Explorer

The issuer engaged a specialist to determine the fair value of certain long-lived assets for use in the issuer's impairment analysis. The firm did not evaluate the following assumptions underlying the expected future cash flows that the issuer provided to the specialist: (1) the revenue gross profit margin and operating expense projections beyond the first year and (2) the period of the expected future cash flows which was different from the remaining estimated useful life of the assets. Further the firm did not evaluate the effects of the negative contribution margin in the current year on the operating expense projections. (AS 1210.12; AS 2810.03)

The firm did not perform several procedures to test whether the issuer appropriately recorded this significant account. (AS 2301.08)

The firm did not evaluate whether the issuer's determination of the fair value of a significant account was consistent with the valuation method. (AS 2503.35)

The firm confirmed a significant account but did not perform procedures to evaluate the reliability of the confirmation including whether additional evidence was needed. Further the firm did not evaluate whether the issuer appropriately recorded the account. (AS 2301.08; AS 2310.33)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. For two of the POS applications the firm did not perform any procedures to test these controls. (AS 2201.42 and .44)

The firm did not identify and test any controls over the issuer's accounts receivable. (AS 2201.39)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The firm selected for testing a control over the issuer's review of the fair value analyses associated with the acquired assets and assumed liabilities. For the control selected the firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the assumptions. (AS 2201.42 and .44)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The firm did not identify and test any controls over the prospective financial information developed by the issuer and used by the company's specialist to determine the fair value of certain intangible assets acquired. (AS 2201.39)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The firm did not perform any procedures to test the existence of the fixed assets acquired. (AS 2301.08 and .11)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • For the valuation of fixed assets the firm did not perform sufficient procedures to evaluate whether the methods used by the company's specialist were appropriate. Specifically the firm did not evaluate whether the data and significant assumptions were appropriately applied under the applicable reporting framework. (AS 1105.A8c)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • For the valuation of certain intangible assets the firm did not perform procedures to test the financial projections including taking into account the issuer's intent and ability to carry out the projections used in determining the fair values beyond tracing the projections for certain years to issuer-prepared schedules or comparing them to certain historical financial statements. (AS 1105.A8b; AS 2501.16 and .17)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The company's specialists used certain external data in developing the assumptions used in the valuation of certain acquired intangible assets. The firm did not perform any procedures to evaluate the relevance and reliability of the data used. (AS 1105.A8a)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The firm did not perform any procedures to evaluate the reasonableness of certain significant assumptions used by the company's specialists in the valuation of certain acquired assets and assumed liabilities. (AS 1105.A8b)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate the reasonableness of certain other significant assumptions developed by the company's specialists in the valuation of certain acquired assets and assumed liabilities because its procedures were limited to comparing the assumption to either (1) external data (without evaluating the relevance and reliability of the data as noted above) (2) the same assumption used to value another acquired asset or (3) issuer-prepared schedules. (AS 1105.A8b)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The firm did not perform any procedures to evaluate the relevance and reliability of certain data the firm used to evaluate the reasonableness of certain components of another significant assumption developed by the company's specialist in its valuation of certain acquired assets. (AS 1105.04 and .06)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. For the other POS applications the firm did not: · perform any procedures to test that the access to change the configuration was appropriately restricted; · identify and test the controls for all of the discount types that were applied to the issuer's sales transactions; and · perform sufficient procedures to determine that certain of the designated access levels were the only designations that allowed for approval of sales discounts because the procedures were limited to testing one level of access. (AS 2201.42 and .44)

During the year the issuer completed a business combination and engaged multiple specialists to determine the fair value of certain acquired assets including acquired intangible assets and certain assumed liabilities. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate the relevance and reliability of one of the company's specialists' work related to certain assumed liabilities because it did not evaluate the restriction the specialist placed on the intended users of the report and perform additional procedures to address the matter. (AS 1105.A9 and .A10)

