Explorer

The firm obtained the service auditor's reports for these service organizations and identified certain complementary user controls that the service auditor's reports described as necessary. These service organizations used sub-service organizations for certain functions. The following deficiencies were identified: · The firm did not obtain an understanding of or test any relevant controls at certain sub-service organizations. (AS 2201.39 and .B19)

The firm selected for testing controls over inventory that consisted of (1) the performance of at least a certain number of counts per year for inventory at one location (2) annual testing of inventory at a second location at a point in time during the year and (3) inventory cycle counting that requires 100 percent coverage for inventory at the second location that began after the annual testing was completed. The firm did not test whether these controls were appropriately designed to ensure that the procedures over inventory quantities were sufficiently reliable to produce results substantially the same as those which would be obtained by a count of all items each year. (AS 2201.42 and .44)

The issuer performed cycle counts of inventory held at certain locations. The following deficiencies were identified: · The firm did not identify and test any controls over the issuer's monitoring of its cycle-count program. (AS 2201.39)

The issuer performed cycle counts of inventory held at certain locations. The following deficiencies were identified: · The firm selected for testing certain cycle-count controls that it assessed as having a higher risk of failure. To test the design and operating effectiveness of these controls the firm selected a sample of cycle counts. The firm observed a small number of these counts and for certain of the remaining counts inquired of the issuer's personnel and inspected cycle-count documentation. The firm's procedures for the unobserved counts did not provide sufficient appropriate audit evidence given the assessed higher risk associated with these controls. (AS 2201.46)

For certain inventory at another business unit the firm did not identify and test any controls over the issuer's process to record costs related to this inventory including the calculation of variances between standard and actual costs. (AS 2201.39)

The firm subjected certain other of the issuer's business units to less extensive audit procedures. With respect to revenue and/or inventory for these business units in determining the extent to which audit procedures should be performed the firm did not evaluate (1) the materiality of these business units (2) the nature of the recorded balances and/or (3) whether the risks of material misstatement that the firm identified for the business units subject to more extensive audit procedures also applied to these business units. (AS 2101.11 and .12; AS 2201.B10)

The issuer calculated a reserve for excess and obsolete inventory by applying established percentages to each inventory aging category. The following deficiencies were identified: · The firm selected for testing a control over the issuer's review of the reserve for excess and obsolete inventory. The firm did not identify and test any controls over the accuracy of certain data used in the operation of this control. (AS 2201.39)

The firm selected for testing certain automated application controls related to inventory. The firm's testing of these controls was not sufficient because the procedures performed were substantive in nature and did not directly test the controls. (AS 2201.42 .44 and .B9)

The firm selected for testing certain controls over inventory that consisted of the issuer's (1) review of order shipment status (2) review of inventory quantities between the issuer's ERPS and various other systems (3) performance of physical inventory counts and (4) review and approval of inventory adjustments unrelated to the physical inventory counts. The firm did not identify and test any controls over the completeness and/or accuracy of certain data used in the operation of these controls. (AS 2201.39)

The firm tested controls over the issuer's physical observations which occurred as of various interim dates within the last four months of the issuer's fiscal year. The firm did not identify and test controls that addressed changes to physical inventory quantities between the dates of the physical inventory observations and year end. (AS 2201.39)

In addition certain inventory for one location was not subject to the issuer's physical observation controls and the firm did not identify and test any controls over the existence of this inventory. (AS 2201.39)

The issuer used an information-technology ('IT') application to calculate its reserve for excess and obsolete ('E&O') inventory and then made manual adjustments to this calculation to determine the reserve. The following deficiencies were identified: The firm did not identify and test any controls over the application's calculation of the E&O reserve. (AS 2201.39).

The firm selected for testing various automated application controls that the issuer used to process and record transactions related to inventory held at certain locations. The firm's testing did not provide sufficient appropriate audit evidence about the operating effectiveness of these controls during the year and as of year end because the firm performed the majority of its procedures on the automated application controls that were in place after year end without performing procedures beyond inquiring of management to determine that there were no changes to these controls or the issuer's IT systems between year end and the testing date. (AS 2201.44)

The issuer used an information-technology (IT) application to generate reports from various systems that processed and recorded revenue and inventory transactions. The following deficiencies were identified: · The firm did not identify and test any controls that addressed whether all of the reports with changes were subject to this review. (AS 2201.39)

The firm used the work of internal audit to evaluate the operating effectiveness of certain inventory controls but did not evaluate the quality and effectiveness of the work performed by internal audit to test these controls. (AS 2605.24)

Certain of the issuer's inventory was subject to cycle counts and the issuer used its inventory systems to determine the frequency with which the items should be counted by assigning a designation to each inventory item. The firm selected for testing a control that consisted of the issuer's cycle-count procedures. The firm did not test the aspects of this control that addressed whether each system assigned the appropriate designation to each inventory item the systems were properly configured to ensure that each inventory item was counted with sufficient frequency in accordance with the assigned designation and inventory counts were performed in accordance with the designated count frequency. (AS 2201.42 and .44)

The issuer performed cycle counts of this inventory and used its IT system to determine the frequency with which the items should be counted by assigning a count designation to each inventory item. The following additional deficiencies were identified: · The firm selected for testing a control over the issuer's review of whether a count designation was assigned to each inventory item. The firm identified a deviation in the operation of this control but did not evaluate the effect of this deviation on the operating effectiveness of the control. (AS 2201.48)

The issuer performed cycle counts of this inventory and used its IT system to determine the frequency with which the items should be counted by assigning a count designation to each inventory item. The following additional deficiencies were identified: · The firm selected for testing an automated control over the assignment of the count designations but did not test whether the issuer's IT system was properly configured to assign the appropriate count designation to each inventory item. (AS 2201.42 and .44)

The issuer performed cycle counts of this inventory and used its IT system to determine the frequency with which the items should be counted by assigning a count designation to each inventory item. The following additional deficiencies were identified: · The firm selected for testing a control that included the issuer's review of the overall cycle-count results. The firm did not test the aspect of this control that addressed whether inventory counts were performed in accordance with the designated count frequency. (AS 2201.42 and .44)

The firm selected for testing another control that consisted of the issuer's review of purchase price and other variances that the issuer used to value its inventories. The firm did not perform procedures to test the design and operating effectiveness of this control beyond inquiry of management. (AS 2201.42 and .44)

The principal auditor instructed the firm to identify likely sources of potential misstatement ('LSPMs') and evaluate the design and operating effectiveness of specific controls related to the inventory process ('inventory controls') to ensure that the controls were designed and implemented to address the LSPMs identified by the firm and the risk of misstatement identified by the principal auditor for each relevant assertion. The following deficiency was identified: · The firm did not perform procedures to determine the LSPMs related to the inventory process and therefore did not have a basis to evaluate whether the inventory controls tested sufficiently addressed the assessed risk of misstatement for each relevant assertion and were appropriately designed and implemented to address the likely sources of potential misstatement that may have existed. (AS 2201.30 .39 .42 and .44)

The issuer used multiple IT systems to initiate process and record transactions related to inventory. The following deficiency was identified: · The firm selected for testing certain automated controls over inventory that consisted of the configuration of the IT systems to automatically process and record inventory-related transactions and the firm used a 'test of one' approach to test these controls. 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 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 2201.46)