Explorer

For revenue from completed contracts the firm designed one of its substantive procedures as a dual-purpose test. The firm performed its substantive procedure using the same sample size it determined for its control testing. This sample size was too small to provide sufficient appropriate audit evidence for the substantive procedure because the firm did not use the larger of the samples that would otherwise have been designed for the two separate purposes. (AS 2315.44)

To test certain accounts receivable the firm performed confirmation procedures for all invoices that exceeded a monetary threshold. For the items for which the requested confirmations were not returned the firm did not perform alternative procedures that provided sufficient appropriate audit evidence that these invoices represented valid receivables at year end. (AS 2310.31)

For these accounts receivable that were not subject to confirmation procedures the firm performed substantive procedures for a nonstatistical sample of invoices. For certain items in its sample the firm did not perform procedures that provided sufficient appropriate audit evidence that these invoices represented valid receivables at year end. (AS 2301.08)

The firm selected for testing a control that included the issuer's review of the valuation allowance for its deferred tax assets related to its domestic and foreign operations. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the evidence the issuer used to determine whether a valuation allowance was necessary. (AS 2201.42 and .44)

The firm selected for testing controls that consisted of the issuer's preparation and review of its tax provision including the control discussed above. The firm did not test the aspects of these controls that addressed the income tax expense and deferred taxes recorded for the issuer's foreign operations other than the aspect related to the valuation allowance as discussed above. (AS 2201.42 and .44)

The firm did not perform sufficient substantive procedures to test the income tax expense and deferred taxes recorded for the issuer's foreign operations because the firm's procedures were limited to comparing balances from the tax provision to supporting documentation for only a small number of deferred tax assets and for only two of the issuer's foreign subsidiaries. (AS 2301.08)

For one of its foreign subsidiaries the issuer reported a full valuation allowance related to certain deferred tax assets. The firm concluded that the valuation allowance was appropriate without evaluating certain evidence that suggested that a valuation allowance may not be necessary. (AS 2501.11; AS 2810.03)

The firm identified a control deficiency related to inappropriate access for numerous users to the issuer's IT system that was used to process and record transactions related to revenue and income taxes. The firm did not sufficiently evaluate the severity of this control deficiency because it limited its evaluation to inspecting activity logs of the users that had inappropriate access. (AS 2201.62)

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 identified a control deficiency related to inappropriate access for numerous users to the issuer's IT system that was used to process and record transactions related to revenue and income taxes. The firm identified and tested various controls that it believed would mitigate this deficiency. The firm did not identify that these compensating controls did not address the risks related to inappropriate access for these users. (AS 2201.68)

During the year the issuer completed a restructuring of its foreign subsidiaries. The following deficiencies were identified: · The firm did not identify and test any controls over the issuer's evaluation of the tax considerations related to this restructuring. (AS 2201.39)

During the year the issuer completed a restructuring of its foreign subsidiaries. The following deficiencies were identified: · The firm did not perform any substantive procedures to evaluate the issuer's conclusions related to the tax effects of the restructuring beyond reading a document the issuer's external specialist prepared that summarized the nature of the restructuring and the issuer's conclusions on the related tax considerations. (AS 2301.08)

The issuer reported an income tax benefit from tax exemptions that a foreign tax authority granted the issuer. These exemptions were subject to compliance with certain conditions. The following deficiencies were identified: · The firm selected for testing a control that consisted of the review of an analysis that the issuer used to determine whether it met those conditions. The firm did not evaluate the specific review procedures that the control owner performed to assess the issuer's compliance with those conditions. (AS 2201.42 and .44)

The issuer reported an income tax benefit from tax exemptions that a foreign tax authority granted the issuer. These exemptions were subject to compliance with certain conditions. The following deficiencies were identified: · The firm selected for testing a control that consisted of the review of an analysis that the issuer used to determine whether it met those conditions. The firm did not identify and test any controls over the accuracy and completeness of certain information in the issuer's analysis that the control owner used in the operation of this control. (AS 2201.39)

The issuer reported an income tax benefit from tax exemptions that a foreign tax authority granted the issuer. These exemptions were subject to compliance with certain conditions. The following deficiencies were identified: · The firm did not perform any substantive procedures to evaluate the issuer's compliance with those conditions. (AS 2301.08)

With respect to the issuer's transfer pricing related to intercompany transactions the following deficiencies were identified: · The firm selected for testing a control over the issuer's monitoring of compliance with its transfer pricing methodology including the review of whether all transactions introducing transfer-pricing risk had been identified for evaluation. The firm did not evaluate the specific review procedures that the control owner performed to (1) determine whether the issuer identified a complete population of transactions with potential transfer-pricing implications for review and (2) assess the issuer's compliance with its transfer-pricing methodology for the transactions that were identified including the control owner's review of intercompany margins. (AS 2201.42 and .44)

