Explorer

The firm subjected this type of revenue from certain other business units to less extensive audit procedures. 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 specific risks associated with these business units and (3) whether the risks of material misstatement that the firm identified for the business unit subject to more extensive audit procedures also applied to these business units. (AS 2101.11 and .12)

For another business unit the issuer contracted with an external party to manufacture and sell products on behalf of the issuer and recognized the associated revenue based on information it obtained from this external party. The following deficiencies were identified: · The firm's procedures to test the completeness of this revenue consisted of performing substantive analytical procedures. The firm did not determine whether the expectations it used in these analytical procedures were based on predictable relationships. (AS 2305.13 and .14)

For another business unit the issuer contracted with an external party to manufacture and sell products on behalf of the issuer and recognized the associated revenue based on information it obtained from this external party. The following deficiencies were identified: · The issuer recognized certain of this revenue based on sales of this product to the external party. The firm obtained and used information from the external party in its substantive testing of this revenue but did not perform procedures to evaluate the reliability of this information. (AS 1105.04 and .06)

For another business unit the issuer contracted with an external party to manufacture and sell products on behalf of the issuer and recognized the associated revenue based on information it obtained from this external party. The following deficiencies were identified: · The issuer recognized certain of this revenue based on sales of this product to the external party. The firm did not evaluate the terms and conditions included in the issuer's sales contract with the external party. (AS 2301.08)

During the year the issuer acquired a business and engaged a specialist to determine the fair values of certain acquired assets. The following deficiencies were identified: · For one of these assets the firm did not sufficiently evaluate the reasonableness of a significant assumption developed by the issuer because it did not perform any procedures to evaluate the reasonableness of a component of this significant assumption. (AS 2501.16)

During the year the issuer acquired a business and engaged a specialist to determine the fair values of certain acquired assets. The following deficiencies were identified: · For certain other assets the firm did not perform any procedures to test the accuracy and completeness of issuer-produced information that was used by the specialist to determine their fair values. (AS 1105.A8a)

The firm did not identify and evaluate misstatements in certain required disclosures under FASB ASC Topic 470 Debt and FASB ASC Topic 805 Business Combinations related to the accounting for the purchase price allocation. (AS 2810.30 and .31)

The firm used an issuer-prepared schedule in its substantive testing of the issuer's statement of cash flows but did not perform any procedures to test or test controls over the accuracy and completeness of certain information included in this schedule. (AS 1105.10)

For certain of the issuer's business units the firm did not perform any procedures to identify and select journal entries and other adjustments for testing without having an appropriate basis for excluding those business units. (AS 2401.61)

The issuer used an information-technology (IT) system to initiate transactions related to certain revenue. The firm identified a control deficiency related to change management for this IT system. The following audit deficiencies were identified: · The firm identified and tested a compensating control that it believed mitigated this deficiency but did not identify that the control owner used information in the performance of this control that was produced by this IT system. (AS 2201.68) In connection with our review the issuer reevaluated its controls over this revenue 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 loans that were collectively evaluated for impairment the issuer determined the qualitative reserve component of the ACL using various risk-weighted qualitative factors. The following deficiencies were identified: · The firm selected for testing a control that included the issuer's review of these qualitative factors using an internally developed framework comprised of various assumptions. The firm did not identify and test any controls that addressed the (1) reasonableness of the assumptions from the framework that were used in the operation of this control (2) reasonableness of the risk weights assigned to the qualitative factors and (3) the accuracy of certain loan information used in the operation of the issuer's controls over the ACL that the firm selected for testing. (AS 2201.39)

For loans that were collectively evaluated for impairment the issuer determined the qualitative reserve component of the ACL using various risk-weighted qualitative factors. The following deficiencies were identified: · The firm's approach for substantively testing the qualitative reserve component of the ACL was to test the issuer's process. The firm did not perform any procedures to evaluate whether the issuer had a reasonable basis for the qualitative factors used in developing the reserve. (AS 2501.16)

The issuer assigned certain loans a loan risk rating which was an important input in estimating the quantitative component of the ACL. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of the loan risk ratings assigned to certain loans. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the loan risk ratings. (AS 2201.42 and .44)

