Explorer

During the year the issuer acquired a business and the firm used labor hours from another timekeeping system in its testing of (1) contract assets acquired and liabilities assumed and (2) the acquired business' revenue and related accounts. The firm did not perform any procedures to test or test controls over the accuracy and completeness of these labor hours. (AS 1105.10)

During the year the issuer sold several of its business units and recorded divestiture gains. The following deficiencies were identified: · The firm did not identify and test any controls over the calculation of the divestiture gains. (AS 2201.39)

During the year the issuer sold several of its business units and recorded divestiture gains. The following deficiencies were identified: · For certain divestitures the firm used information produced by the issuer in its testing of the divestiture gains but did not perform any procedures to test or test any controls over the accuracy and completeness of certain of this information. (AS 1105.10)

Certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the issuer's estimate of the relative standalone selling prices. The firm performed procedures to test the accuracy of certain issuer-prepared data the firm used in its testing of the relative standalone selling prices. The extent of these procedures was not sufficient because the firm calculated its samples of items to test assuming a control reliance strategy but did not take into account that one of the controls the firm relied upon was ineffective. (AS 1105.10)

The issuer used a specialist to estimate the issuer's oil and gas reserves that were used in the valuation of properties for which oil and gas reserves had been assigned. The issuer produced certain information that was (1) used in the firm's testing of revenue and lease operating expenses and (2) provided to the company's specialist. The firm did not perform any procedures to test or test controls over the accuracy and/or completeness of this information. (AS 1105.10 and .A8a)

The firm used certain information produced by a related party in its testing of revenue and lease operating expenses but did not perform any procedures to evaluate the reliability of this information. (AS 1105.04 and .06)

The company's specialist used certain other information provided by related parties of the issuer and an external source to estimate the issuer's oil and gas reserves. The following deficiencies were identified: · The firm's procedures to evaluate the relevance and reliability of the information provided by related parties were not sufficient because (1) it did not evaluate whether this information was relevant to the measurement objective and (2) when determining the number of items to test the firm did not take into account the source of the information. (AS 1105.A8a)

The company's specialist used certain other information provided by related parties of the issuer and an external source to estimate the issuer's oil and gas reserves. The following deficiencies were identified: · The firm did not evaluate the relevance and reliability of the information provided by the external source. (AS 1105.A8a)

Certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the relative standalone selling prices. With respect to revenue at one business unit the firm did not perform any substantive procedures to evaluate the reasonableness of the standalone selling prices that the issuer used. (AS 2301.08)

With respect to user access: · The firm selected for testing a control over the issuer's periodic review of previously granted access to these IT systems. In its testing of operating effectiveness the firm did not test beyond inquiry the aspect of the control that addressed the accuracy and completeness of the reports used in the operation of the control. (AS 2201.44)

With respect to certain revenue at the remaining business units (“other revenue”) the firm did not evaluate whether the risks of material misstatement that the firm associated with certain revenue at the first business unit that was subject to more extensive audit procedures also applied to this other revenue. (AS 2101.11 and .12)

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows which included significant assumptions related to revenue growth rates for the forecast period. The following deficiencies were identified: · For certain years within the forecast period the firm did not sufficiently evaluate the reasonableness of these significant assumptions because it did not (1) evaluate significant differences between the issuer's forecasted rates and industry growth information it used to support these rates (2) evaluate whether these forecasted rates were consistent with the issuer's historical and recent experience and (3) take into account the issuer's ability to achieve these forecasted rates. (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 which included significant assumptions related to revenue growth rates for the forecast period. The following deficiencies were identified: · For the remaining years within the forecast period the firm did not perform any procedures to evaluate the reasonableness of the forecasted revenue growth rates. (AS 2501.16)

During the year the issuer issued warrants that were recorded as equity and engaged a specialist to determine the fair values of these warrants. The firm's approach for substantively testing the fair values of these warrants was to test the issuer's process and the firm used an auditor-employed specialist to evaluate the significant assumptions the company's specialist developed. The firm did not identify that the work of the auditor-employed specialist did not provide sufficient appropriate audit evidence because it did not (1) evaluate external data the auditor-employed specialist used to develop an independent expectation of one significant assumption and (2) identify that the auditor-employed specialist did not perform any procedures to evaluate certain of the other significant assumptions. (AS 1105.04 .06 and .A8b; AS 1201.C6 and .C7)

During the year the issuer also issued warrants that were recorded as liabilities and engaged a specialist to determine the fair values of these warrants. The firm did not sufficiently evaluate the reasonableness of the significant assumptions used to value these warrants at year end because its procedures were limited to reading a memorandum prepared by the company's specialist and inquiring of management regarding changes in assumptions from the original issuance date. (AS 1105.A8b)