The firm did not identify and evaluate a departure from GAAP related to the issuer's omission of a disclosure required by FASB ASC Topic 805 Business Combinations. (AS 2810.30 and 31)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. For restaurant sales the following deficiency was identified: · The firm performed certain dual-purpose testing for its substantive testing and its testing of the operating effectiveness of certain related controls: - The firm did not achieve the objectives of both the test of controls and the substantive test because the sampling unit and attributes tested were not the same. (AS 2301.47)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. For restaurant sales the following deficiency was identified: · The firm performed certain dual-purpose testing for its substantive testing and its testing of the operating effectiveness of certain related controls: - The sample size the firm used was too small to provide sufficient appropriate audit evidence because in determining the sample size the firm did not (1) take into account tolerable misstatement and the allowable risk of incorrect acceptance and (2) use the larger of the samples that would otherwise have been designed for the two separate purposes. (AS 2315.16 .19 .23 .23A and .44)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. For restaurant sales the following deficiency was identified: • The firm selected a sample of restaurant sales transactions to perform a test of details; however the firm did not perform any procedures to test revenue recognition for certain of the sampled items. (AS 2301.08 and .13)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. For restaurant sales the following deficiency was identified: • The firm did not perform procedures to test or test any controls over the accuracy and completeness of the lists and reports it used in selecting its samples and in performing its testing of restaurant sales. (AS 1105.10)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. The firm's primary substantive procedures to test franchise royalty revenue were analytical procedures. The following deficiency was identified: • The firm did not perform procedures to determine whether certain assumptions it used in developing its expectation for revenue were based on predictable relationships. (AS 2305.13 and .14)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. The firm's primary substantive procedures to test franchise royalty revenue were analytical procedures. The following deficiency was identified: • The expectation the firm used was not sufficiently precise in identifying material misstatements because the firm did not sufficiently disaggregate the data it used in its procedure to address important factors such as the number of franchisees and differences between franchisee sales and company-owned sales. (AS 2305.17)

The issuer used multiple point-of-sale (POS) applications to initiate and process revenue transactions. The firm selected for testing two controls related to the automated calculation of sales discounts and the review of those discounts by designated individuals with certain access levels. The firm did not identify and evaluate a departure from GAAP related to the issuer's omission of certain disclosures required by FASB ASC Topic 606 Revenue from Contracts with Customers. (AS 2810.30 and 31)

The issuer used information technology ('IT') applications to initiate process and record revenue. The firm identified multiple control deficiencies related to controls over logical access and program changes. The firm concluded that these deficiencies represented a significant deficiency after identifying and testing several compensating controls. The firm did not sufficiently evaluate the severity of the control deficiencies because it did not determine whether the compensating controls addressed the same objective and assertions as the ineffective controls. (AS 2201.68)

The firm selected for testing an automated control over revenue that was designed to record revenue once the issuer processed an invoice in its system. The firm did not sufficiently test this automated control because it only tested one instance which was not appropriate due to the control deficiencies described above. (AS 2201.42 .44 and .46)

The firm selected for testing certain controls that included management's review of sales contracts and comparisons of expected to actual sales. 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 firm selected for testing a control that consisted of management's review of the issuer's financial close checklist which included revenue and inventory. 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 firm did not identify and test any controls that addressed whether the performance obligation was satisfied before revenue was recognized. (AS 2201.39)

For one type 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)

The firm's internal inspection program had inspected this audit and reviewed Revenue but did not identify the deficiency below. The firm did not identify and evaluate the issuer's omission of certain required disclosures related to FASB ASC Topic 606 Revenue from Contracts with Customers and FASB ASC Topic 842 Leases. (AS 2810.30 and .31) In connection with our review the issuer reevaluated its revenue and lease disclosures and determined certain disclosures were omitted. The issuer did not file an amended Form 10-K or a Form 8-K indicating that its previously issued financial statements should not be relied on. Instead the issuer corrected these omissions in a subsequent filing.

The issuer entered into revenue arrangements primarily to provide services. The firm did not perform any substantive procedures beyond obtaining customer invoices and contracts to test whether the issuer's performance obligations had been satisfied before revenue was recognized. (AS 2301.08)

The firm selected certain revenue transactions for testing. The firm did not perform sufficient procedures to evaluate whether the issuer met its performance obligations before revenue was recognized because it limited its procedures to obtaining incident response logs and reports prepared by the issuer. (AS 2301.08 and .13)

The firm selected certain revenue transactions for testing. The firm did not determine whether the expectations it used in its substantive analytical procedures over revenue were based on predictable relationships. (AS 2305.13 and .14)

The firm did not perform sufficient procedures to test or identify and test controls over the accuracy of the accounts receivable aging report it used in its substantive testing of the allowance for doubtful accounts because it used the invoice dates included in the report to recalculate the aging without performing procedures to test the accuracy of those dates. (AS 1105.10)

The firm's internal inspection program inspected this audit and reviewed this area but did not identify the deficiencies below. The firm did not perform substantive procedures to test the net asset value of certain investment securities beyond comparing the securities' net asset value to pricing information obtained from an affiliate of both the manager of the funds and the record keeper. (AS 2501.07)

