Explorer

The issuer entered into contracts with customers and recognized revenue based on the contractual terms of each contract entered into its accounting system. The issuer also prepared credit notes for adjustments to revenue. The following deficiency was identified: · The firm selected for testing a control over revenue that consisted of management's review of a selection of customer contracts including their respective contractual terms. The firm identified deviations in the operation of this control but did not determine the effect of these deviations on the operating effectiveness of the control. (AS 2201.48)

The issuer entered into contracts with customers and recognized revenue based on the contractual terms of each contract entered into its accounting system. The issuer also prepared credit notes for adjustments to revenue. The following deficiency was identified: · The firm did not identify and test any controls over the entry of contract information including contractual terms into the accounting system that were used to recognize revenue. (AS 2201.39)

The issuer entered into contracts with customers and recognized revenue based on the contractual terms of each contract entered into its accounting system. The issuer also prepared credit notes for adjustments to revenue. The following deficiency was identified: · The firm selected for testing another control over revenue that consisted of management's review of credit notes. The firm identified deviations in the operation of this control but did not determine the effect of these deviations on the operating effectiveness of the control. (AS 2201.48)

The principal auditor instructed the firm to test a control that consisted of the issuer's quarterly review of the gross margin by product for certain revenue. The number of quarters selected for testing did not provide sufficient appropriate audit evidence because the firm did not test the number of quarters that it determined necessary. (AS 2201.46)

The firm did not identify and test any controls over the accuracy of information that the issuer used to record certain revenue. (AS 2201.39)

For certain revenue the issuer's system initiated revenue recognition upon the issuer's review and input of shipment information into the system. The following deficiencies were identified: · The firm selected for testing an automated control over this revenue that was designed to record revenue once the shipment information was manually entered into the issuer's system. The firm did not test the configuration of the automated control or perform other procedures to obtain sufficient appropriate audit evidence that the automated control was operating as designed. (AS 2201.42 and .44)

For certain revenue the issuer's system initiated revenue recognition upon the issuer's review and input of shipment information into the system. The following deficiencies were identified: In addition the firm did not identify and test any controls over the issuer's review of the shipment information that was manually entered into the issuer's system. (AS 2201.39)

For all three business units the firm selected for testing an automated control over the pricing of revenue transactions within the revenue systems. Pricing for many cases was based on the issuer's costs. The firm did not evaluate whether this control was appropriately configured to operate over each scenario contained in customer contracts. (AS 2201.42 and .44)

In addition the firm did not identify and test any controls that addressed whether the revenue systems appropriately applied the item costs that were used to generate customer sales invoices. (AS 2201.39)

For one of the three business units the firm selected a control that consisted of the manual resolution of exceptions identified through an automated process to determine whether daily sales had shipped. The firm did not (1) test the configuration of the automated control that identified exceptions and (2) identify and test the aspects of the control related to the manual steps that the control owners performed to resolve the identified exceptions. (AS 2201.42 and .44)

For another one of the three business units the firm selected for testing controls that consisted of management's reviews of a sample of changes made to the pricing information within the revenue system. The firm did not evaluate whether the sample of changes subject to the reviews was sufficient to identify any misstatements that in the aggregate could be material. (AS 2201.42)

The firm did not identify and test any controls over this revenue. (AS 2201.39)

The issuer processed revenue for one of its business units using two billing systems. The firm selected for testing various automated controls related to the revenue recorded by both systems. The firm did not test the configuration of the automated controls or perform other procedures that would have provided sufficient appropriate audit evidence that the automated controls were designed and operating effectively. (AS 2201.42 .44 and .B9)

The firm selected for testing a manual control that consisted of the review of pricing in all new and modified contracts. The sample that the firm used to test this control was too small to provide sufficient appropriate audit evidence that the control was operating effectively because it limited the sample to one contract modification. (AS 2201.44)

For one type of revenue the firm selected for testing certain automated controls that the issuer used to process and record transactions related to this revenue. The firm did not sufficiently test the operating effectiveness of these controls because its procedures consisted of testing for each control a sample of one transaction in the issuer's IT testing environment without performing any procedures to determine whether the testing environment was the same as the production environment at the time of its testing. (AS 2201.44)

The firm selected for testing a combination of automated and manual controls to address the risk that revenue was not accurately recorded. The firm did not sufficiently test certain of these manual controls which consisted of the issuer's reviews of (1) customer credit requests (2) customer rebates and (3) the accounts receivable aging as follows: · For the control related to the accounts receivable aging the firm did not identify and test any controls that addressed the application of cash receipts to accounts receivable balances. (AS 2201.39)

The firm did not identify and test any controls over the occurrence of revenue. (AS 2201.39)

