Explorer

The issuer changed the number of its reporting units in the current year for purposes of its annual goodwill impairment analysis. The following deficiencies were identified: · The firm did not perform any procedures to evaluate whether the issuer's change in the number of reporting units was in conformity with FASB ASC Topic 350 Intangibles – Goodwill and Other and was preferable under FASB ASC Topic 250 Accounting Changes and Error Corrections. (AS 2810.30)

The issuer used an information technology (IT) system to process and record transactions related to revenue accounts receivable and inventory. In its testing of controls over these accounts the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by this IT system. As a result of the deficiencies in the firm's testing of IT general controls (ITGCs) discussed below the firm's testing of these IT-dependent manual controls was not sufficient. (AS 2201.46)

The issuer determined the fair value of a portion of its pension assets based on a valuation model that used the financial results of the investees. The firm obtained the audited financial statements of the investees but did not perform any procedures to test the investees' financial results for the six months between the period covered by the audited financial statements and the issuer's year end. Further for two of these investees the firm did not sufficiently evaluate whether the audited financial statements provided sufficient appropriate audit evidence about the investees' financial results for the period covered because the financial statements did not contain the necessary information for the firm to assess the inputs that the issuer used in its valuation model. (AS 2503.28)

The issuer engaged an external specialist to estimate its pension liabilities using participant data provided by the issuer and assumptions developed by the specialist. The firm selected for testing a control that consisted of the issuer's review of the assumptions used by the specialist. 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 engaged an external specialist to estimate its pension liabilities using participant data provided by the issuer and assumptions developed by the specialist. The firm selected for testing a control that consisted of the issuer's review of the assumptions used by the specialist. The firm did not identify and test any controls that addressed whether the participant data provided to the specialist were accurate and complete. (AS 2201.39)

The issuer used a service organization to initiate process and record transactions related to payroll expenses for certain business units and this service organization used a sub-service organization for certain functions that were not covered in the service auditor's report. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports from the service organization. As a result of the deficiencies in the firm's testing of controls discussed below the firm's testing of these controls was not sufficient. (AS 2201.46)

The issuer used a service organization to initiate process and record transactions related to payroll expenses for certain business units and this service organization used a sub-service organization for certain functions that were not covered in the service auditor's report. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports from the service organization. The following deficiencies were identified: · The firm did not identify and test any controls over the issuer's evaluation of the service auditor's report with respect to the effectiveness of the controls at the service organization. (AS 2201.39)

The issuer used a service organization to initiate process and record transactions related to payroll expenses for certain business units and this service organization used a sub-service organization for certain functions that were not covered in the service auditor's report. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports from the service organization. The following deficiencies were identified: · The firm identified complementary user controls implemented by the issuer that the service auditor's report described as necessary but did not test the operating effectiveness of certain of these controls. (AS 2201.44 and .B22)

The issuer used a service organization to initiate process and record transactions related to payroll expenses for certain business units and this service organization used a sub-service organization for certain functions that were not covered in the service auditor's report. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports from the service organization. The following deficiencies were identified: · The firm did not obtain an understanding of and test any controls at the sub-service organization that were relevant to the issuer. (AS 2201.39 and .B19)

The sample size the firm used in certain of its substantive procedures to test payroll expenses 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 various internally and externally developed models to estimate the quantitative component of the ACL for loans collectively evaluated for impairment. These models used various data and assumptions. The following deficiencies were identified: · The firm did not identify and test any controls over the issuer's validation of certain of these models. (AS 2201.39)

The issuer used various internally and externally developed models to estimate the quantitative component of the ACL for loans collectively evaluated for impairment. These models used various data and assumptions. The following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's reviews of the operation of these models and the underlying inputs and assumptions. 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 an information technology (IT) system to process and record transactions related to revenue accounts receivable and inventory. In its testing of controls over these accounts the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by this IT system. The following ITGC deficiencies were identified: · The firm selected for testing a control over the issuer's review of user access to this IT system but did not evaluate the specific review procedures that the control owner performed to determine whether to approve user access that had been requested or whether user access that had been previously approved continued to be appropriate. (AS 2201.42 and .44)