The issuer assigned certain loans a loan risk rating which was an important input in estimating the quantitative component of the ACL. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of the loan risk ratings assigned to certain loans. The firm did not assess whether the issuer's review was designed to occur with sufficient scope and frequency to address the risks of material misstatement. (AS 2201.42)

The issuer assigned certain loans a loan risk rating which was an important input in estimating the quantitative component of the ACL. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's comparison of loan risk ratings determined by an external loan reviewer to loan risk ratings determined by the issuer. The firm did not identify and test any controls that addressed the reasonableness of the loan risk ratings determined by the external loan reviewer. (AS 2201.39)

The issuer assigned certain loans a loan risk rating which was an important input in estimating the quantitative component of the ACL. The following deficiencies were identified: · The firm's substantive procedures to test the reasonableness of the assigned loan risk rating for these loans included selecting a sample of loans for testing. The sample size that the firm used 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)

During the year the issuer acquired a business. The firm selected for testing controls that included the issuer's review of the valuation of acquired loans. The firm did not evaluate the specific review procedures that the control owner performed to assess the (1) reasonableness of the assumptions the issuer used to develop the fair value of these loans and (2) accuracy and completeness of certain data used in the operation of these controls. (AS 2201.42 and .44)

The issuer engaged a specialist to perform an assessment of its goodwill for possible impairment and the firm selected for testing a control that consisted of the issuer's review of this assessment and related significant assumptions. The firm did not evaluate the specific review procedures the control owner performed to assess the reasonableness of certain significant assumptions used in the assessment. (AS 2201.42 and .44)

The issuer engaged a specialist to perform an assessment of its goodwill for possible impairment and the firm selected for testing a control that consisted of the issuer's review of this assessment and related significant assumptions. The firm did not identify and test any controls over the review of the forecasted financial information used in the operation of this control. (AS 2201.39)

The firm's approach to substantively test the issuer's impairment assessment consisted of (1) testing the issuer's process and (2) developing an independent expectation of the fair value of the issuer's single reporting unit with the assistance of an auditor-employed specialist. The following deficiencies were identified: · In testing the issuer's process the firm did not perform procedures to evaluate the reasonableness of certain significant assumptions developed by the issuer. (AS 2501.16)

The issuer used an information-technology (IT) system to initiate transactions related to certain revenue. The firm identified a control deficiency related to change management for this IT system. The following audit deficiencies were identified: · The firm did not sufficiently evaluate the severity of the control deficiency because it did not accurately calculate the magnitude of the potential misstatement resulting from this deficiency. (AS 2201.62) In connection with our review the issuer reevaluated its controls over this revenue 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 approach to substantively test the issuer's impairment assessment consisted of (1) testing the issuer's process and (2) developing an independent expectation of the fair value of the issuer's single reporting unit with the assistance of an auditor-employed specialist. The following deficiencies were identified: · In testing the issuer's process the firm did not perform sufficient procedures to evaluate the reasonableness of another significant assumption developed by the company's specialist because its procedures were limited to evaluating this assumption for consistency with historical experience without taking into account changes in conditions and events affecting the issuer. (AS 1105.A8b)

The firm's approach to substantively test the issuer's impairment assessment consisted of (1) testing the issuer's process and (2) developing an independent expectation of the fair value of the issuer's single reporting unit with the assistance of an auditor-employed specialist. The following deficiencies were identified: · The firm did not sufficiently evaluate the relevance and reliability of the company's specialist's work because it did not identify and evaluate inconsistencies between another significant assumption developed by the company's specialist and (1) the auditor-employed specialist's independent expectation of this assumption and (2) management's analysis of this assumption. (AS 1105.A9 and .A10)

The firm's approach to substantively test the issuer's impairment assessment consisted of (1) testing the issuer's process and (2) developing an independent expectation of the fair value of the issuer's single reporting unit with the assistance of an auditor-employed specialist. The following deficiencies were identified: · In developing an independent expectation the firm used another significant assumption. The firm did not identify that the auditor-employed specialist did not perform procedures to demonstrate it had a reasonable basis for its selection of this significant assumption from a range of potential assumptions. (AS 1201.C6 and .C7; AS 2501.22)

