Explorer

With respect to work-in-process inventory at one of the issuer's business units which the firm designated as subject to more extensive audit procedures the following deficiencies were identified: • The firm did not identify and test any controls over this inventory. (AS 2201.39)

In evaluating whether there was substantial doubt about the issuer's ability to continue as a going concern the firm did not sufficiently test the reliability of the issuer's forecasted cash outflows that the firm used in its evaluation. The firm compared the forecasted cash outflows to the issuer's current-year cash outflows adjusted for certain one-time charges but did not perform any procedures to evaluate whether those adjusted current-year cash outflows would be representative of future cash outflows. Further the firm also considered in its evaluation the amount of credit that the issuer expected to have available but did not perform any procedures to evaluate whether this expected amount was reasonable. (AS 1105.04 and .06; AS 2415.03)

With respect to work-in-process inventory at one of the issuer's business units which the firm designated as subject to more extensive audit procedures the following deficiencies were identified: • The firm did not perform any substantive procedures to test this inventory. (AS 2301.08)

The firm designated certain of the issuer's other business units as subject to less extensive audit procedures. With respect to these business units the firm selected for testing a control that included quarterly reviews of financial information including inventory. The firm did not evaluate the specific review procedures that the control owners performed to determine whether items identified for follow up were appropriately resolved. (AS 2201.42 and .44)

The issuer performed cycle counts of certain inventory held at various locations. The firm selected for testing a control that consisted of the issuer's reviews of the cycle-count results. 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 performed cycle counts of certain inventory held at various locations. The firm selected for testing a control that consisted of the issuer's reviews of the cycle-count results. The firm did not identify and test any controls over the accuracy and completeness of the reports that the control owners used in the operation of this control. (AS 2201.39)

The firm selected for testing controls that consisted of the issuer's validation of the models that the issuer used to estimate the quantitative component of the ACL for loans collectively evaluated for impairment. As part of the review to validate these models the control owners performed various tests of (1) the models such as sensitivity analyses and benchmark comparisons to other models and (2) the data used to develop the models and any underlying assumptions. The firm did not evaluate the specific review procedures that the control owners performed to (1) conduct and evaluate the results of these tests and (2) verify the accuracy and completeness of the data the control owners used in these tests. (AS 2201.42 and .44)

During the audit the firm did not identify and appropriately address that the issuer's accounting for warrants as equity was not in conformity with FASB ASC Topic 815 Derivatives and Hedging. (AS 2810.30) Unrelated to our review the issuer reevaluated its accounting for these warrants and concluded that a material misstatement existed that had not been previously identified. The issuer subsequently corrected this misstatement in a restatement of its financial statements and the firm revised and reissued its report on the financial statements.

The issuer used models to value certain derivatives. The firm selected for testing a control that consisted of the issuer's review of the fair values determined by these models. The firm did not evaluate the specific review procedures the control owner performed to assess the reasonableness of the resulting fair values for certain of these derivatives. (AS 2201.42 and .44)

The issuer generated certain revenue from the sale of electricity. The firm selected for testing a control over the volumes of electricity delivered that consisted of the issuer's comparison of adjusted monthly volumes to the corresponding prior-period adjusted volumes. The firm did not test the aspect of this control that addressed the accuracy and completeness of the information the issuer used to calculate the adjustments to the volumes delivered. (AS 2201.42 and .44)

The issuer recognized revenue from a customer contract over time based on costs incurred to date relative to total estimated costs to complete the contract. The issuer used forecasted labor hours in determining the estimated costs to complete the contract. The following deficiencies were identified: · The firm selected for testing a control that included the issuer's reviews of the forecasted labor hours. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of the total forecasted labor hours. (AS 2201.42 and .44)

The issuer held investments in multiple entities and determined that certain of these were variable interest entities (VIEs). The following deficiencies were identified: · The firm did not perform any substantive procedures beyond reading certain agreements and inquiring of management to evaluate whether these VIEs should be consolidated. (AS 2301.08)

During the year the issuer identified events indicating that the carrying value of its long-lived assets may not be recoverable and performed an impairment analysis. The following deficiencies were identified: · The firm did not identify and test any controls related to the issuer's evaluation of long-lived assets for possible impairment. (AS 2201.39)

During the year the issuer identified events indicating that the carrying value of its long-lived assets may not be recoverable and performed an impairment analysis. The following deficiencies were identified: · The firm did not perform any substantive procedures to test long-lived assets for possible impairment. (AS 2301.08)