The issuer used various internally and externally developed models to estimate the quantitative component of the ACL for loans collectively evaluated for impairment. These models used various data and assumptions. The following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's reviews of the operation of these models and the underlying inputs and assumptions. The firm did not identify and test any controls over the accuracy and completeness of the data that the control owners used in the operation of these controls. (AS 2201.39)

The issuer used various internally and externally developed models to estimate the quantitative component of the ACL for loans collectively evaluated for impairment. These models used various data and assumptions. The following deficiencies were identified: · The firm's approach for substantively testing the quantitative component of the ACL for loans collectively evaluated for impairment was to test the issuer's process and the firm used an auditor-employed specialist to evaluate certain significant assumptions the issuer used including the underlying models and assumptions. The firm did not sufficiently evaluate the reasonableness of these significant assumptions because it did not identify that the specialist's procedures were limited to inquiring of management and reading issuer-prepared reports and analyses. (AS 1201.C6 and .C7; AS 2501.16)

The issuer used two IT systems to process and record transactions related to revenue. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by these IT systems. As a result of the deficiencies in the firm's testing of ITGCs discussed below the firm's testing of these IT-dependent manual controls was not sufficient. (AS 2201.46)

The issuer used two IT systems to process and record transactions related to revenue. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by these IT systems. The following ITGC deficiencies were identified: · The firm selected for testing controls over the issuer's review of user access to these IT systems but did not evaluate the specific review procedures that the control owners performed to determine whether to approve user access that had been requested or whether user access that had been previously approved continued to be appropriate. (AS 2201.42 and .44)

The issuer used two IT systems to process and record transactions related to revenue. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by these IT systems. The following ITGC deficiencies were identified: · The firm selected for testing a control over change management but did not perform any procedures to test or in the alternative test any controls over the completeness of the population of changes from which it made its selections for testing. (AS 1105.10)

The firm used the work of the issuer's internal audit as evidence of the effectiveness of automated application controls over the accuracy and completeness of reports that the issuer used in the operation of certain other IT-dependent manual controls over revenue that the firm tested. Internal audit relied on the testing of these controls that was performed in prior years. The firm did not sufficiently evaluate whether internal audit's strategy to rely on testing that was performed in prior years was appropriate because the firm did not evaluate (1) whether ITGCs were effective in those prior years and (2) the effect of certain changes to IT systems that the issuer implemented in the current year. (AS 2201.B29 and .B31; AS 2605.24)

The sample sizes the firm used in certain of its substantive procedures to test revenue were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The issuer used two IT systems to process and record transactions related to the ALL. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by these IT systems. As a result of the deficiencies in the firm's testing of ITGCs discussed below the firm's testing of these IT-dependent manual controls was not sufficient. (AS 2201.46)

The issuer used two IT systems to process and record transactions related to the ALL. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by these IT systems. The following ITGC deficiencies were identified: · The firm selected for testing controls over the issuer's review of user access to these IT systems but did not evaluate the specific review procedures that the control owners performed to determine whether to approve user access that had been requested or whether user access that had been previously approved continued to be appropriate. (AS 2201.42 and .44)

The issuer used two IT systems to process and record transactions related to the ALL. In its testing of controls over this account the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by these IT systems. The following ITGC deficiencies were identified: · The firm selected for testing a control over change management but did not perform any procedures to test or in the alternative test any controls over the completeness of the population of changes from which it made its selections for testing. (AS 1105.10)

The issuer used an information technology (IT) system to process and record transactions related to revenue accounts receivable and inventory. In its testing of controls over these accounts the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by this IT system. The following ITGC deficiencies were identified: · The firm selected for testing a control over change management but did not perform any procedures to test or in the alternative test any controls over the completeness of the population of changes from which it made its selections for testing. (AS 1105.10)

As a result of the firm's ITGC testing deficiencies the firm did not perform sufficient substantive procedures as follows: · The firm did not perform any substantive procedures to test or sufficiently test controls over the accuracy and completeness of certain system-generated data and reports the firm used in its substantive testing. (AS 1105.10)

