the overall property for the current year to the actual production and (2) comparing the forecasted production for the defined area to the total forecasted production for the overall property. (AS 2501.11)

The firm used the volume data in its substantive testing of this revenue but did not perform any procedures to test or in the alternative test any controls over the accuracy of the data. (AS 1105.10)