Explorer

During the year the issuer completed a business combination and used various significant assumptions including reserves and resources estimates from a report (“technical report”) prepared by external specialists engaged by the acquired company to estimate and record the fair value of an acquired asset and assumed liability. The issuer utilized internal specialists (the “company's employed specialists”) to assess the reasonableness of the reserves and resources estimates reflected in the technical report by remodeling the estimates and comparing the results to the estimates reflected in the technical report. The firm selected for testing a control that consisted of the issuer's review of the financial and non-financial assumptions including the reserves and resources estimates reflected in the technical report that were used by the issuer to estimate the fair value of the acquired asset and assumed liability. This control used the remodeled reserves and resources estimates developed by the company's employed specialists. The following deficiency was identified: • The firm did not identify and test any controls over the accuracy and completeness of the reserves and resources estimates remodeled by the company's employed specialists that were used in the operation of this control including the (1) accuracy and completeness of issuer-produced non-financial data and (2) relevance and reliability of external data all of which were utilized by the company's employed specialists to remodel the reserves and resources estimates. (AS 2201.39)

During the year the issuer completed a business combination and used various significant assumptions including reserves and resources estimates from a report (“technical report”) prepared by external specialists engaged by the acquired company to estimate and record the fair value of an acquired asset and assumed liability. The issuer utilized internal specialists (the “company's employed specialists”) to assess the reasonableness of the reserves and resources estimates reflected in the technical report by remodeling the estimates and comparing the results to the estimates reflected in the technical report. The firm selected for testing a control that consisted of the issuer's review of the financial and non-financial assumptions including the reserves and resources estimates reflected in the technical report that were used by the issuer to estimate the fair value of the acquired asset and assumed liability. This control used the remodeled reserves and resources estimates developed by the company's employed specialists. The following deficiency was identified: • The firm did not identify that the control owners did not (1) evaluate the reasonableness of the financial and non-financial assumptions developed by the issuer and/or the company's employed specialists and used by the company's employed specialists to remodel the reserves and resources estimates and (2) evaluate the appropriateness of the methods used by company's employed specialists to remodel the reserves and resources estimates. (AS 2201.42 and .44)

During the year the issuer completed a business combination and used various significant assumptions including reserves and resources estimates from a report (“technical report”) prepared by external specialists engaged by the acquired company to estimate and record the fair value of an acquired asset and assumed liability. The issuer utilized internal specialists (the “company's employed specialists”) to assess the reasonableness of the reserves and resources estimates reflected in the technical report by remodeling the estimates and comparing the results to the estimates reflected in the technical report. The firm's approach for substantively testing the fair value of the acquired asset and assumed liability from the business combination was to test the issuer's process. The following deficiency was identified: • The firm did not evaluate the reasonableness of the reserves and resources estimates as reflected in the technical report which were considered by the firm to be significant assumptions used by the issuer to estimate the fair value of the acquired asset and assumed liability beyond obtaining and reading the technical report prepared by the acquired company's external specialists. Further the firm did not perform procedures to evaluate the work of the company's employed specialists. (AS 1105.A6 -.A10; AS 2501.16)

During the year the issuer completed a business combination and used various significant assumptions including reserves and resources estimates from a report (“technical report”) prepared by external specialists engaged by the acquired company to estimate and record the fair value of an acquired asset and assumed liability. The issuer utilized internal specialists (the “company's employed specialists”) to assess the reasonableness of the reserves and resources estimates reflected in the technical report by remodeling the estimates and comparing the results to the estimates reflected in the technical report. The firm's approach for substantively testing the fair value of the acquired asset and assumed liability from the business combination was to test the issuer's process. The following deficiency was identified: • The firm did not sufficiently evaluate the reasonableness of certain other significant assumptions used by the issuer to estimate the fair value of the acquired asset because it limited its procedures to comparing the assumptions to those of similar companies or external vendor quotes. (AS 2501.16)

The issuer engaged specialists to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The company's specialists used financial and non-financial data and assumptions deemed significant by the firm to develop the reserve estimates in the reserve report. The firm selected for testing a control that consisted of the issuer's review and approval of the final reserve estimates provided by the company's specialists. The firm did not identify when testing the design of this control that the control owners did not (1) evaluate the reasonableness of the non-financial assumptions developed by the issuer and/or the company's specialists and used by the company's specialists to develop the reserve estimates and (2) evaluate the appropriateness of the methods used by company's specialists to develop the reserve estimates. (AS 2201.42)