With respect to user access: · The firm selected for testing a control that consisted of the annual review of user access. The firm did not identify and test any controls over the completeness of the user access listing used in the operation of the control. (AS 2201.39)

With respect to user access: · The firm selected for testing a control that consisted of the annual review of user access. The firm did not test an aspect of the control related to the role and functions assigned to users. (AS 2201.42 and .44)

For certain revenue which was affected by the audit deficiencies discussed above the following additional deficiencies related to the firm's testing of controls were identified: · The firm selected for testing controls over certain of this revenue that consisted of the issuer's reviews of financial results. The firm did not evaluate whether the design of these controls was sufficiently precise to detect material misstatements. (AS 2201.42)

The issuer's revenue included revenue recognized from contracts over time based on costs incurred to date relative to total estimated costs to complete. The following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's reviews of revenue including the estimated costs to complete. The firm did not identify and test any controls over the accuracy and/or completeness of certain data that the control owners used in the operation of these controls. (AS 2201.39)

The issuer used multiple IT systems to initiate process and record transactions related to revenue at certain of the issuer's locations. The following deficiencies were identified: · The firm did not identify and test any controls over the accuracy of certain price and quantity information that was entered into these IT systems and used to generate customer invoices and recognize revenue. (AS 2201.39)

The issuer used multiple IT systems to initiate process and record transactions related to revenue at certain of the issuer's locations. The following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's review and approval of changes to prices maintained in these IT systems. The number of price changes the firm selected for testing did not provide sufficient appropriate audit evidence given the frequency with which the control operated. (AS 2201.46)

The issuer used multiple IT systems to initiate process and record transactions related to revenue at certain of the issuer's locations. The following deficiencies were identified: · For certain of these locations the firm selected for testing an automated control over the generation of customer invoices. The firm did not test the programming of this automated control or perform other procedures that would have provided sufficient appropriate audit evidence that the control was designed and operating effectively. (AS 2201.46)

For certain revenue the issuer used a service organization to fulfill certain customer orders and the remaining customer orders were fulfilled by the issuer. The issuer recognized this revenue based on the date when delivery occurred. The following deficiency was identified: · The firm did not identify and test any controls over these delivery dates. (AS 2201.39 and .B19)

The issuer recognized certain revenue based on rates automatically applied to various transaction types and volumes. The firm selected for testing a control that consisted of the issuer's reviews of changes to these rates. The firm did not test the aspect of this control that addressed whether all applicable rate changes were made and appropriately applied to the corresponding transaction types and volumes. (AS 2201.42 and .44)

The issuer recognized revenue from contracts with customers that included either standard or nonstandard terms. Certain contracts included an estimate of variable consideration in the transaction price. The following deficiencies were identified: · The firm did not identify and test any controls over the issuer's accounting for variable consideration included in contracts with standard terms. (AS 2201.39) In connection with our review the issuer reevaluated its accounting for this revenue 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 revenue 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 and reissued its report on the effectiveness of the issuer's ICFR to include this additional material weakness.

The firm's testing of certain automated controls over revenue at these business units was not sufficient because the firm did not test the configuration or programming of these controls or perform other procedures to test these controls that would have provided sufficient appropriate audit evidence that these controls were designed and operating effectively. (AS 2201.42 and .44)

For the second business unit the firm selected for testing a control that consisted of the issuer's comparison of sales prices invoiced to the customer order. For electronically received customer orders the firm did not identify and test any controls over the accuracy of the data included in the customer orders that were used in the operation of the control. (AS 2201.39)

For the second business unit the firm selected for testing a control that consisted of the issuer's comparison of sales prices invoiced to the customer order. For manually received customer orders the firm did not assess the effect of the same individual both entering and reviewing the sales prices in evaluating the design of the control. (AS 2201.42)

The firm selected for testing two controls over the transfer of data between certain of the issuer's revenue systems and the general ledger. For the first control the firm did not test the configuration or programming of certain automated aspects of the control or perform other procedures to test this control that would have provided sufficient appropriate audit evidence that these automated aspects of the control were designed and operating effectively. (AS 2201.42 and .44) In connection with our review the issuer reevaluated its controls over revenue including IT controls 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 and reissued its report on the effectiveness of the issuer's ICFR to include these additional material weaknesses.

Certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the relative standalone selling prices. The relative standalone selling prices were determined based in part on the issuer's categorization of its product offerings and pricing discounts it offered its customers. The following deficiencies were identified: · The firm did not identify and test any controls over the issuer's categorization of its product offerings and pricing discounts that were used to determine the standalone selling prices. (AS 2201.39) In connection with our review the issuer reevaluated its controls over revenue including IT controls 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 and reissued its report on the effectiveness of the issuer's ICFR to include these additional material weaknesses.