The issuer recorded the fair value of certain of its available-for-sale (AFS) securities based on prices it obtained from an external pricing service. The firm selected for testing a control that consisted of the issuer's comparison of its recorded prices to prices obtained from another external pricing service and the issuer's investigation of price variances that exceeded certain thresholds. The firm did not evaluate the specific review procedures that the control owner performed to (1) assess whether the prices the issuer used in this comparison were derived from independent sources and (2) investigate identified variances and determine whether items identified for follow up had been appropriately resolved. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the issuer's review of certain AFS securities for potential impairment. 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's approach for substantively testing the fair values of certain of the issuer's held-to-maturity securities was to test the issuer's process and the firm used an auditor-employed specialist to evaluate the methods and significant assumptions used by the issuer. The firm did not sufficiently test the fair value of these investments because it did not identify that the auditor-employed specialist did not perform procedures to evaluate whether the issuer had a reasonable basis for certain significant assumptions it used. (AS 1201.C6 and .C7; AS 2501.16)

The issuer engaged a specialist to determine the fair values for its investments in certain entities. The firm's approach for substantively testing these fair value measurements was to test the issuer's process and the firm used an auditor-employed specialist to evaluate certain significant assumptions the company's specialist used. The following deficiencies were identified: · The firm did not identify that the auditor-employed specialist did not sufficiently evaluate the reasonableness of certain significant assumptions developed by the company's specialist because the auditor-employed specialist did not take into account inconsistencies between these assumptions and other significant assumptions developed by the issuer. (AS 1105.A8b; AS 1201.C6 and .C7)

The issuer engaged a specialist to determine the fair values for its investments in certain entities. The firm's approach for substantively testing these fair value measurements was to test the issuer's process and the firm used an auditor-employed specialist to evaluate certain significant assumptions the company's specialist used. The following deficiencies were identified: · The firm did not sufficiently evaluate the reasonableness of certain significant assumptions developed by the issuer because it did not perform any procedures to evaluate the reasonableness of certain components of these assumptions. Further for certain of these significant assumptions the firm did not evaluate significant differences between these assumptions and the issuer's recent experience. (AS 2501.16)

The firm's substantive procedures to test the issuer's disclosure related to remaining performance obligations included selecting a sample of contracts for testing. For certain of these contracts the firm did not perform procedures to evaluate the reasonableness of a significant assumption used by the issuer to develop this disclosure. (AS 2501.16)

The issuer performed an assessment of certain of its long-lived assets for possible impairment at year end and concluded that the carrying value of these assets was recoverable. The firm did not identify that the issuer did not consider an indicator of possible impairment in its assessment of the recoverability of these assets. (AS 2301.08)

For this revenue the following additional deficiencies were identified: · The firm did not identify and test any controls over the accuracy and completeness of certain information used to record revenue. (AS 2201.39) In connection with our review the issuer reevaluated its controls over this revenue 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 internal inspection program had inspected this audit reviewed these areas and also identified the deficiencies below. The issuer used an IT system to record transactions related to revenue. The firm did not identify and test any controls that addressed the risk that users with the ability to develop changes also had the ability to implement those changes. (AS 2201.39)

The firm's internal inspection program had inspected this audit reviewed these areas and also identified the deficiencies below. The issuer used an IT system to record transactions related to revenue. In its testing of controls over revenue the firm tested an IT-dependent manual control that used a report generated from this system. As a result of this deficiency in the firm's testing of ITGCs the firm's testing of this IT-dependent manual control was not sufficient. (AS 2201.46)

The firm's internal inspection program had inspected this audit reviewed these areas and also identified the deficiencies below. For certain revenue the following additional deficiencies were identified: · For one type of revenue the firm did not perform substantive procedures to test whether performance obligations had been satisfied before revenue was recognized beyond comparisons to customer payments and/or issuer-produced information. (AS 2301.08 and .13)

The firm's internal inspection program had inspected this audit reviewed these areas and also identified the deficiencies below. For certain revenue the following additional deficiencies were identified: · For another type of revenue the firm's substantive procedures consisted of selecting a sample of transactions for testing. For certain transactions the firm did not perform procedures to test or test controls over the accuracy of certain issuer-produced information that the firm used in its testing. (AS 1105.10)

