Explorer

The firm selected for testing certain controls over the reconciliation and/or review of various accounts including certain accounts related to revenue and inventory. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The firm selected for testing certain controls that consisted of the issuer's review of the costs at which inventory is recorded. For these controls the firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2301.19 and .21)

The firm selected for testing a control that consisted of the automated recording of inventory at standard cost and the issuer's review of variances between actual and standard costs. The firm did not test the automated aspect of this control. Further the firm did not evaluate the review procedures that the control owner performed related to the review of variances including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the issuer's review of the classification of inventory between raw materials work-in-process and finished goods. The firm did not evaluate the review procedures that the control owner performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The issuer reported a reserve for inventory. The firm selected for testing a control that included a review of certain assumptions used to determine the reserve for individual inventory items. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the reasonableness of the assumptions. (AS 2201.42 and .44) In connection with our review the issuer reevaluated its accounting for the reserve for inventory and concluded that a material misstatement existed that had not been previously identified. The issuer subsequently corrected this misstatement in a restatement of its financial statements and the firm revised and reissued its report on the financial statements. The issuer also reevaluated its controls over the reserve for inventory and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

The firm selected for testing a control that consisted of the issuer's review of standard costs for its inventory items. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the standard costs included in the issuer's inventory system. (AS 2201.42 and .44)

The firm's internal inspection program had inspected this audit and reviewed these areas and did not identify the deficiencies below. The firm selected for testing certain controls over inventory. Except for certain of the selected items that were part of the firm's walkthroughs the firm did not test the specific review procedures that the control owners performed over certain aspects of these controls beyond inspecting for evidence of the control owners' approval. (AS 2201.44)

The firm designated certain of the issuer's other business units as subject to less extensive audit procedures. With respect to these business units the firm selected for testing a control that included quarterly reviews of financial information including inventory. The firm did not evaluate the specific review procedures that the control owners performed to determine whether items identified for follow up were appropriately resolved. (AS 2201.42 and .44)

The issuer performed cycle counts of certain inventory held at various locations. The firm selected for testing a control that consisted of the issuer's reviews of the cycle-count results. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The issuer performed cycle counts of certain inventory. The firm selected for testing controls that included the issuer's reviews of the cycle count results. When testing the operating effectiveness of these controls the firm did not evaluate the specific review procedures that the control owners performed to investigate and resolve differences between the cycle counts and the quantities recorded in the issuer's inventory system. (AS 2201.44)