The firm's internal inspection program inspected this audit and reviewed this area but did not identify the deficiencies below. The firm selected for testing a control that consisted of the issuer's review of its assessment of long-lived assets for possible impairment including the underlying cash-flow forecasts. The firm did not evaluate the specific review procedures that the control owner performed to assess the appropriateness of excluding certain costs from these cash-flow forecasts. (AS 2201.42 and .44)

The firm's internal inspection program inspected this audit and reviewed this area but did not identify the deficiencies below. The firm selected for testing a control that consisted of the issuer's review of its assessment of long-lived assets for possible impairment including the underlying cash-flow forecasts. The firm did not identify and test any controls over the accuracy of certain data that were used in the operation of this control. (AS 2201.39)

The firm did not identify and evaluate a misstatement in a required disclosure under FASB ASC Topic 606 related to the disaggregation of revenue. (AS 2810.30 and .31) In connection with our review the issuer reevaluated this disclosure and determined that an error existed that had not been previously identified. The issuer did not file an amended Form 10-K or Form 8-K indicating that its previously issued financial statements should not be relied on. Instead the issuer corrected this error in a subsequent filing by revising the disclosure.

The firm performed procedures to test the accuracy and completeness of certain system-generated reports that the issuer used to estimate the reserve for excess and obsolete inventory. The extent of these procedures was not sufficient because the firm used the incorrect amount to calculate its samples of items to test from these reports. (AS 1105.10)

As a result of the firm's ITGC testing deficiencies for revenue unbilled accounts receivable and deferred revenue the firm did not perform sufficient procedures to test or sufficiently test controls over the accuracy and completeness of certain system-generated data or reports the firm used (1) to make its selections to test certain controls or (2) in its substantive testing. (AS 1105.10)

The firm selected for testing automated controls over the timing of revenue recognition the approval of sales discounts and the calculation of contract progress. The firm did not sufficiently test the design and operating effectiveness of these automated controls as it limited its testing to only certain scenarios without identifying and/or evaluating all relevant configurations. Further for one of these controls the firm tested an aspect of this control in the issuer's IT testing environment rather than in its production environment without performing any procedures to determine whether the testing environment was a complete replica of the production environment. (AS 2201.42 and .44)

Certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the relative standalone selling prices. The firm did not perform any substantive procedures to evaluate the reasonableness of the standalone selling prices that the issuer established. (AS 2301.08)

The firm selected for testing certain controls related to the issuer's review of the reserve for excess and obsolete inventory. The firm did not identify and test any controls over certain inputs used in the operation of these controls. (AS 2201.39)

The firm selected for testing automated controls over the recording of inventory upon receipt. The firm did not sufficiently test the design and operating effectiveness of these automated controls as it limited its testing to only certain scenarios without identifying and evaluating all relevant configurations. Further the firm tested these controls in the issuer's IT testing environment rather than in its production environment without performing any procedures to determine whether the testing environment was a complete replica of the production environment. (AS 2201.42 and .44)

The firm selected for testing an automated control over the timing and amount of cost of sales recognized. The firm did not test whether cost of sales was recognized (1) upon revenue recognition and (2) at standard cost. (AS 2201.42 and .44)

The firm selected for testing certain controls that consisted of the issuer's review of the income tax provision transfer-pricing reserves uncertain tax positions and tax disclosures. 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 second contractual arrangement the firm did not evaluate whether the issuer's upfront recording of an advance cash payment for advertising services as an operating expense was in conformity with FASB ASC Topic 720 Other Expenses. (AS 2301.08) In connection with our review the issuer reevaluated its accounting for these arrangements and concluded that 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.

The firm did not identify and test any controls related to the issuer's evaluation of the potential effects of changes in tax rates tax laws and accounting standards. (AS 2201.39)

The firm did not perform any procedures to test or test any controls over the accuracy and completeness of certain information produced by the issuer that the firm used in its substantive testing of the income tax provision. (AS 1105.10)

The issuer used several IT systems to initiate process and/or record transactions related to one type of revenue and the related accounts receivable. In its testing of controls over these accounts the firm tested various 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 the firm's testing of these IT-dependent manual controls was not sufficient. (AS 2201.46)

The firm identified significant deficiencies in ITGCs for two of the issuer's IT systems related to individuals having inappropriate access to these systems. The firm identified and tested various compensating controls that it believed would mitigate these deficiencies. In performing its testing of the identified compensating controls the firm did not identify that the control owners used data and reports in the performance of these controls that were produced by the systems that were subject to these ITGC deficiencies. (AS 2201.68)

For another IT system the firm did not identify and test any controls that addressed the risk that inappropriate changes could be made to the reports maintained in this system. (AS 2201.39)

As a result of the firm's control testing deficiencies the firm did not perform sufficient procedures to test or sufficiently test controls over the accuracy and completeness of certain system-generated data and reports it used in its substantive testing for this revenue and the related accounts receivable. (AS 1105.10)

