Explorer

To identify and select journal entries for testing the firm identified fraud characteristics and obtained a list of all journal entries with these characteristics. The firm did not perform sufficient procedures to test those journal entries because it examined the underlying support for only certain journal entries without having an appropriate rationale for limiting its testing to those certain journal entries. (AS 2401.61)

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

The firm did not perform any procedures to test or test controls over the accuracy of certain information produced by the issuer that the firm used in its substantive testing of the reserve for excess and obsolete inventory. (AS 1105.10)

For one type of revenue at one business unit the firm did not identify and test any controls over the accuracy of certain order information from the issuer's customer ordering system that the issuer used to record revenue. (AS 2201.39)

The issuer offered preferred pricing based on a customer's status. The following deficiencies were identified with respect to revenue from certain of these customers: · The firm did not perform procedures to test or test controls over the accuracy and/or completeness of certain system-generated data or reports the firm used in its substantive testing of this revenue. (AS 1105.10)

For two business units the firm did not identify and test any controls over the accuracy and completeness of certain information used to record revenue. (AS 2201.39)

For these same business units the firm selected for testing certain controls that prevented the processing of orders for customers on credit hold. The firm did not test beyond inquiry the aspect of these controls that addressed which users had the ability to release customers from credit hold. (AS 2201.42 and .44)

For one of these business units the firm selected for testing a control over the issuer's review of certain customer's accounts receivable balances. The firm did not identify and test any controls over the accuracy and completeness of a report used in the operation of this control. (AS 2201.39)

For two other business units the firm did not identify and test any controls that addressed the risk of material misstatement related to the acceptance of invalid or unauthorized customer orders. (AS 2201.39)

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 firm's internal inspection program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The firm used information produced by the issuer in its testing of transaction prices but did not perform any procedures to test or test any controls over the accuracy and/or completeness of certain of this information. (AS 1105.10)

The firm subjected certain other of the issuer's business units to less extensive audit procedures. With respect to revenue from these business units the following deficiencies were identified: · In determining the extent to which audit procedures should be performed the firm did not evaluate (1) the materiality of these business units (2) the decentralized nature of records and information processing at these business units and (3) whether the risks of material misstatement that the firm identified for the business units subject to more extensive audit procedures also applied to these business units. (AS 2101.11 and .12; AS 2201.B10)

The firm subjected certain other of the issuer's business units to less extensive audit procedures. With respect to revenue from these business units the following deficiencies were identified: · To address the risks of material misstatement related to revenue for these business units the firm selected for testing a control that included the issuer's comparisons and reviews of the consolidated (1) budget to actual results and (2) prior-period actual results to current-period actual results. The firm did not evaluate the specific review procedures that the control owner performed to investigate identified variances and determine whether items identified for follow up had been appropriately resolved. (AS 2201.42 and .44)

The firm subjected certain other of the issuer's business units to less extensive audit procedures. With respect to revenue from these business units the following deficiencies were identified: · To address the risks of material misstatement related to revenue for these business units the firm selected for testing a control that included the issuer's comparisons and reviews of the consolidated (1) budget to actual results and (2) prior-period actual results to current-period actual results. The firm did not identify and test any controls over the review of the budget used in the operation of this control. (AS 2201.39)

The firm subjected certain other of the issuer's business units to less extensive audit procedures. With respect to revenue from these business units the following deficiencies were identified: · To firm did not perform any substantive procedures to test revenue for these business units. (AS 2301.08)

The firm sent positive confirmation requests to the issuer's lenders. The following deficiencies were identified related to the confirmation requests for one of the lenders: · The firm did not maintain control over a confirmation request through direct communication between the firm and the intended recipient of the request. (AS 2310.28)

The firm sent positive confirmation requests to the issuer's lenders. The following deficiencies were identified related to the confirmation requests for one of the lenders: · The confirmation response was returned by email. The firm performed procedures to verify the source of the response but did not evaluate certain inconsistencies it identified through the performance of these procedures. (AS 2310.29)

The firm did not identify and test any controls that addressed the issuer's compliance with certain non-financial contractual debt covenants. (AS 2201.39)

The firm did not perform any substantive procedures to test the issuer's compliance with these covenants. (AS 2301.08)

The firm used certain issuer-prepared schedules in its substantive testing of certain debt disclosures. The firm did not perform any procedures to test or test controls over the accuracy of these schedules. (AS 1105.10)

