Explorer

The issuer used an information-technology (IT) system to initiate process and record transactions related to certain revenue and inventory. 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. As a result of the following 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 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 identify and test any controls over the (1) accuracy and completeness of certain issuer-produced data and reports and (2) reliability of data and reports that the issuer obtained from the external warehouses that were used in the operation of these controls. (AS 2201.39)

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: · The firm did not identify and test any controls over the completeness of certain data that the control owners used in the operation of these controls. (AS 2201.39)

The firm selected for testing controls over managing changes to the issuer's production environment. The following deficiencies were identified: · The firm did not perform any procedures to test or test any controls over the completeness of the population of items from which it selected its samples for testing these controls. (AS 1105.10)

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 sample sizes that 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 recorded the cost of certain manufactured inventory based on the weight of the raw materials included in the inventory items. The firm did not identify and test any controls over the accuracy of these weights. (AS 2201.39)

The firm's substantive procedures to test the existence of inventory at one of the issuer's locations were not suitable because they did not provide any evidence of the quantity and physical condition of the inventory. (AS 2510.09)

The issuer performed cycle counts of inventory held at one of its locations. The issuer used a service organization to host and maintain an IT system that was used in its cycle-count procedures. The firm did not obtain an understanding of and test any relevant controls at this service organization. (AS 2201.39 and .B19)

Due to the deficiency discussed above the firm did not obtain sufficient appropriate audit evidence that the cycle-count procedures that 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 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 firm's substantive procedures to test these inventory adjustments consisted of selecting a sample of items for testing. The firm used issuer-produced quantity information in these substantive procedures but did not perform any procedures to test or sufficiently test controls over the accuracy and completeness of this information. (AS 1105.10)

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 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 second control the firm did not identify and test any controls over the accuracy and completeness of certain reports that the control owners used in the operation of the control. (AS 2201.39)

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 second control the firm did not test the aspects of this control that addressed the accuracy or completeness of certain other reports used in the operation of the control. (AS 2201.44)

Deficiencies testing cycle-count controls, an excess/obsolescence reserve, and supplier confirmations for inventory.

The firm did not test or in the alternative test any controls over the accuracy and completeness of the system-generated report that the issuer used to classify non-current inventory which was separately presented in the financial statements. (AS 1105.10)

The firm did not perform any substantive procedures to test whether inventory was recorded at the lower of cost or net realizable value. (AS 2301.08 and .11)

The firm's approach for substantively testing the excess or obsolete inventory reserve was to develop an independent expectation. The following deficiencies were identified: · The firm used certain data in its substantive procedures to test this reserve but did not perform any procedures to test or test any controls over the accuracy of this data. (AS 1105.10)

The firm's approach for substantively testing the excess or obsolete inventory reserve was to develop an independent expectation. The following deficiencies were identified: · The firm did not perform procedures to demonstrate it had a reasonable basis for certain assumptions it independently derived. (AS 2501.22)

The firm's approach for substantively testing the excess or obsolete inventory reserve was to develop an independent expectation. The following deficiencies were identified: · The firm did not perform sufficient procedures to demonstrate it had a reasonable basis for the method used to develop its independent expectation because it did not demonstrate how its method took into account its understanding of the issuer's process including the significant assumptions used by the issuer so that its expectation considered the factors relevant to the estimate. (AS 2501.21 and .22)

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 principal auditor instructed the firm to test the costing of inventory at one of the issuer's components by comparing inventory costs to vendor invoices payroll records labor hours and machine hours. The firm did not perform these substantive procedures. (AS 2301.08)

The issuer performed cycle counts of inventory at a location. The following deficiency was identified: · The firm did not identify and test any controls over the issuer's review of cycle count results including any related inventory adjustments. (AS 2201.39) 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 issuer performed cycle counts of inventory at a location. The following deficiency was identified: · Due to the deficiencies described 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 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 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 identify and test any controls over the accuracy and completeness of the information used in these reviews. (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 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: · For one of these locations the firm attended the cycle counts at year end and performed test count procedures. The sample size the firm used for its test count procedures was too small to provide sufficient appropriate audit evidence over the existence of inventory because the firm did not take into account the relevant factors in determining its sample size including tolerable misstatement for the population the allowable risk of incorrect acceptance and the characteristics of the population. (AS 2315.16 .19 .23 and .23A)

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: · For two of these locations the firm did not perform any substantive procedures to test the existence of inventory at year end. (AS 2301.08 and .11)

The firm did not identify and test any controls for certain locations where the issuer performed full physical inventory observations. (AS 2201.39) 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.

For one of these locations the firm observed the physical inventory counts and selected a sample of inventory items for testing. The sample size the firm used was too small to provide sufficient appropriate audit evidence over the existence of inventory because the firm did not take into account the relevant factors in determining its sample size including tolerable misstatement for the population the allowable risk of incorrect acceptance and the characteristics of the population. (AS 2315.16 .19 .23 and .23A)

For one other location the firm did not perform any substantive procedures to test the existence of inventory at year end. (AS 2301.08 and .11)

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 a control over the review of inventory reserves. The firm did not identify and test any controls over the accuracy and completeness of information used in the operation of this control (AS 2201.39) 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's approach for substantively testing inventory reserves was to test the issuer's process used to develop the reserve. The firm did not perform procedures to test or identify and test any controls over the completeness of certain information it used to substantively test the inventory reserve. (AS 1105.10)

The firm's approach for substantively testing inventory reserves was to test the issuer's process used to develop the reserve. The firm did not perform procedures beyond inquiry to evaluate the reasonableness of significant assumptions used to determine the inventory reserve. (AS 2501.16)

The issuer performed cycle counts of inventory at a location. The following deficiency was identified: · The firm did not identify and test any controls that addressed whether all of the inventory items were assigned a frequency to be counted and the appropriateness of the assignment. (AS 2201.39) 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 issuer tracked certain of its inventory in a system that was hosted by a service organization. The firm used information from this system in its testing of this inventory but did not perform any procedures to evaluate the reliability of this information. (AS 2301.08)

The firm's substantive procedures to test certain inventory included performing substantive analytical procedures. The firm did not determine whether the expectations it used in these substantive analytical procedures were based on predictable relationships. (AS 2305.13 and .14)

The firm's substantive procedures to test certain unbilled receivables included selecting a sample of customer balances for testing. The firm did not perform procedures to determine whether the performance obligation had been satisfied when revenue was recognized. (AS 2301.08 and .13)

The firm did not perform procedures beyond inquiry to test the amounts relieved from inventory and recorded in cost of goods sold. (AS 2301.08)

The issuer held certain inventory at a public warehouse. 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 public warehouse. (AS 2510.14)

The firm used issuer inventory costing data in its substantive procedures to test the valuation of inventory. The firm did not perform any substantive procedures to test or in the alternative test any controls over the accuracy and completeness of this data. (AS 1105.10)

The firm used issuer inventory costing data in its substantive procedures to test the valuation of inventory. The firm did not evaluate the reasonableness of the method the issuer used to allocate inventory-related costs to certain inventory. (AS 2501.07)

The firm's approach for substantively testing the issuer's reserve for certain inventory was to develop an independent expectation based on an inventory aging. The firm did not perform any substantive procedures to test or in the alternative test any controls over the accuracy and completeness of the inventory aging. (AS 1105.10; AS 2501.09 .10 and .12)

The firm's approach for substantively testing the issuer's reserve for certain inventory was to develop an independent expectation based on an inventory aging. The firm did not perform any substantive procedures to test the reasonableness of the reserve for certain other inventory. (AS 2501.07)