The firm's internal inspection program had inspected this audit reviewed these areas and also identified the deficiencies below. The firm selected for testing a control that consisted of the issuer's review of the valuation of deferred tax assets. The firm did not identify and test any controls over the review of forecasted financial information used in the operation of this control. (AS 2201.39)

During the year the issuer entered into agreements resulting in the issuance of convertible notes and an option for the creditor to purchase additional convertible notes; the issuer accounted for this option as a liability. Certain of these notes were subsequently converted to equity. The following deficiencies were identified: · The firm's approach for substantively testing the fair values of the convertible notes and related purchase option at issuance and year end was to develop independent expectations of the estimates using the work of an auditor-employed specialist. The firm did not identify that the auditor-employed specialist did not perform procedures to demonstrate it had a reasonable basis for a component of a significant assumption it developed and used in each independent expectation. (AS 1201.C6 and .C7; AS 2501.22)

During the year the issuer entered into agreements resulting in the issuance of convertible notes and an option for the creditor to purchase additional convertible notes; the issuer accounted for this option as a liability. Certain of these notes were subsequently converted to equity. The following deficiencies were identified: · The firm's approach for substantively testing the fair value of the converted notes was to test the issuer's process. The firm did not evaluate whether the method used by the issuer to measure the fair value was in conformity with the requirements of FASB ASC Topic 820 Fair Value Measurement. (AS 2501.10)

During the year events or changes in circumstances existed indicating that the carrying value of certain of the issuer's intangible assets may not be recoverable and the issuer performed assessments of these assets for possible impairment. The following deficiencies were identified: · For one asset group the firm did not perform any substantive procedures to test the issuer's impairment assessment. (AS 2501.07)

During the year events or changes in circumstances existed indicating that the carrying value of certain of the issuer's intangible assets may not be recoverable and the issuer performed assessments of these assets for possible impairment. The following deficiencies were identified: · For another asset group the firm's substantive procedures to test the issuer's impairment assessment consisted of developing an independent expectation of the undiscounted cash flows used to assess the asset group for recoverability. In developing its expectation the firm did not perform procedures to demonstrate it had a reasonable basis for the undiscounted cash flow period it used including taking into account certain requirements of FASB ASC Topic 360 Property Plant and Equipment. (AS 2501.21 and .22)

The issuer used a service organization to host and maintain an IT system that the issuer used to initiate process and record transactions related to revenue and inventory. In its testing of controls over these accounts the firm tested certain automated and/or IT-dependent manual controls that used data and reports generated or maintained by this IT system. As a result of the following 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)

For this revenue the following additional deficiencies were identified: · The firm's substantive procedures to test revenue included testing a sample of transactions. The firm did not perform any procedures to test whether performance obligations were satisfied before revenue was recognized. (AS 2301.08)

With respect to this service organization the firm obtained a service auditor's report and identified a complementary user control related to change management that the service auditor's report described as necessary. The firm did not perform procedures beyond inquiry to evaluate whether the issuer had implemented this control. (AS 2201.39 and .B22)

As a result of the firm's control testing deficiencies the firm did not perform sufficient substantive procedures over revenue as follows: · The firm did not perform procedures to test or sufficiently test controls over the completeness of certain reports that the firm used in its substantive testing of revenue. (AS 1105.10)

As a result of the firm's control testing deficiencies the firm did not perform sufficient substantive procedures over revenue as follows: · The sample sizes the firm used in 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 initiate process and record transactions related to certain revenue. In its testing of controls over this revenue the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. As a result of the following deficiencies 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)

With respect to change management the firm selected for testing a control over the issuer's review of changes to the production environments for these IT systems. 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)

With respect to change management the firm selected for testing a control over the issuer's review of changes to the production environments for these IT systems. The firm did not identify that this control was not designed to address the risk that unauthorized changes were made to these systems as certain users with the ability to develop and implement changes also had administrative access to the monitoring tools used in the operation of this control. (AS 2201.42)

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