With respect to the issuer's transfer pricing related to intercompany transactions the following deficiencies were identified: · The firm did not perform any substantive procedures to assess the issuer's compliance with its transfer-pricing methodology for intercompany transactions. (AS 2301.08)

With respect to the issuer's uncertain tax positions the firm did not identify and test any controls over the issuer's evaluation of (1) the unit of account that it used to determine individual tax positions and (2) the assumptions used to evaluate whether its uncertain tax positions met the recognition threshold. (AS 2201.39)

With respect to the issuer's disclosures related to its permanent reinvestment of foreign earnings the following deficiencies were identified: · The firm selected for testing a control that included the issuer's review of its disclosures related to these earnings. The firm did not evaluate the specific review procedures that the control owner performed to evaluate the potential effects of the changes in federal tax laws on the issuer's disclosures. (AS 2201.42 and .44)

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)

With respect to the issuer's disclosures related to its permanent reinvestment of foreign earnings the following deficiencies were identified: · The firm did not perform any substantive procedures to evaluate the potential effects of the changes in federal tax laws on the issuer's disclosures related to its permanent reinvestment of foreign earnings. (AS 2301.08)

During the year certain changes in federal tax laws affected the issuer's determination of its state and local taxes. The firm did not identify and test any controls over the issuer's evaluation of the effects of these changes on its state and local taxes. (AS 2201.39)

The firm did not perform any substantive procedures to evaluate the effects of the changes in federal tax laws on the issuer's state and local taxes. (AS 2301.08)

The firm did not identify and test any controls that addressed whether the issuer's calculations of certain limitations on deductions used to determine income tax expense were appropriate. Further the firm did not identify and test any controls over the issuer's evaluation of the base erosion and anti-abuse tax ('BEAT'). (AS 2201.39)

The firm did not perform any substantive procedures to (1) test the adjusted taxable income amount that the issuer used to determine its business interest deduction and (2) evaluate the issuer's assertion that it did not meet the requirements to calculate and record a BEAT. (AS 2301.08)

The issuer reported an income tax benefit from tax exemptions that a foreign tax authority granted the issuer. These exemptions were subject to compliance with certain conditions. The firm did not identify and test any controls that addressed whether the issuer met those conditions. (AS 2201.39)

The issuer recorded the fair value of its available-for-sale ('AFS') securities based on prices it obtained from an external pricing service. The firm selected for testing various controls over the valuation of these securities that included the issuer's comparison of these prices to prices obtained from another external pricing service. The securities and prices obtained from both pricing services were manually entered by the issuer into a spreadsheet for this comparison. The firm did not test the aspects of these controls that addressed whether the prices the issuer used in this comparison were derived from different sources. (AS 2201.42 and .44)

The issuer recorded the fair value of its available-for-sale ('AFS') securities based on prices it obtained from an external pricing service. The firm selected for testing various controls over the valuation of these securities that included the issuer's comparison of these prices to prices obtained from another external pricing service. The securities and prices obtained from both pricing services were manually entered by the issuer into a spreadsheet for this comparison. The firm did not identify and test any controls over the accuracy of the prices that were manually entered into the comparison spreadsheet. (AS 2201.39)

The firm did not identify and test any controls over the issuer's determination of the categorization of its AFS securities within the fair value hierarchy as set forth in FASB ASC Topic 820. (AS 2201.39)

The issuer used a credit risk-rating model to determine (1) a risk-rating score for each loan and (2) the general reserve component of the ALL using the risk-rating scores as important inputs. The firm selected for testing controls that consisted of the issuer's reviews of the outputs from this model. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the appropriateness of the risk-rating scores and the reasonableness of the general reserve. (AS 2201.42 and .44)

The issuer recorded the fair values of its available-for-sale securities based on prices it obtained from an external pricing service. The firm selected for testing controls that consisted of the issuer's (1) comparison of these prices to prices obtained from other external pricing services and investigation of price variances that exceeded certain thresholds and (2) review of the categorization of the securities within the fair value hierarchy as set forth in FASB ASC Topic 820 Fair Value Measurement. The firm did not evaluate the specific review procedures that the control owners performed to evaluate (1) whether the fair values of the securities identified for investigation were reasonable and (2) the pricing inputs used to determine the categorization of the securities within the fair value hierarchy. (AS 2201.42 and .44)

The issuer used two IT systems to process and record transactions related to revenue and certain accounts receivable. The following deficiencies were identified: · The firm selected for testing various controls over program change management for these IT systems but did not perform any procedures to test the completeness of the population of changes obtained from the issuer from which it made its selections for testing. (AS 1105.10)

The issuer used two IT systems to process and record transactions related to revenue and certain accounts receivable. The following deficiencies were identified: · The firm selected for testing various controls over the issuer's review of user access to these IT systems but did not evaluate the specific 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 IT systems to process and record transactions related to revenue and certain accounts receivable. The following deficiencies were identified: · The firm tested certain automated controls that used data maintained by one of these IT systems. The accuracy and completeness of these data depended on effective IT general controls ('ITGCs'). Due to the deficiencies in the firm's testing of the ITGCs discussed above the firm's testing of these automated controls was not sufficient. (AS 2201.46)