For this type of revenue the issuer entered into arrangements where it could either be acting in the capacity of a principal or an agent and as a result would record revenue on either a gross or net basis. The following additional deficiencies were identified: · For one business unit the firm selected for testing a control that included the issuer's review of changes to prices in the issuer's IT system for existing customers. The firm did not evaluate the specific review procedures that the control owner performed to assess the accuracy of these price changes. (AS 2201.42 and .44)

For this type of revenue the issuer entered into arrangements where it could either be acting in the capacity of a principal or an agent and as a result would record revenue on either a gross or net basis. The following additional deficiencies were identified: · The firm did not identify and test any controls that addressed whether the issuer was acting as a principal or an agent in these arrangements. (AS 2201.39)

For this type of revenue the issuer entered into arrangements where it could either be acting in the capacity of a principal or an agent and as a result would record revenue on either a gross or net basis. The following additional deficiencies were identified: · The issuer used point-of-sale systems to accumulate and transmit transaction data to certain of the issuer's IT systems and recorded revenue based on these data. The firm did not identify and test any controls that addressed the accuracy and completeness of these data. (AS 2201.39)

For this type of revenue the issuer entered into arrangements where it could either be acting in the capacity of a principal or an agent and as a result would record revenue on either a gross or net basis. The following additional deficiencies were identified: · 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 evaluate whether the issuer was acting as a principal or as an agent for this revenue. (AS 2301.08 and .13)

For the second contractual arrangement the issuer also issued equity awards for advertising services. The firm did not evaluate whether the issuer in conformity with FASB ASC Topic 718 Stock Compensation should have deferred and recognized these awards in the same manner as if the issuer had paid cash for these services. (AS 2301.08)

For this type of revenue the issuer entered into arrangements where it could either be acting in the capacity of a principal or an agent and as a result would record revenue on either a gross or net basis. The following additional deficiencies were identified: · The firm used transaction data from the issuer's point-of-sale systems in its substantive testing. For one business unit the firm did not sufficiently test the accuracy and completeness of these data because the firm (1) did not select its sample from the full population and (2) for most of its selections limited its procedures to comparing the data to reports generated from the same transmitted data. (AS 1105.10)

For this type of revenue the issuer entered into arrangements where it could either be acting in the capacity of a principal or an agent and as a result would record revenue on either a gross or net basis. The following additional deficiencies were identified: · The firm used transaction data from the issuer's point-of-sale systems in its substantive testing. For one business unit the firm did not perform any procedures to test or identify and test any controls over the accuracy and completeness of these data. (AS 1105.10)

For two types of revenue one of which was affected by other audit deficiencies certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the relative standalone selling prices. The following additional deficiencies were identified: · The firm did not identify and test any controls that addressed the estimate of the standalone selling prices of the performance obligations. (AS 2201.39)

For two types of revenue one of which was affected by other audit deficiencies certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the relative standalone selling prices. The following additional deficiencies were identified: · For certain contracts the firm did not identify and test any controls that addressed whether the allocation of the transaction price to the separate performance obligations was based on the standalone selling prices. (AS 2201.39)

For two types of revenue one of which was affected by other audit deficiencies certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the relative standalone selling prices. The following additional deficiencies were identified: · The firm did not evaluate whether the methods that the issuer used to estimate the standalone selling prices were in conformity with FASB ASC Topic 606 because the firm did not evaluate whether the issuer's methods maximized the use of observable inputs. (AS 2501.10)

For two types of revenue one of which was affected by other audit deficiencies certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the relative standalone selling prices. The following additional deficiencies were identified: · The firm did not perform any procedures to test or test any controls over the completeness of the information the issuer used to estimate the standalone selling prices. (AS 1105.10)

For two types of revenue one of which was affected by other audit deficiencies certain of the issuer's revenue arrangements included multiple performance obligations. The issuer allocated the total transaction price for each of these arrangements to the separate performance obligations based on the relative standalone selling prices. The following additional deficiencies were identified: · For certain contracts the firm did not perform any substantive procedures to test whether the allocation of the transaction price was based on standalone selling prices. (AS 2301.08 and .13)

The firm selected for testing a control over the issuer's review of the accounting treatment for one-time or unusual transactions. The firm did not evaluate the specific review procedures that the control owners performed to assess the appropriateness of the conclusions reached regarding the accounting treatment. (AS 2201.42 and .44)

For one type of revenue the firm selected for testing controls that consisted of the issuer's review of (1) invoices and revenue journal entries and (2) the related accounts receivable reconciliation. The firm did not identify and test any controls over the accuracy and completeness of certain reports that were used in the operation of these controls. (AS 2201.39)

The following deficiencies were identified for another 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 did not sufficiently test expenses because when planning its sample for its test of details the firm did not consider the characteristics of the population. (AS 2315.16 .23 and .23A)

The following deficiencies were identified for another type of revenue: · The firm did not perform any substantive procedures to test (1) whether the performance obligation was satisfied before revenue was recognized and (2) the completeness of this revenue for the first three quarters of the year. (AS 2301.08)