Explorer

The firm did not perform any substantive procedures to test or in the alternative identify and test controls over the accuracy of certain inputs obtained from the issuer that the firm used to test work in progress inventory quantities. (AS 1105.10)

The firm did not perform any substantive procedures to test a portion of costs of goods sold. (AS 2301.08)

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 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 identify and test any controls over the accuracy and completeness of certain information used in the operation of these controls. (AS 2201.39)

The firm did not perform any substantive procedures to test the (1) existence and valuation of semi-finished goods inventory and (2) valuation of work in progress finished goods and supplies and spares inventory. (AS 2301.08)

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 firm performed substantive analytical procedures to extend its conclusions on the existence of inventory from the interim dates at which it performed physical observations to year end. The firm did not perform procedures to obtain evidence that the expectations it used in these analytical procedures would be predictive of inventory as of year end. Further the firm identified a significant difference between the expected and actual year-end inventory balances for one location but did not evaluate this difference beyond inquiring of management. (AS 2305.13 .14 and .21)

The issuer concluded that an excess and obsolete reserve for one of the issuer's products was not necessary based on potential sales opportunities with certain customers despite a significant decline in sales in the year under audit and a forecasted further decline in sales for the following year. The firm did not evaluate the reasonableness of the issuer's assumption that it would achieve these potential sales opportunities beyond inquiring of management and reading certain issuer-prepared marketing and sales information. (AS 2501.11)

The issuer held certain inventory at numerous warehouses that were subject to cycle counts. The issuer's cycle-count program required this inventory to be counted at specific frequencies during the year. The following deficiencies were identified: The firm did not identify and test any controls that addressed whether all locations in each of these warehouses were counted during the year and whether each location was counted with sufficient frequency in accordance with the issuer's cycle-count program. (AS 2201.39) In addition the firm did not identify and test any controls over the accuracy and completeness of the system-generated reports the issuer used in the operation of its cycle-count controls. (AS 2201.39). In connection with our review the issuer reevaluated its controls over its inventory cycle-count program 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 below 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 held certain inventory at numerous warehouses that were subject to cycle counts. The issuer's cycle-count program required this inventory to be counted at specific frequencies during the year. The following deficiencies were identified: In addition the firm did not identify and test any controls over the accuracy and completeness of the system-generated reports the issuer used in the operation of its cycle-count controls. (AS 2201.39). In connection with our review the issuer reevaluated its controls over its inventory cycle-count program 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 below and the firm modified its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

The sample sizes the firm used in certain of its substantive procedures to test this inventory were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

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 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 sample sizes the firm used in certain of its substantive procedures to test the issuer's E&O reserve were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The firm's approach for substantively testing the E&O reserve was to review and test management's process. The firm did not perform any procedures to evaluate the reasonableness of the forecasted product demand assumptions that were used to calculate the E&O reserve. (AS 2501.11)

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 sample sizes the firm used in certain of its substantive procedures to test this inventory were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiency in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

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) 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 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 various IT-dependent manual controls over this revenue and inventory that used these reports. As a result of the deficiencies discussed above the firm's testing of these manual controls was not sufficient. (AS 2201.46)

The sample sizes the firm used in certain of its substantive procedures to test this revenue were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

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)

To test the existence of raw materials inventory the firm observed the issuer's physical inventory counts at select locations. The firm did not perform sufficient procedures to test the existence of this inventory at year end because the firm's observation procedures were not suitable as the locations it selected for testing had no quantities of raw materials inventory on hand at the time of the observations. Therefore these observations did not provide any evidence of the quantity and physical condition of any raw materials inventory. (AS 2510.09)

To test the existence of raw materials inventory the firm observed the issuer's physical inventory counts at select locations. The firm did not perform any substantive procedures to test the existence of the remaining population of raw materials inventory. (AS 2301.08)

The firm did not perform any substantive procedures to test the existence of work-in-progress inventory. (AS 2510.09)

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 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. As a result of deficiencies in the firm's testing of IT general controls (ITGCs) the firm's testing of these automated and IT-dependent controls was not sufficient. (AS 2201.46)

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 change management the firm selected for testing a control over the issuer's review of changes to the production environment for this IT system. The firm did not test the aspects of this control that addressed whether unauthorized changes could be made directly to the production environment. (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 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 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: · Due to the deficiencies discussed above the firm did not obtain sufficient appropriate audit evidence that the cycle-count procedures the issuer used for this inventory were sufficiently reliable to produce results substantially the same as those that would have been obtained by a count of all items each year. (AS 2510.11)

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 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 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: · For certain of the inventory controls tested the firm did not perform procedures to test or test any controls over the accuracy and completeness of a system-generated report and other data provided by management which were used by the firm to test the controls. (AS 1105.10)

The principal auditor also instructed the firm to substantively test inventory. To test the existence of inventory the firm confirmed certain inventory quantities held in a public warehouse and observed the issuer's physical inventory counts at other locations including verifying the weight of select inventory items using the issuer's scales and obtaining certificates of scale calibration from management. The following deficiency was identified: · The firm received an electronic response to a positive confirmation request sent to the warehouse that held the inventory. The firm did not perform procedures to address the risks associated with the electronic response such as verifying the source and contents of the response. (AS 2310.29)

The principal auditor also instructed the firm to substantively test inventory. To test the existence of inventory the firm confirmed certain inventory quantities held in a public warehouse and observed the issuer's physical inventory counts at other locations including verifying the weight of select inventory items using the issuer's scales and obtaining certificates of scale calibration from management. The following deficiency was identified: · The firm's observation procedures at the other locations were not suitable because the firm did not perform procedures to match the scale calibration certificates obtained from management to the specific scales used by the firm to weigh the selected items of inventory. (AS 2510.09)

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)

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 manual controls over inventory that consisted of the issuer's (1) approval of purchase orders and (2) review and confirmation of vendor balances. The firm did not identify and test any controls over the completeness of certain system-generated reports used in the operation of these controls. (AS 2201.39)

The issuer used multiple IT systems to initiate process and record transactions related to inventory. The following deficiency was identified: · The sample sizes the firm used in certain of its substantive procedures to test inventory were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The firm did not (1) obtain an understanding of how the issuer developed its inventory reserve and (2) perform procedures to test the inventory reserve beyond inquiry of management. Further the firm did not evaluate the effects of an impairment charge recorded by the issuer on the valuation of other similar assets in inventory. (AS 2501.07; AS 2810.03)

Certain inventory representing a significant proportion of current assets was held by an outside custodian. The firm did not perform sufficient procedures to test the existence of this inventory because it limited its procedures to confirming the quantities of this inventory with the custodian. (AS 2510.14)

The issuer reported a reserve for excess and obsolete inventory. The firm did not perform procedures to test this reserve beyond reading issuer-prepared memos vouching certain historical sales amounts used in the determination of the reserve and performing recalculations of certain amounts. (AS 2501.07)

The issuer held certain inventory at a public warehouse. The firm performed an inventory observation subsequent to year end. The firm did not test (1) whether the contents of counted pallets and boxes matched the items included in the issuer's year-end inventory; and (2) intervening transactions between the issuer's year end and the date of its inventory observation. (AS 2510.14)

The firm did not perform procedures to test or identify and test controls over the accuracy and completeness of certain system-generated reports that it used to substantively test certain inventory. (AS 1105.10)

The firm did not perform procedures to test the raw material costs in inventory at year end. (AS 2301.08 and .11)