The firm used certain issuer-prepared schedules in its substantive testing of certain debt disclosures. The firm did not identify and evaluate certain differences between the issuer's debt disclosures and these schedules. (AS 2301.08)

The firm's internal inspection program had inspected this audit and reviewed these areas but did not identify the deficiencies below. During the year the issuer issued warrants that were recorded as liabilities. The firm did not identify and evaluate misstatements in the fair value measurement of these warrants. (AS 2810.30) In connection with our review the issuer reevaluated its accounting for these warrants 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 perform any procedures to test the issuer's fair value disclosures for certain debt. (AS 2501.07)

During the year the issuer acquired multiple businesses. The following deficiencies were identified: · The firm selected for testing a control that included the issuer's review of the fair values of assets acquired in these business combinations including the assumptions the issuer used. In its testing of the operating effectiveness of this control the firm did not evaluate whether an item identified for follow up was appropriately resolved. (AS 2201.44)

During the year the issuer acquired multiple businesses. The following deficiencies were identified: · The firm selected for testing a control that included the issuer's review of the fair values of assets acquired in these business combinations including the assumptions the issuer used. In its testing of the operating effectiveness of this control the firm did not identify and test any controls over the accuracy and completeness of certain data used in the operation of this control. (AS 2201.39)

During the year the issuer acquired multiple businesses. The following deficiencies were identified: · From one of these business combinations the firm did not sufficiently evaluate whether an assumption was consistent with historical and recent experience because it did not evaluate the significant differences between the assumption and this experience. Further when evaluating the issuer's ability to carry out its planned course of action the firm performed a sensitivity analysis for this assumption but did not evaluate the significant differences between the alternative assumptions it used in this analysis and the issuer's historical and recent experience. (AS 2501.16 and .17)

During the year the issuer acquired multiple businesses. The following deficiencies were identified: · The firm did not identify and evaluate a misstatement in a required disclosure under FASB ASC Topic 805 Business Combinations. (AS 2810.30 and .31)

The firm did not identify and test any controls that addressed whether the issuer used appropriate useful lives in the calculation of amortization expense for finite-lived intangible assets. (AS 2201.39)

The firm did not identify and evaluate a misstatement in a required disclosure under FASB ASC Topic 350 Intangibles – Goodwill and Other. (AS 2810.30 and .31)

The firm did not identify and test any controls over the accuracy of certain schedules the issuer used to determine its financial statement disclosures. (AS 2201.39)

The firm selected for testing a control that was designed to address the firm's identified fraud risk related to inappropriate changes being made to certain business unit sub-ledgers prior to consolidation. In its testing of the operating effectiveness of this control the firm did not evaluate the specific review procedures that the control owner performed to investigate identified differences. (AS 2201.44)

The firm selected for testing a control that was designed to address the firm's identified fraud risk related to inappropriate changes being made to certain business unit sub-ledgers prior to consolidation. In its testing of the operating effectiveness of this control the firm did not identify and test any controls over the accuracy and completeness of certain business unit sub-ledgers used in the operation of the control. (AS 2201.39)

The issuer held loans receivable that were measured at fair value. The issuer determined the fair values of these loans based on discounted cash flows it developed using various significant assumptions including the issuer's approach to grouping loans in order to estimate fair value. The following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's (1) comparison of actual cash flows to forecasted cash flows (2) reviews of the reasonableness of discount rates and (3) review of its disclosures related to loans receivable. The firm did not evaluate the specific review procedures that the control owners performed to identify items for follow up investigate identified variances and/or determine whether items identified for follow up had been appropriately resolved. (AS 2201.42 and .44) In connection with our review the issuer reevaluated its controls over loans receivable and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

The firm's substantive procedures to address the risk related to inappropriate changes consisted of an independent comparison of certain business unit sub-ledgers to the general ledger. The following deficiencies were identified: · The firm (1) limited its comparison to certain accounts and (2) identified differences in its testing of these accounts but did not perform procedures to evaluate these differences other than concluding that the differences were not material in the aggregate. (AS 2301.13)

The firm's substantive procedures to address the risk related to inappropriate changes consisted of an independent comparison of certain business unit sub-ledgers to the general ledger. The following deficiencies were identified: · The firm did not perform procedures to test or test controls over the accuracy and completeness of the business unit sub-ledgers it used in its testing. (AS 1105.10)