The issuer engaged specialists to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The company's specialists used financial and non-financial data and assumptions deemed significant by the firm to develop the reserve estimates in the reserve report. The firm's approach for substantively testing the reserve estimates was to test the issuer's process. The following deficiency was identified: • The firm did not evaluate the reasonableness of the significant non-financial assumptions developed by the issuer and/or the company's specialists and used by the company's specialists to develop the reserve estimates. (AS 1105.A8b; AS 2501.16) • The firm did not evaluate whether the methods used by the company's specialists to develop the reserve estimates were appropriate under the circumstances taking into account the requirements of the applicable financial reporting framework beyond inquiry of the methods used with the company's specialists. (AS 1105.A8c)

The issuer engaged specialists to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The company's specialists used financial and non-financial data and assumptions deemed significant by the firm to develop the reserve estimates in the reserve report. The firm's approach for substantively testing the reserve estimates was to test the issuer's process. The following deficiency was identified: • The firm did not evaluate the reasonableness of the significant non-financial assumptions developed by the issuer and/or the company's specialists and used by the company's specialists to develop the reserve estimates. (AS 1105.A8b; AS 2501.16) • The firm did not evaluate whether the methods used by the company's specialists to develop the reserve estimates were appropriate under the circumstances taking into account the requirements of the applicable financial reporting framework beyond inquiry of the methods used with the company's specialists. (AS 1105.A8c)

The firm selected for testing a control over revenue recognition that consisted of the issuer's review of customer contracts. The firm did not perform procedures to test or test any controls over the completeness of an issuer-prepared report of new and modified contracts from which it made its selections for testing. (AS 1105.10)

Deficiencies testing controls and substantive procedures over a revenue recognition judgment.

Deficiencies evaluating specialist work and accounting treatment for two significant, unusual transactions.

Deficiency maintaining control over confirmation requests used to test revenue and deferred revenue balances.

On two separate occasions subsequent to the issuance of the firm's audit report the issuer retrospectively changed its accounting principles related to the accounting treatment of certain transactions which resulted in their reclassification in the financial statements that the firm had previously audited. On both of these occasions the firm was re-engaged to audit the reclassified amounts and reissue its audit report. The firm evaluated these changes to the issuer's accounting principles determined that they were in conformity with IFRS and reissued its audit report. The firm did not evaluate whether the issuer justified that these alternative accounting principles were preferable. (AS 2820.07)

The firm was instructed by the principal auditor to test two controls over manual journal entries that consisted of the issuer's review and approval of the journal entries. The firm did not sufficiently test the design and operating effectiveness of these controls because it did not test certain attributes of the controls related to (1) an additional review of journal entries created or posted by the controller and (2) the attachment of supporting documentation to all journal entry vouchers to facilitate the control owner's review of the journal entries. (AS 2201.42 and .44)

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 firm's internal inspection program inspected this audit and reviewed this area but did not identify the deficiency below. The firm selected for testing a control that consisted of the issuer's review of changes made to customer master file data that the issuer used to record revenue 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 issuer used various models and assumptions to determine the estimate. The firm selected for testing controls that consisted of the reviews and validations of certain models and assumptions used by the issuer to determine the estimate. 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 held a portfolio of investments which were carried at fair value. The following deficiencies were identified: · The firm did not perform any substantive procedures to evaluate the reasonableness of significant assumptions used by the issuer to estimate the fair value of certain other investments. (AS 2502.15)

The issuer used various models and assumptions to determine the estimate. The firm selected for testing controls that consisted of the reviews and validations of certain models and assumptions used by the issuer to determine the estimate. For two of the controls the firm did not identify and test any controls over the accuracy and completeness of the data used in the operation of the controls. (AS 2201.39)

The firm's approach for substantively testing the estimate was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of the estimate because the firm did not perform procedures to test certain assumptions the issuer used to determine the estimate beyond (1) reviewing for certain assumptions the issuer's methodology for developing the assumptions (2) testing for another assumption whether the assumption was in conformity with the issuer's regulatory requirements and (3) recalculating the mathematical accuracy of the models used by the issuer to develop certain assumptions and determine the estimate. (AS 2501.09 .10 and .11)

The firm's approach for substantively testing the estimate was to review and test management's process. The firm did not test or in the alternative test any controls over the accuracy and completeness of data used by the issuer to develop certain of these assumptions. (AS 1105.10; AS 2501.11)