As a result of the firm's ITGC testing deficiencies the firm did not perform sufficient substantive procedures as follows: · The sample size the firm used in certain of its substantive procedures to test the ALL 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. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The issuer used an information technology (IT) system to process and record transactions related to revenue accounts receivable and inventory. In its testing of controls over these accounts the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by this IT system. The following deficiencies related to the firm's testing of controls were identified: · The firm used the work of the issuer's internal audit as evidence of the effectiveness of automated application controls over the accuracy and completeness of reports that the issuer used in the operation of certain other IT-dependent manual controls that the firm tested. Internal audit relied on the testing of these controls that was performed in prior years. The firm did not sufficiently evaluate whether internal audit's strategy to rely on testing that was performed in prior years was appropriate because the firm did not evaluate whether ITGCs were effective in those prior years. (AS 2201.B29; AS 2605.24)

The issuer used an information technology (IT) system to process and record transactions related to revenue accounts receivable and inventory. In its testing of controls over these accounts the firm tested certain IT-dependent manual controls that used data and reports generated or maintained by this IT system. The following deficiencies related to the firm's testing of controls were identified: · For certain automated controls the firm tested a sample of one transaction for each of these controls in the issuer's IT testing environment rather than in its production environment. The firm's testing was not sufficient because the firm did not perform procedures to determine whether the testing environment was consistent with the production environment. (AS 2201.44)

The sample sizes the firm used in certain of its substantive procedures to test revenue accounts receivable and inventory were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

For certain business units the firm selected for testing an automated control over the timing of revenue recognition. The firm did not test the configuration 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 2201.42 and .44)

For another business unit the firm selected for testing a control that consisted of the issuer's monthly review of revenue and gross margins. The firm did not evaluate the specific review procedures that the control owner performed to assess whether revenue was appropriately recognized. (AS 2201.42 and .44)

The issuer used a service organization for custodial and other administrative services related to pension assets. The firm obtained the service auditor's report on the operating effectiveness of the service organization's controls but did not identify that the service auditor's report did not address the valuation of pension assets. (AS 2201.39 and .B21)

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows that assumed significant revenue growth and improved gross margins. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of the significant assumptions it used to determine the fair value of this asset. The firm did not evaluate the specific review procedures that the control owner performed to evaluate the reasonableness of the revenue growth rate and gross margin assumptions. (AS 2201.42 and .44)

During the year the issuer acquired a business. The firm did not identify and evaluate that the issuer's accounting for a provision for contingent payments to the sellers as equity and the omission of required disclosures related to this provision were not in conformity with FASB ASC Topic 480 Distinguishing Liabilities from Equity. (AS 2810.30 and .31) Unrelated to our review the issuer reevaluated its accounting and disclosures for this business combination and concluded that material misstatements existed that had not been previously identified. The issuer subsequently corrected these misstatements in a restatement of its financial statements and the firm revised and reissued its report on the financial statements.

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows that assumed significant revenue growth and improved gross margins. The following deficiencies were identified: · With respect to both the revenue growth rate and gross margin assumptions the firm did not sufficiently evaluate whether these assumptions were consistent with certain information including certain industry factors or the issuer's historical and recent experience because it did not evaluate the significant differences between these assumptions and that information. Further the firm did not take into account the issuer's ability to achieve the forecasted revenue growth and gross margins. (AS 2501.16 and .17)

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows that assumed significant revenue growth and improved gross margins. The following deficiencies were identified: · With respect to the revenue growth rate assumptions the firm used information produced by the issuer and information from external sources including industry data and growth rates for comparable companies to evaluate the reasonableness of these assumptions. The firm did not perform any procedures to test or in the alternative test any controls over the accuracy and completeness of certain information produced by the issuer. (AS 1105.10)

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows that assumed significant revenue growth and improved gross margins. The following deficiencies were identified: · With respect to the revenue growth rate assumptions the firm used information produced by the issuer and information from external sources including industry data and growth rates for comparable companies to evaluate the reasonableness of these assumptions. The firm did not evaluate the relevance and reliability of certain industry data and the relevance of the growth rates for the comparable companies. (AS 1105.04 and .06)