The sample sizes the firm used in certain of its substantive procedures to test revenue and these accounts receivable 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)

For certain revenue the issuer entered information related to the types and quantities of services provided into a source system; this information was transferred from the source system to the issuer's revenue system to record revenue. The firm did not identify and test any controls over the accuracy and completeness of this information. (AS 2201.39)

The firm tested a control that consisted of a quarterly comparison of financial results including this revenue to the results of the prior quarter. The firm did not sufficiently test controls over the accuracy and completeness of certain data used in the operation of this control because it did not test an aspect of another control that addressed the accuracy and completeness of these data. (AS 2201.42 and .44)

The sample size the firm used in certain of its substantive procedures to test this revenue 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 issuer used models to determine the general reserve component of the ALL for commercial loans collectively evaluated for impairment. These models used various data including a loan risk rating for each loan that were derived from the issuer's data warehouse system. The loan risk rating was an important input in estimating the ALL and determining whether a loan would be individually or collectively evaluated for impairment. The following deficiencies were identified: · The firm used only the work of the issuer's internal audit as evidence about the effectiveness of certain controls related to the issuer's reviews of the loan risk ratings. This approach did not provide sufficient appropriate audit evidence that these controls were designed and operating effectively because of the amount of subjectivity and judgment involved in evaluating the appropriateness of the loan risk ratings and determining any changes to these ratings. (AS 2201.19; AS 2605.20 and .21)

The issuer used models to determine the general reserve component of the ALL for commercial loans collectively evaluated for impairment. These models used various data including a loan risk rating for each loan that were derived from the issuer's data warehouse system. The loan risk rating was an important input in estimating the ALL and determining whether a loan would be individually or collectively evaluated for impairment. The following deficiencies were identified: · The issuer identified a deficiency related to one of the loan risk-rating controls discussed above. The firm identified and tested certain controls that it believed would mitigate this deficiency. The firm did not identify that these compensating controls did not address the risks of material misstatement related to inappropriate loan risk ratings. (AS 2201.68)

The issuer used models to determine the general reserve component of the ALL for commercial loans collectively evaluated for impairment. These models used various data including a loan risk rating for each loan that were derived from the issuer's data warehouse system. The loan risk rating was an important input in estimating the ALL and determining whether a loan would be individually or collectively evaluated for impairment. The following deficiencies were identified: · The firm did not identify and test any controls over the accuracy of the transfer of the loan risk ratings from the issuer's source systems to the data warehouse system or test other controls that would have provided evidence over the accuracy of the loan risk ratings in the data warehouse system. (AS 2201.39)

The issuer recorded the fair values of its available-for-sale securities based on prices it obtained from an external pricing service. The firm selected for testing controls that consisted of the issuer's (1) comparison of these prices to prices obtained from other external pricing services and investigation of price variances that exceeded certain thresholds and (2) review of the categorization of the securities within the fair value hierarchy as set forth in FASB ASC Topic 820 Fair Value Measurement. The firm did not test the aspect of one of these controls that addressed whether all of the issuer's securities were subject to this comparison. (AS 2201.42 and .44)

The firm did not identify and test any controls over the observability of the pricing inputs at the individual instrument level that the issuer used to determine the categorization of its investments and derivatives within the fair value hierarchy as set forth in FASB ASC Topic 820. (AS 2201.39)

The firm performed substantive procedures to evaluate the categorization of the issuer's available-for-sale securities within the fair value hierarchy and to test the valuation of these securities. The firm did not evaluate evidence obtained through these procedures that may have suggested that certain securities categorized as level 2 within the fair value hierarchy lacked observable market data. (AS 2502.43; AS 2810.03)

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 firm did not perform any substantive procedures to address the assessed risks of material misstatement related to revenue accounts receivable and inventory for several of the issuer's business units. (AS 2301.08)

For another business unit the firm did not perform any procedures to address an identified fraud risk related to revenue cut-off. (AS 2301.13)

To test the occurrence of revenue throughout the year at certain of the issuer's business units the firm's procedures included testing revenue transactions based on a nonstatistical sampling approach that was designed assuming a certain level of substantive evidence the firm planned to obtain from its other substantive procedures. These other substantive procedures did not provide the planned level of substantive evidence to address the risks of material misstatement related to the occurrence of this revenue because these procedures which included confirming accounts receivable at year end performing cut-off testing at year end and testing credit memoranda after year end were primarily focused on the occurrence of revenue at a point in time. As a result the nonstatistical samples were too small to provide sufficient appropriate audit evidence to address the risks of material misstatement related to occurrence of this revenue throughout the year. (AS 2301.37 and .42; 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)