The issuer held a portfolio of investments which were carried at fair value. The following deficiencies were identified: · The firm selected for testing a control that consisted of a comparison and analysis of differences between the fair values of certain investments recorded in the issuer's system and external price sources and the investigation of variances over established thresholds. The firm did not evaluate the review procedures that the control owner performed including the procedures to determine whether items identified for follow-up were appropriately resolved. (AS 2201.42 and .44)

The issuer held a portfolio of investments which were carried at fair value. The following deficiencies were identified: · The firm selected for testing a control that consisted of a comparison and analysis of differences between the fair values of certain investments recorded in the issuer's system and external price sources and the investigation of variances over established thresholds. The firm did not test any controls over the accuracy and completeness of certain data used in the operation of this control. (AS 2201.39)

The issuer held a portfolio of investments which were carried at fair value. The following deficiencies were identified: · The firm selected for testing another control that consisted of a review of the issuer's determination of the fair value hierarchy classification of investments. The firm did not test an aspect of this control over the observability of the pricing inputs used to determine the fair value hierarchy classification of the investments. (AS 2201.39)

The issuer held a portfolio of investments which were carried at fair value. The following deficiencies were identified: · The firm did not identify and test any controls over the valuation of certain other investments. (AS 2201.39)

The issuer held a portfolio of investments which were carried at fair value. The following deficiencies were identified: · The firm's approach for substantively testing the presentation and disclosure of investments was to review and test management's process. The firm did not sufficiently test the disclosure of investments within the fair value hierarchy because it did not evaluate whether the significant inputs used to establish the fair value of those investments were observable or unobservable. (AS 2502.43)

The issuer utilized internal specialists (company's employed specialists) including reserve engineers to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The issuer also engaged external reserve engineers (company's engaged specialists) to audit and evaluate its proven reserves on a rotational basis. The firm selected for testing certain reserve governance controls that included the issuer's (1) review and verification of the internal and external data including non-financial data future production volumes (“production profiles”) and other relevant data used to determine its reserve estimates (2) evaluation of the appropriateness of its reserve classifications and (3) evaluation of the consistency of its reserve estimates with the results of the review performed by the company's engaged specialists. The following deficiencies were identified: · The firm did not test aspects of the reserve governance controls that (1) addressed the accuracy and completeness of non-financial data produced by the issuer and (2) evaluated the relevance and reliability of non-financial data from external sources used by the control owners in their review of the production profiles. (AS 2201.42 and .44)

The issuer utilized internal specialists (company's employed specialists) including reserve engineers to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The issuer also engaged external reserve engineers (company's engaged specialists) to audit and evaluate its proven reserves on a rotational basis. The firm selected for testing certain reserve governance controls that included the issuer's (1) review and verification of the internal and external data including non-financial data future production volumes (“production profiles”) and other relevant data used to determine its reserve estimates (2) evaluation of the appropriateness of its reserve classifications and (3) evaluation of the consistency of its reserve estimates with the results of the review performed by the company's engaged specialists. The following deficiencies were identified: · The firm did not evaluate the specific review procedures that the control owners performed to evaluate the (1) reasonableness of the production profiles and (2) appropriateness of the methods used to determine the reserve estimates. (AS 2201.42 and .44)

The issuer utilized internal specialists (company's employed specialists) including reserve engineers to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The issuer also engaged external reserve engineers (company's engaged specialists) to audit and evaluate its proven reserves on a rotational basis. The firm's approach for substantively testing the reserve estimates was to test the issuer's process. The firm did not perform sufficient procedures to test the reserve estimates because the firm did not: · Test the accuracy and completeness of the non-financial data prepared by the issuer and used by the company's employed specialists to develop the reserve estimates; (AS 1105.A8a)

The issuer utilized internal specialists (company's employed specialists) including reserve engineers to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The issuer also engaged external reserve engineers (company's engaged specialists) to audit and evaluate its proven reserves on a rotational basis. The firm's approach for substantively testing the reserve estimates was to test the issuer's process. The firm did not perform sufficient procedures to test the reserve estimates because the firm did not: · Evaluate the relevance and reliability of external data used by the company's employed specialists to develop the reserve estimates; (AS 1105.A8a)