The issuer recognized certain revenue based on the daily market price of a commodity that the issuer obtained from a service organization. The following deficiencies were identified: · The firm selected for testing a control that included the issuer's investigation of daily price variances that exceeded a certain threshold. The firm did not evaluate whether the threshold the control owner used to investigate variances was sufficiently precise to detect misstatements that could be material. (AS 2201.42)

The issuer recognized certain revenue based on the daily market price of a commodity that the issuer obtained from a service organization. The following deficiencies were identified: · The firm selected for testing a control that included the issuer's investigation of daily price variances that exceeded a certain threshold. The firm did not perform any procedures to obtain evidence regarding the service organization's controls for the year under audit. (AS 2201.39 and .B19)

The issuer recognized certain revenue based on the daily market price of a commodity that the issuer obtained from a service organization. The following deficiencies were identified: · The firm obtained the service organization's pricing information from the issuer and used it in its substantive testing of this revenue but did not perform any procedures to evaluate the reliability of this information. (AS 1105.04 and .06)

During the year the issuer acquired multiple businesses and engaged a specialist to assist in the determination of the fair values of certain assets acquired using forecasted cash flows and other assumptions. The following deficiencies were identified: · The firm selected for testing a control over the valuation of the assets acquired and liabilities assumed that included the reviews of the assumptions the issuer and the company's specialist used in these forecasted cash flows and other assumptions used to determine these fair values. In its testing of the operating effectiveness of this control the firm did not evaluate the specific review procedures that the control owners performed to evaluate the reasonableness of a significant assumption for one of the business combinations selected for testing. (AS 2201.44)

During the year the issuer acquired multiple businesses and engaged a specialist to assist in the determination of the fair values of certain assets acquired using forecasted cash flows and other assumptions. The following deficiencies were identified: · The firm's approach for substantively testing the fair values of certain acquired assets was to test the issuer's process. The firm used an auditor-employed specialist to evaluate the significant assumptions the company's specialist used. For certain of these assets the firm did not sufficiently evaluate the reasonableness of these significant assumptions because it did not identify that the auditor-employed specialist did not perform any procedures beyond reading the valuation report that was prepared by the company's specialist to evaluate certain significant assumptions developed by the issuer. (AS 1201. C6 and .C7; AS 2501.16)

The issuer recognized certain revenue over time based on costs incurred to date relative to total estimated costs to complete the contract. The following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's reviews of project budgets and status by contract including the estimated costs to complete. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the reasonableness of the project budgets and related assumptions. (AS 2201.42 and .44)

The firm's sample to test the issuer's reserve for excess and obsolete inventory at one business unit was too small to provide sufficient appropriate audit evidence because in determining the sample size the firm did not take into account tolerable misstatement the allowable risk of incorrect acceptance and the characteristics of the population. (AS 2315.16 .23 and .23A)

The firm's sample was not representative of the population because the firm selected inventory items that had a recorded reserve but did not select any items that did not have a recorded reserve. (AS 2315.24)

The issuer evaluated an intangible asset for possible impairment using various assumptions it developed including forecasted revenue that assumed significant growth. The firm did not perform any procedures beyond inquiring of management to evaluate the reasonableness of the significant revenue growth assumptions. (AS 2501.16)

During the year the issuer recorded certain revenue from consignment arrangements whereby revenue was recognized and inventory was relieved when products were shipped to customers by resellers. The firm did not perform any procedures to evaluate the reliability of the information that it obtained from resellers and used to test this revenue and the inventory held on consignment. (AS 1105.04 and .06)

The firm did not sufficiently test a component of the issuer's reserve for excess and obsolete inventory because its procedures were limited to recalculating the reserve using information obtained from the issuer's external warehouse manager without evaluating the reliability of this information. (AS 1105.04 and 06)

The issuer recognized certain revenue from a contract with a customer based on specific formulas that measured the amount of consideration the issuer would receive for satisfaction of its performance obligation. The firm's substantive procedures to test this revenue included testing a sample of revenue transactions. For the transactions selected for testing the firm did not recalculate the consideration that the issuer used to record revenue to determine whether the consideration was calculated in accordance with the contract. (AS 2301.08 and .13)

The firm did not perform any procedures to evaluate certain indicators of potential impairment that existed at year end. (AS 2301.08; AS 2810.03)