The firm selected for testing a configurable IT application control over certain revenue that consisted of the issuer's revenue system automatically pulling prices from a validated contract and blocking manual price changes at the order level. The firm did not test the aspect of the control related to the recording of sales revenue to ensure that the price used to record such revenue was based on the contract price within the issuer's revenue system. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the review of a memorandum documenting the issuer's revenue recognition methodology. The issuer prepared this memorandum using questionnaire responses received from issuer personnel regarding key terms of contracts and purchase orders that could affect revenue recognition. The firm did not identify and test any controls to address the accuracy of the information contained in the questionnaires used in the operation of this control. (AS 2201.39)

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

The firm selected for testing a control that consisted of the issuer's review of the calculation of gross premiums earned and unearned premiums. The control owner utilized system queries in performing its review. The firm's testing of this control was not sufficient because its procedures were limited to inquiring of the control owner and reviewing query parameters for reasonableness. (AS 2201.42 and .44)

The firm did not identify and test any controls that addressed the risk that revenue was recognized from policies with premiums that were deemed uncollectible. (AS 2201.39)

The issuer uses applications to process and record revenue transactions. The firm selected for testing controls over change management. The firm did not test these controls for certain applications beyond inquiry of management. (AS 2201.42 .44 and .50)

The firm selected for testing a control that consisted of the issuer's review of certain revenue compared to expectations. In evaluating the design of this control the firm did not assess the effect of a change in how the expectations were developed on the control's ability to effectively prevent or detect a misstatement. (AS 2201.42)

For certain revenue the firm did not identify and test any controls that addressed the risk of whether revenue was recorded based on purchase orders. (AS 2201.39)

The issuer recognized revenue in accordance with the terms and conditions of contractual arrangements with customers which were entered into the billing systems and used to create sales invoices and record revenue. The firm did not identify and test any controls to ensure that customers were invoiced and the related revenue was recognized in accordance with the contractual terms and conditions. Further the firm did not identify and test any controls over the initial entry of pricing data into the issuer's billing systems. (AS 2201.39)

For revenue at a foreign location the firm selected for testing two entity-level controls. The following deficiencies were identified: · The second control consisted of (1) a review of the issuer's consolidated financial statements (2) a review of transactions over a threshold (3) meetings with the controllers for all segments to discuss financial results and (4) a review of revised consolidated financial statements as a result of adjustments identified as part of the review. The firm did not evaluate whether the criteria used by the control owner to identify items for follow up were sufficiently precise to detect misstatements in the revenue for this location that could be material to the consolidated financial statements. (AS 2201.42 and .44)

For two of the issuer's operating units the issuer used the percentage-of-completion method to recognize certain revenue and recognized other revenue upon delivery of its products to its customers or when installation services were rendered. The firm did not identify and test any controls that addressed the risk of improper recognition of this revenue. (AS 2201.39)

For a third type of revenue consisting of three categories the following deficiencies were identified: · For two categories of this revenue the firm selected for testing two controls that consisted of the (1) approval of standard billing rates and (2) review of standard billing rates after they are input into the system. For these two controls and two other controls the firm selected for testing over this type of revenue the firm did not test or in the alternative test any controls that addressed the completeness of certain reports it used to make its selections when testing these controls. (AS 1105.10)

The issuer recognized revenue over time for custom products. The firm selected for testing a control that included the issuer's review of a listing of custom products for appropriate revenue recognition. The firm did not evaluate the specific procedures that the control owners performed to determine whether (1) these products had an alternative use to the issuer and (2) the issuer had an enforceable right to payment for performance completed to date for these products. (AS 2201.42 and .44)

For two types of revenue the following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of its billing rates for authorized approval. The firm did not test or in the alternative test any controls that addressed the completeness of the report that it used to make its selections when testing this control. (AS 1105.10)

The firm did not identify and test any controls over the review of distributor and dealer arrangements to determine that relevant terms and conditions were identified and evaluated for appropriate revenue recognition. (AS 2201.39)

For two types of revenue the following deficiencies were identified: · For one of these types of revenue the firm did not identify and test any controls that addressed whether the performance obligation was satisfied before revenue was recognized. (AS 2201.39)

For a third type of revenue consisting of three categories the following deficiencies were identified: · For two categories of this revenue the firm selected for testing two controls that consisted of the (1) approval of standard billing rates and (2) review of standard billing rates after they are input into the system. The firm did not identify and test any controls over the completeness of the report the issuer used in the operation of these controls. (AS 2201.39) Unrelated to our review the issuer reevaluated its controls over revenue 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 other material weaknesses discussed herein 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 recognized certain revenue based in part on contractual rates input into the systems the issuer used to process revenue. The firm selected for testing a control that consisted of the issuer's reviews of changes to these contractual rates in these systems. The firm did not identify and test any controls over the completeness of the report the issuer used in the operation of this control. (AS 2201.39)