The issuer engaged an external specialist to assist in testing its long-lived assets for impairment. The firm's approach for substantively testing the impairment analyses was to test the issuer's process. The firm used an auditor-employed specialist to assist in testing these analyses. The following deficiency was identified: · The firm did not test whether the issuer compared the fair value of each asset group to the carrying value of each asset group in determining that none of the asset groups were impaired. (AS 2301.08)

The firm did not perform any substantive procedures to evaluate the appropriateness of the issuer's categorization of these securities within the fair value hierarchy set forth in FASB ASC Topic 820 Fair Value Measurement. (AS 2301.08)

The firm did not perform substantive procedures to evaluate whether the issuer's presentation and disclosure of certain transactions was in conformity with FASB ASC Topic 205 Presentation of Financial Statements beyond obtaining and reading the issuer's analysis which did not support that the presentation and disclosure of these transactions was in conformity with FASB ASC Topic 205. (AS 2301.08)

The firm did not identify and select journal entries and other adjustments for testing to address the potential for material misstatement due to fraud. (AS 2401.58)

The issuer derives revenue through consolidated VIEs and relies on contractual arrangements with the VIEs and its shareholders to control the business operations of the consolidated VIEs. The issuer engaged an external specialist to provide a legal opinion regarding the issuer's consolidated VIEs including the validity and enforceability of contractual arrangements with the VIEs and its shareholders and the firm used the work of the company's specialist as audit evidence. The firm did not sufficiently evaluate the relevance and reliability of the work performed by the company's specialist and whether the specialist's findings support or contradict the issuer's rights and obligations related to the consolidation of the VIEs because it did not (1) evaluate that the legal opinion was approximately six months old (2) evaluate the nature of the limitations described in the legal opinion and (3) perform additional procedures to address these matters. (AS 1105.A9 and .A10)

The firm did not identify and select journal entries and other adjustments for testing to address the potential for material misstatement due to fraud. (AS 2401.58)

The issuer engaged an external specialist to assist in testing its long-lived assets for impairment. The firm's approach for substantively testing the impairment analyses was to test the issuer's process. The firm used an auditor-employed specialist to assist in testing these analyses. The following deficiency was identified: · The firm did not sufficiently evaluate the work of the auditor-employed specialist and identify that the auditor-employed specialist did not (1) perform procedures beyond reviewing sensitivity analyses prepared by the company's specialist to evaluate the reasonableness of a significant assumption developed by the company's specialist (2) perform any procedures to evaluate the reasonableness of a significant assumption developed by the issuer (3) perform sufficient procedures to evaluate the reasonableness of certain other significant assumptions because it limited its procedures to comparing these assumptions to historical and recent experience but did not evaluate the significant differences between the assumptions and the historical and recent experience (4) evaluate the relevance and reliability of certain external data the company's specialist used to develop these significant assumptions and (5) test the accuracy and completeness of the issuer-produced information used by the company's specialist and perform additional procedures or request the specialist perform additional procedures to address the issues. (AS 1105.A8a and .A8b; AS 1201.C6 and .C7; AS 2501.16)

The issuer capitalized expenditures for a long-lived asset. The firm selected certain additions for testing but did not perform any procedures to determine whether these additions qualified for capitalization including for one selection evaluating contradictory evidence in the work papers. (AS 2301.08; AS 2810.03)

To test revenue the firm selected a sample of transactions. The following deficiency was identified: · The firm did not perform any procedures to test or test any controls over the completeness of the issuer-prepared reports from which it selected transactions for testing. (AS 1105.10).

To test revenue the firm selected a sample of transactions. The following deficiency was identified: · The firm did not perform sufficient procedures to evaluate whether the issuer had satisfied its performance obligations prior to recognizing certain revenue because it limited its procedures to obtaining issuer-produced documents and/or cash receipts for a selection of transactions. (AS 2301.08 and .13)

The firm did not identify and select journal entries and other adjustments for testing to address the potential for material misstatement due to fraud. (AS 2401.58)

The firm's substantive procedures to test revenue and deferred revenue included testing a selection of transactions. The firm did not perform procedures beyond obtaining issuer-produced information to test these revenue transactions. (AS 2301.08 and .13)

The firm did not perform any procedures to test or test any controls over the completeness of the population of items from which it selected transactions for testing. (AS 1105.10).