The issuer utilized internal specialists (company's employed specialists) including reserve engineers to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The issuer also engaged external reserve engineers (company's engaged specialists) to audit and evaluate its proven reserves on a rotational basis. The firm's approach for substantively testing the reserve estimates was to test the issuer's process. The firm did not perform sufficient procedures to test the reserve estimates because the firm did not: · Evaluate the reasonableness of the production profiles which were considered significant assumptions by the firm developed by the company's employed specialists and used to develop the reserve estimates; (AS 1105.A8b)

The issuer utilized internal specialists (company's employed specialists) including reserve engineers to estimate its oil and gas reserves (“reserve estimates”) which were then used in the (1) calculation of depreciation depletion and amortization and (2) impairment analysis of long-lived assets. The issuer also engaged external reserve engineers (company's engaged specialists) to audit and evaluate its proven reserves on a rotational basis. The firm's approach for substantively testing the reserve estimates was to test the issuer's process. The firm did not perform sufficient procedures to test the reserve estimates because the firm did not: · Evaluate whether the methods used by the company's engaged specialists to develop the reserve estimates were appropriate under the circumstances taking into account the requirements of the applicable financial reporting framework beyond inquiry of the methods used with the company's engaged specialists. (AS 1105.A8c)

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)

Deficiency in not requesting confirmation of accounts receivable or documenting alternative procedures.

Deficiency testing controls over data used to review accrued liabilities.

The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not identify and test any controls over the completeness of the assets included in the issuer's components and CGUs. (AS 2201.39)

The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a straight-line basis at in-scope components the following deficiency was identified: · The firm did not identify and test any controls over the reasonableness of significant assumptions the issuer used to determine the useful lives of certain PP&E. (AS 2201.39)

The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a straight-line basis at in-scope components the following deficiency was identified: · The firm did not perform any procedures to evaluate the reasonableness of significant assumptions the issuer used to determine the useful lives of certain PP&E. (AS 2501.16)

The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a units of production basis at in-scope components the following deficiency was identified: · The firm did not identify and test any controls over the (1) accuracy and completeness of the data produced by the issuer (2) relevance and reliability of information obtained from external sources (3) reasonableness of certain assumptions and (4) appropriateness of the methods used by the company's specialists to develop their assumptions. (AS 2201.39)

The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a units of production basis at in-scope components the following deficiency was identified: · The firm did not perform procedures to test depreciation expense computed using the units of production method beyond obtaining and reading the reports prepared by the company's specialists. Further the firm did not perform any procedures with respect to its use of the work of the company's specialist as audit evidence. (AS 1105.A1 - .A10; AS 2501.07)

The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a units of production basis at in-scope components the following deficiency was identified: · The firm did not perform procedures to test depreciation expense computed using the units of production method beyond obtaining and reading the reports prepared by the company's specialists. The firm did not perform procedures to test or (as discussed above) test any controls over the accuracy and completeness of the data produced by the issuer that was used to compute this depreciation expense. (AS 1105.10)

For certain accruals and other liabilities the following deficiency was identified: · The firm did not identify and test any controls over the completeness or valuation of certain accruals and other liabilities. (AS 2201.39)

For certain accruals and other liabilities the following deficiency was identified: · The firm did not perform any substantive procedures to test the valuation of certain other liabilities. (AS 2501.07)

For a certain other liability the issuer engaged external specialists to prepare reports that were used by the issuer to estimate this liability. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to prepare their reports. The following deficiency was identified: · The firm selected for testing two controls that consisted of the issuer's (1) review of this other liability and (2) comparison of the recorded liability to the reports prepared by the company's specialists. 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)

For a certain other liability the issuer engaged external specialists to prepare reports that were used by the issuer to estimate this liability. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to prepare their reports. The following deficiency was identified: · The firm did not identify and test any controls over the (1) data produced by the issuer (2) relevance and reliability of information obtained from external sources (3) reasonableness of certain assumptions used by the company's specialists to prepare their reports that were used to estimate the other liability and (4) appropriateness of the methods used by the company's specialists. (AS 2201.39)

For a certain other liability the issuer engaged external specialists to prepare reports that were used by the issuer to estimate this liability. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to prepare their reports. The following deficiency was identified: · The firm did not perform any procedures with respect to its use of the work of the company's specialists as audit evidence. (AS 1105.A1 - .A10)

The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not identify and test any controls over the (1) accuracy and completeness of the data produced by the issuer (2) relevance and reliability of information obtained from external sources (3) reasonableness of certain significant assumptions and (4) appropriateness of the methods used by the company's specialists to develop their assumptions. (AS 2201.39)