Explorer

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 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 controls over the program changes for these IT systems. The firm did not test or test any controls over the accuracy and completeness of the population of IT systems program changes from which it made its selections for testing. (AS 1105.10)

The firm selected for testing various IT-dependent manual controls that used data and reports generated by these IT systems. As a result of the deficiencies in the firm's testing of information technology general controls discussed above the firm's testing of these IT-dependent manual controls was not sufficient. (AS 2201.46)

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 a control over the review of certain inventory but did not perform procedures to test the design and operating effectiveness of this control. (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'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 did not identify and test any controls over the completeness and accuracy of reports that were used in the operation of certain of the controls it selected for testing over inventory. (AS 2201.39)

The firm's internal inspection program had inspected this audit and reviewed this area but did not identify the deficiency below. The firm did not perform any procedures to test certain components of the issuer's calculation of the cost of certain inventory. (AS 2301.08)

The firm performed inventory observations at two business units subsequent to year end and performed roll-back procedures for the period from the date of the inventory observations to year end. For one of the business units the firm did not perform procedures beyond reviewing a schedule of inventory movement to test transactions between the date of the inventory observation to year end. (AS 2510.12)

The firm performed inventory observations at two business units subsequent to year end and performed roll-back procedures for the period from the date of the inventory observations to year end. For one of the business units the firm did not perform sufficient procedures to test the completeness of inventory at either business unit such as comparing quantities observed to the physical inventory summary. (AS 2301.08)

The firm did not perform sufficient procedures to test the existence of certain inventory located at external warehouses. Although the firm sent confirmations to the outside custodians no responses were received. The firm's alternative procedures were not sufficient because the firm limited its procedures to agreeing the total quantity of the inventory located at the warehouses to reports provided by the owner of the warehouses to the issuer. (AS 2510.14)

To test certain costs related to inventory the firm performed a substantive analytical procedure and developed a percentage as its expectation. The firm compared its expectation to the actual percentage and applied the percentage difference to the wrong amount. As a result the firm did not identify and evaluate a significant difference between its expectation and the actual amount. (AS 2305.21)

The subsidiary capitalized certain costs in the production of inventory. The firm selected for testing a control that consisted of management's review of a monthly cost analysis which compared actual to budgeted costs. The firm did not identify and test any controls over the accuracy and completeness of the monthly budgeted costs report used in the operation of this control. (AS 2201.39)

Certain of the issuer's inventory was subject to daily cycle counts and the issuer used a system-generated report that specified which items to count each day. The firm selected for testing a control that consisted of the issuer's daily cycle-count procedures. The firm did not test whether the system was properly configured to achieve the frequency schedule established by management and did not test the aspects of this control that addressed (1) the review and approval of the assignment of the frequency to each item and (2) whether approved frequencies were completely and accurately entered into the system. (AS 2201.42 and .44)

The firm limited its substantive procedures to test inventory at certain of the issuer's locations to analytical procedures because of its reliance on an entity-level control that the firm selected for testing. This entity-level control consisted of the review of the financial statement level information for each of these locations. The firm identified two significant deficiencies and one control deficiency that were relevant to the issuer's controls over inventory. The firm's reliance on the entity-level control was not supported because the firm did not consider the implications of these deficiencies on the effectiveness of the entity-level control. As a result for these locations the firm inappropriately limited its substantive testing to analytical procedures that provided little to no substantive evidence. (AS 2101.11 and .12; AS 2301.16)

At another location the issuer calculated a reserve for excess and obsolete inventory by applying established percentages to each inventory aging category. The firm did not (1) test the accuracy of the inventory aging and (2) evaluate the reasonableness of the established percentages applied to each of the inventory aging categories. (AS 2501.11)

The majority of the issuer's inventory was subject to daily cycle counts and the issuer used its inventory system to determine the frequency of cycle counts. The firm selected for testing a control that consisted of the review of an analysis to monitor the frequency and accuracy of the counts. The firm did not evaluate whether items the control owners identified for follow up were appropriately resolved. (AS 2201.42 and .44)

In addition the firm did not test whether the system was properly configured to calculate inventory turnover which was used to determine the frequency of cycle counts. (AS 2201.39)

The sample size the firm used in certain of its substantive procedures to test this inventory was 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 selected for testing a control that consisted of the issuer's review of the reserve for excess and obsolete inventory. The firm did not identify and test any controls over the accuracy and completeness of the system-generated reports used in the operation of this control. (AS 2201.39)

The firm selected for testing a control that consisted of the issuer's review of the reserve for excess and obsolete inventory. The firm did not identify and test any controls that addressed the reasonableness of the sales forecast the issuer used to develop the reserve for excess and obsolete inventory. (AS 2201.39)

The firm did not perform substantive procedures to test or in the alternative test any controls over the accuracy and completeness of the system-generated reports it used to test the issuer's reserve for excess and obsolete inventory. (AS 2501.11)

The firm did not perform any substantive procedures to evaluate the reasonableness of the sales forecast the issuer used to develop the reserve for excess and obsolete inventory. (AS 2501.11)

The firm did not identify and test any controls that addressed whether inventory items held at certain warehouses owned by external parties were counted with sufficient frequency. (AS 2201.39)

The firm's approach for substantively testing the reserve for excess and obsolete inventory was to review and test management's process. The firm did not perform any substantive procedures to test or in the alternative test any controls over the accuracy and completeness of the forecasted demand data that the issuer used to develop the reserve for excess and obsolete inventory. (AS 1105.10; AS 2501.11) [This citation refers to AS 2501 Auditing Accounting Estimates which was in effect for this audit. This standard was replaced by AS 2501 Auditing Accounting Estimates Including Fair Value Measurements which became effective for audits of financial statements for fiscal years ending on or after December 15 2020.]