For inventory which was affected by the audit deficiencies related to change management the following additional deficiencies were identified: - The firm selected for testing controls over certain inventory that consisted of the issuer's review of the monthly weighted average cost per unit as computed by the issuer's IT system through an automated control that was used to record the value of inventory. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of the weighted average cost per unit. Further the firm did not test the configuration or programming of the automated control or perform other procedures that would have provided sufficient appropriate audit evidence that the control was designed and operating effectively. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to change management: The firm selected for testing change management controls over an IT system that consisted of the documentation review testing and approval of changes in the testing/QA environment prior to their migration into production. The firm selected for testing change management controls over another IT system that consisted of the (1) approval of changes after deployment in the production environment by the business users to confirm that they were satisfied with the changes and had tested them (2) periodic review of a list of all manual changes made to the accounting database tables by users with direct database access to verify that all changes agreed to an approved change request and (3) review and approval of all direct changes made to published data. The following deficiency was identified: · For the first control the firm did not evaluate the specific review procedures that the control owner or business users performed to validate and approve the appropriateness of the migrated changes to the production environment. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to change management: The firm selected for testing change management controls over an IT system that consisted of the documentation review testing and approval of changes in the testing/QA environment prior to their migration into production. The firm selected for testing change management controls over another IT system that consisted of the (1) approval of changes after deployment in the production environment by the business users to confirm that they were satisfied with the changes and had tested them (2) periodic review of a list of all manual changes made to the accounting database tables by users with direct database access to verify that all changes agreed to an approved change request and (3) review and approval of all direct changes made to published data. The following deficiency was identified: · For the second and third controls the firm did not evaluate the specific review procedures that the control owners performed to validate the appropriateness of direct data changes to the system database. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to other tests of controls and substantive procedures related to inventory certain of which were affected by the audit deficiencies discussed above related to user access and change management the following additional deficiency was identified: · The firm selected for testing controls that consisted of management's review and approval of the assay results in the inventory testing system. For one of these controls the firm did not evaluate the specific review procedures that the control owner performed to assess the accuracy of the assay results. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to user access: The issuer's IT systems had development testing/quality assurance (QA) and production environments. Changes to the IT systems were typically tested in the testing environment prior to their migration to the production environment. Changes could however be made directly in the production environment in certain situations on an emergency basis. The issuer managed the provisioning of emergency privileged access rights which allowed users with such rights to make direct changes to the production environments of certain IT systems. The firm selected for testing controls over the assignment of privileged access rights for these systems that consisted of the system administrators' review and approval of privileged access requests. The following deficiency was identified: · The firm did not evaluate the specific review procedures that the control owners performed to assess the appropriateness of the provisioning and activity during the privileged access sessions to ensure that only approved activity was executed on these systems. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to user access: The issuer's IT systems had development testing/quality assurance (QA) and production environments. Changes to the IT systems were typically tested in the testing environment prior to their migration to the production environment. Changes could however be made directly in the production environment in certain situations on an emergency basis. Access to another IT system was controlled through the assignment of roles such as 'read-only ' 'edit ' and 'administrator ' to users for access to this system and related database for the accounting tables and modules. The firm selected for testing a control over user access to this system and related database that consisted of management's periodic review of a list of users with administrator roles to determine whether (1) the assignment of such roles was authorized (2) the access profiles were valid and (3) all manual changes made to the tables agreed to an approved change request. The following deficiency was identified: · The firm did not evaluate the specific review procedures that the control owners performed to determine whether access was appropriate and that the roles were adequately restricted or granted to users to prevent unauthorized and inappropriate access to this system and related database. (AS 2201.42 and .44)

The firm's testing of controls for inventory held at certain locations consisted primarily of testing an entity-level control that involved the issuer's reviews of regional and component-level income statements and balance sheets. The firm did not evaluate the review procedures that the control owner performed including the criteria that the control owner used to identify items for follow up and whether those items were appropriately resolved with respect to the component-level financial information. (AS 2201.42 and .44)

The issuer used an IT system to initiate process and record transactions related to revenue and inventory at one of the issuer's locations. In its testing of controls over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by this IT system. The firm selected for testing an ITGC that consisted of the issuer's review of changes made to this IT system. The firm did not evaluate the specific review procedures that the control owner performed to determine which of these changes required approval prior to implementation into the production environment. (AS 2201.42 and .44)

The issuer used an IT system to initiate process and record transactions related to revenue and inventory at one of the issuer's locations. In its testing of controls over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by this IT system. The firm selected for testing an ITGC that consisted of the issuer's review of changes made to this IT system. The firm did not evaluate the specific review procedures that the control owner performed to determine which of these changes required approval prior to implementation into the production environment. As a result of this deficiency in the firm's testing of ITGCs the firm's testing of these automated and IT-dependent manual controls was not sufficient. (AS 2201.46)

The issuer held certain inventory at external warehouses. The firm selected for testing controls that consisted of the issuer's review and reconciliation of this inventory to the general ledger. The firm did not evaluate the specific review procedures that the control owners performed to determine whether items that met the criteria for investigation were identified for review. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the issuer's reviews of changes made to this IT system through administrative user access. The firm did not evaluate the specific review procedures that the control owners performed to assess whether (1) users performed appropriate actions when granted this access and (2) this access was appropriately granted for the instances selected for testing. Further the firm did not determine whether the control owners possessed the necessary authority and competence to perform this control. (AS 2201.42 and .44)