The firm identified a fraud risk related to the potential for management to override controls including recording unsupported journal entries. For the business units the firm subjected to less extensive audit procedures the following deficiencies were identified: · The firm did not identify and test any controls that addressed this risk. (AS 2201.39)

The firm identified a fraud risk related to the potential for management to override controls including recording unsupported journal entries. For the business units the firm subjected to less extensive audit procedures the following deficiencies were identified: · The firm did not perform any substantive procedures to test journal entries to address this risk. (AS 2401.58)

The issuer recorded revenue net of customer sales incentives and returns. The following deficiencies were identified with respect to one business unit: · The firm selected for testing a control that consisted of the issuer's review of the sales incentive reserve. The firm did not evaluate the specific review procedures that the control owner performed to assess the (1) reasonableness of the sales incentive reserve and (2) accuracy and completeness of certain information used to determine the sales incentive reserve. (AS 2201.42 and .44)

The issuer recorded revenue net of customer sales incentives and returns. The following deficiencies were identified with respect to one business unit: · The firm selected for testing a control that consisted of the issuer's review of sales returns. The firm did not identify and test any controls over the accuracy and completeness of return information used in the operation of this control. (AS 2201.39)

The issuer recorded revenue net of customer sales incentives and returns. The following deficiencies were identified with respect to one business unit: · The firm did not perform any procedures to test or test controls over the accuracy and completeness of a report produced by the issuer that it used in its substantive testing of the sales incentive reserve. (AS 1105.10)

The issuer recorded revenue net of customer sales incentives and returns. The following deficiencies were identified with respect to one business unit: · The firm's approach to substantively test the issuer's sales return reserve was to develop an independent expectation of the estimate. The firm did not perform procedures to demonstrate it had a reasonable basis for the method used to develop its independent expectation. (AS 2501.22)

The firm selected for testing a control over the issuer's review of the accuracy of pricing information used to record revenue at this business unit. The firm did not identify and test any controls over the accuracy of certain information used in the operation of this control. (AS 2201.39)

The sample sizes the firm used in certain of its substantive procedures to test revenue and related accounts at this business unit 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 held loans receivable that were measured at fair value. The issuer determined the fair values of these loans based on discounted cash flows it developed using various significant assumptions including the issuer's approach to grouping loans in order to estimate fair value. The following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's (1) comparison of actual cash flows to forecasted cash flows (2) reviews of the reasonableness of discount rates and (3) review of its disclosures related to loans receivable. The firm did not identify and test any controls over the accuracy and completeness of certain information used in the operation of two of these controls. (AS 2201.39) In connection with our review the issuer reevaluated its controls over loans receivable and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

For a second business unit the firm's approach to substantively test the issuer's sales incentive and sales return reserves was to examine transactions that occurred after year end. The firm did not evaluate whether the audit evidence obtained was sufficient including whether the evidence supported or contradicted these estimates. (AS 2501.28)

The firm selected for testing a control over the issuer's review of the reserve for excess and obsolete inventory at one business unit. The firm did not identify and test any controls over the accuracy and completeness of certain information used in the operation of this control. (AS 2201.39)

The firm identified a fraud risk related to the potential for management to override controls including recording unsupported journal entries. The firm subjected certain of the issuer's business units to less extensive audit procedures. The firm did not perform any substantive procedures to test journal entries to address this risk at these business units. (AS 2401.58)

The firm's internal inspection program had inspected this audit and reviewed the Information Technology General Controls (ITGCs) area but did not identify the deficiency below. For one business unit the issuer used an information-technology (IT) system to initiate process and record transactions related to revenue accounts receivable inventory and accounts payable. In its testing of controls over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by this IT system. The firm did not identify and test any controls that addressed the risk that certain unauthorized changes were made to this system. (AS 2201.39)

For one business unit the issuer used an information-technology (IT) system to initiate process and record transactions related to revenue accounts receivable inventory and accounts payable. In its testing of controls over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by this IT system. The firm did not identify and test any controls that addressed the risk that certain unauthorized changes were made to this system. As a result of this deficiency in the firm's testing of ITGCs the firm's testing of these automated and IT-dependent manual controls was not sufficient. (AS 2201.46)

As a result of the firm's ITGC testing deficiency the firm did not perform sufficient other audit procedures as follows: · For certain revenue accounts receivable and inventory the firm did not perform sufficient procedures to test or sufficiently test controls over the accuracy and/or completeness of certain system-generated data or reports the firm used (1) to make its selections to test certain controls and (2) in its substantive testing. (AS 1105.10)