The issuer intended to use a significant portion of its inventory on hand at year end to manufacture a product type it had sold at a significant loss during the year. The following deficiencies were identified: · The firm did not identify and test any controls that addressed whether this inventory was recorded at the lower of cost or net realizable value. (AS 2201.39)

The issuer intended to use a significant portion of its inventory on hand at year end to manufacture a product type it had sold at a significant loss during the year. The following deficiencies were identified: · The firm did not perform any substantive procedures to test whether this inventory was recorded at the lower of cost or net realizable value. (AS 2301.08)

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: · In determining the extent to which audit procedures should be performed the firm did not evaluate (1) the materiality of these business units and (2) whether the risks of material misstatement including a fraud risk related to certain revenue 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)

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 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: · The firm did not perform any substantive procedures to test revenue and inventory for these business units. (AS 2301.08)

The firm identified significant deficiencies related to certain IT systems that the issuer used to record revenue and inventory transactions for two of the issuer's business units that were subject to more extensive audit procedures. The firm identified the budget controls as compensating controls that it believed would mitigate these deficiencies identified but did not sufficiently test these controls. (AS 2201.68)

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)

With respect to revenue and inventory for certain business units that were subject to less extensive audit procedures the following deficiencies were identified: · In determining the extent to which audit procedures should be performed the firm did not evaluate (1) the materiality of these business units in the current year and (2) whether the risks of material misstatement including the fraud risk related to this revenue 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)

With respect to revenue and inventory for certain business units that were subject to less extensive audit procedures the following deficiencies were identified: · The firm did not perform any substantive procedures to test revenue and inventory for these business units. (AS 2301.08 and .13)

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

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)

With respect to certain business units that were subject to less extensive audit procedures the firm did not perform any substantive procedures to test revenue and inventory for these business units. (AS 2301.08)

With respect to Revenue and Inventory at one of the issuer's business units: The firm identified a significant deficiency related to an information-technology (IT) system that the issuer used to record this revenue and inventory. The firm identified the entity-level controls discussed above as compensating controls that it believed would mitigate this significant deficiency but did not sufficiently test those controls. (AS 2201.68)

With respect to inventory at certain business units that were subject to more extensive audit procedures the firm did not perform any substantive procedures to test the existence of this inventory. (AS 2301.08)

Certain of the issuer's inventory was subject to cycle counts and the issuer's cycle-count program required this inventory to be counted at specific frequencies during the year. The firm did not identify and test any controls that addressed whether each inventory item was counted with sufficient frequency in accordance with the issuer's cycle-count program. (AS 2201.39)

With respect to Inventory at one of the issuer's business units: The firm selected for testing a control that included the issuer's annual physical inventory count of this inventory. The following deficiencies were identified: · The firm did not test the aspects of this control that addressed whether an accurate and complete count had occurred. (AS 2201.42 and .44)

With respect to Inventory at one of the issuer's business units: The firm selected for testing a control that included the issuer's annual physical inventory count of this inventory. The following deficiencies were identified: · The firm did not evaluate whether the issuer had appropriately investigated and resolved differences between the physical counts and the quantities recorded in the issuer's inventory system. (AS 2201.42 and .44)

With respect to Inventory at one of the issuer's business units: The firm selected for testing a control that included the issuer's annual physical inventory count of this inventory. The following deficiencies were identified: · The firm did not evaluate whether the IT-dependent aspects of this control would be effective given the significant deficiency related to this IT system. (AS 2201.46)

With respect to Inventory at one of the issuer's business units: The firm did not perform sufficient substantive procedures to test the existence of this inventory because the firm did not assess the effectiveness of the methods the issuer used to conduct its inventory counts. (AS 2510.09)

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 test the aspects of this control that addressed whether inventory counts were performed in accordance with the issuer's designated count frequency in its cycle-count policy. (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 two controls that consisted of the issuer's review of the reserve for excess and obsolete inventory at certain business units. For the second control the firm did not identify and test any controls over the accuracy of certain data that the control owners used in the operation of the control. (AS 2201.39)

The firm's approach for substantively testing the reserve for excess and obsolete inventory at these business units was to test the issuer's process. The following deficiencies were identified: · The firm did not perform procedures to evaluate the reasonableness of the significant assumptions that the issuer used to develop this reserve beyond reading an issuer-prepared memorandum. (AS 2501.16)