The firm selected for testing controls over managing changes to the issuer's production environment. The following deficiencies were identified: · One of these controls consisted of the issuer's review and approval of changes made to this IT system. The firm did not evaluate the specific review procedures that the control owners performed to assess whether these changes had met the necessary criteria to be implemented into the production environment. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the issuer's review of forecasted sales that were used to estimate the valuation of certain inventory. The firm did not evaluate the specific review procedures that the control owners performed to assess the issuer's ability to achieve these forecasts. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the issuer's reconciliation of the inventory subledger to its general ledger and its review of this reconciliation. The firm did not evaluate the specific review procedures that the control owners performed to assess the appropriateness of certain inventory adjustments that the firm selected for testing that were included in this reconciliation. (AS 2201.42 and .44)

The issuer recorded transactions related to revenue and inventory at numerous business units. To address the risks of material misstatement related to revenue and inventory for certain of these business units the firm selected entity-level controls for testing including two controls that consisted of the issuer's reviews of financial information. The following deficiencies were identified: · For the first control the firm did not evaluate the specific review procedures that the control owners performed to determine whether items that met the criteria for investigation were identified for review. (AS 2201.42 and .44)

The principal auditor instructed the firm to use and evaluate the quality and effectiveness of the work performed by a third party working under the direction of management as evidence regarding the operating effectiveness of a control related to the review of inventory costing for one of the issuer's components. The firm did not identify that the third party did not evaluate and the firm did not perform procedures to evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.44; AS 2605.24 and .26)

The principal auditor instructed the firm to test the operating effectiveness of a control related to the review of the reserves for slow-moving and obsolete inventories for three of the issuer's components. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.44)

The issuer performed cycle counts of inventory at other locations. The firm identified deficiencies in the design and operating effectiveness of these controls at year end. The following deficiency was identified: · The firm identified and tested various review controls that it believed would mitigate the deficiencies. The firm did not perform procedures to evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.68) Unrelated to our review the issuer reevaluated its controls over inventory and concluded that material weaknesses existed that had not been previously identified. The issuer subsequently reflected these material weaknesses in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

The firm selected for testing a control over the review of inventory reserves. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the reasonableness of the inventory reserve. (AS 2201.42 and .44) Unrelated to our review the issuer reevaluated its controls over inventory and concluded that material weaknesses existed that had not been previously identified. The issuer subsequently reflected these material weaknesses in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

The firm selected for testing controls over existence and valuation of inventory that consisted of the issuer's reviews of inventory records average cost and amortization. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The issuer used two information technology (IT) systems to support the inventory process. Both IT systems were configured based on user roles and profiles which determined user access levels. The firm selected for testing access controls over the IT systems that consisted of the issuer's reviews of user access lists with roles and profiles. The firm did not evaluate the specific review procedures that the control owners performed to determine whether to grant access to users or whether the granted access continued to be appropriate. (AS 2201.42 and .44)

The firm's internal inspection program had inspected this audit and reviewed this area but did not identify the deficiency below. The issuer reported different types of inventory. The following deficiency was identified: • The firm selected for testing controls over the review of certain other inventory and metrics of all inventory. The firm did not evaluate the review procedures that the control owners performed including procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The firm subjected certain of the issuer's business units to less extensive audit procedures. With respect to revenue and inventory for these business units the following deficiencies were identified: · To address the risks of material misstatement related to revenue and inventory for these business units the firm selected for testing two controls (“budget controls”) that consisted of the issuer's (1) review and approval of its business unit and consolidated budgets and (2) comparison of the business unit budgets to actual results. The firm did not evaluate the review procedures that the control owner performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The issuer recorded transactions related to revenue and inventory at numerous business units. To address the risks of material misstatement related to revenue for the issuer's business units the firm selected for testing entity-level controls that consisted of the issuer's (1) review and approval of its business unit and consolidated budgets and (2) comparisons of the business unit budgets and prior-period results to actual results. The firm did not evaluate the specific review procedures that the control owners performed to assess items identified for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

With respect to Inventory at another of the issuer's business units: The issuer performed cycle counts of this inventory and the issuer's cycle-count policy required this inventory to be counted at specific frequencies during the year. The firm selected for testing a control that consisted of the issuer's cycle-count procedures including the issuer's reviews of cycle-count results. The firm did not evaluate the specific review procedures that the control owners performed to assess whether the cycle-count results for this inventory were accurate. (AS 2201.42 and .44)

The issuer recorded transactions related to revenue and inventory at numerous business units. The firm selected for testing two entity-level controls that consisted of the issuer's review of financial information including revenue and inventory. For one of these controls the firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The issuer recorded transactions related to revenue and inventory at numerous business units. The firm selected for testing two entity-level controls that consisted of the issuer's review of financial information including revenue and inventory. For the other control the firm did not evaluate the specific review procedures that the control owners performed to determine whether items identified for follow up were appropriately resolved. (AS 2201.42 and .44)

The firm selected for testing two controls that consisted of the issuer's review of the reserve for excess and obsolete inventory at certain business units. For the first control the firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of the significant assumptions that the issuer used to develop this reserve. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of management's review and approval of inventory adjustments. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the accuracy of the inventory adjustments. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of management's quarterly review and approval of the inventory reserve analysis. The firm did not evaluate the specific review procedures the control owners performed to evaluate the (1) reasonableness of certain assumptions used to determine the inventory reserve and (2) accuracy and completeness of a system-generated report used in the operation of the control. (AS 2201.42 and .44)

The firm selected for testing a control over the existence of certain inventory that consisted of the issuer's review of its cycle-count results to assess the reliability of the cycle-count process. The firm did not evaluate the review procedures that the control owner performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

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 selected for testing complementary user controls over the issuer's granting and monitoring of user access to this system but did not evaluate the specific review procedures that the control owners performed to determine whether to grant access to users or whether access that had been previously approved continued to be appropriate. (AS 2201.42 .44 and .B22)

The issuer reported a reserve for excess and obsolete inventory. The firm selected for testing a control consisting of the issuer's review of the reserve for the inventory. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the reasonableness of the assumptions used to determine the reserve for excess inventory. (AS 2201.42 and .44)

The issuer used an information-technology (IT) system to process and record transactions related to revenue and inventory. The firm selected for testing controls over the issuer's granting and monitoring of user access to this system but did not evaluate the specific review procedures that the control owners performed to determine whether to grant access to users or whether access that had been previously approved continued to be appropriate. (AS 2201.42 and .44)

The firm selected for testing controls that consisted of management's review of the (1) measurement and calculation of certain work in progress inventory quantities and (2) historical recovery rates of certain work in process inventory. The firm did not evaluate the review procedures that the control owner performed including the procedures to identify items for follow-up and the procedures to determine whether those items were appropriately resolved. (AS 2201.44)

The firm selected for testing controls that included the issuer's reviews of the assumptions that were entered into the application and the manual adjustments that the issuer made to the calculation. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify matters for follow up and the procedures to determine whether those matters were appropriately resolved. (AS 2201.42 and .44). In connection with our review the issuer reevaluated its controls over its E&O inventory reserve and concluded that a material weakness existed that had not been previously identified. The issuer subsequently revised its report on ICFR to reflect this material weakness and the material weakness discussed above and the firm modified its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

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 selected for testing a control that consisted of the issuer's review of changes to the configuration of these reports. The firm did not evaluate the specific review procedures that the control owner performed to assess whether the changes were appropriate. (AS 2201.42 and .44)

The issuer used an information-technology (IT) system to initiate process and record transactions related to inventory at one business unit. In its testing of controls over this inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by this IT system. · With respect to user access the firm selected for testing a control that consisted of the issuer's periodic review of user access to this IT system. The firm did not evaluate the specific review procedures that the control owners performed to determine whether previously granted privileged access continued to be appropriate. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the issuer's review of changes made to the inventory master file data that the issuer used to record inventory transactions. The firm did not evaluate the review procedures that the control owner performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The firm selected for testing various controls that consisted of management's review of (1) inventory costs including capitalized overhead (2) inventory valuation and (3) related account reconciliations. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)