The firm did not perform any substantive procedures to test certain revenue. (AS 2301.08)

The firm's substantive procedures to test certain other revenue consisted of performing substantive analytical procedures. The firm did not accurately calculate its expected revenue and the recorded revenue amounts used in these analytical procedures. Further the threshold that the firm established to investigate differences was too high to identify misstatements that could be material either individually or in the aggregate. (AS 2305.16 and .20)

The firm's internal inspection program inspected this audit and reviewed this area but did not identify the deficiency below. The firm's approach for substantively testing revenue consisted primarily of performing a software-assisted analysis to test the relationships among revenue accounts receivable and cash receipts. The reliability of the audit evidence obtained from this analysis was dependent upon the firm's testing of the underlying data. The firm did not sufficiently test the accuracy of the underlying data because the firm did not (1) identify and test any controls or (2) inspect any supporting documentation or perform other procedures to evaluate the appropriateness of the data. (AS 1105.10)

During the year the issuer entered into a significant transaction. In connection with this transaction the issuer terminated a previous arrangement and as a result recognized a loss. The firm did not evaluate the reasonableness of a significant assumption the issuer used to estimate the loss that it recognized. (AS 2501.16)

The issuer recognized revenue from a customer contract over time based on costs incurred to date relative to total estimated costs to complete the contract. The issuer used forecasted labor hours in determining the estimated costs to complete the contract. The following deficiencies were identified: · The firm did not sufficiently test the estimated costs to complete the contract because it did not perform any substantive procedures beyond inquiring of issuer personnel to test the total forecasted labor hours. (AS 2501.07)

The issuer performed cycle counts of certain inventory held at various locations. The firm selected for testing a control that included the issuer's reviews of the cycle-count results. The firm did not identify and test any controls over the accuracy and completeness of certain reports that the control owners used in the operation of this control. (AS 2201.39)

Due to the deficiency discussed above the firm did not obtain sufficient appropriate audit evidence that the cycle-count procedures the issuer used for this inventory were sufficiently reliable to produce results substantially the same as those that would have been obtained by a count of all items each year. (AS 2510.11)

The firm did not identify and test any controls over the capitalization of interest costs associated with the construction of certain long-lived assets. (AS 2201.39) Unrelated to our review the issuer reevaluated its controls over the capitalization of these interest costs and concluded that a material weakness existed that had not been previously identified. The issuer subsequently revised its report on ICFR to reflect this material weakness and the firm modified its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

The firm did not perform any substantive procedures to test the capitalization of interest costs associated with the construction of certain long-lived assets. (AS 2301.08)

The firm did not identify and test any controls over long-lived assets and depreciation expense. (AS 2201.39)

The firm did not perform any substantive procedures to test long-lived assets and depreciation expense. (AS 2301.08)

The issuer held investments in multiple entities and determined that certain of these were variable interest entities (VIEs). The following deficiencies were identified: · The firm did not identify and test any controls related to the issuer's evaluation of whether these VIEs should be consolidated. (AS 2201.39)

The firm's approach for substantively testing the valuation of acquired loans as of the acquisition date and at year end was to test the issuer's process. The firm did not evaluate whether the methods the issuer used to value these loans were in conformity with GAAP including the requirements of FASB ASC Topic 310 Receivables related to (1) whether the acquired assets included loans with deterioration in credit quality since origination and (2) the measurement of purchased impaired loans. (AS 2501.10)

The issuer recorded certain investment securities at fair value based on cash-flow models. The following deficiencies were identified: · The firm did not perform any substantive procedures to test the fair value of these investment securities as of the issuer's year end. (AS 2501.07)

The issuer recorded certain investment securities at fair value based on cash-flow models. The following deficiencies were identified: · The firm did not perform any substantive procedures to test certain required disclosures the issuer made under FASB ASC Topic 820 Fair Value Measurement. (AS 2301.08; AS 2501.07)

The issuer used a service organization for recordkeeping and processing of transactions related to certain other investment securities. The firm obtained a service auditor's report but did not assess how the controls that the service auditor tested related to the issuer's controls. Further the firm did not perform any procedures beyond inquiring of management to ascertain whether there were any changes in the service organization's controls from the date of this service auditor's report which was eight months before the issuer's year end. (AS 2201.B21 .B24 and .B25)

With respect to a significant litigation matter that was included in the issuer's contingencies disclosure the following deficiencies were identified: · The firm selected for testing controls that consisted of the issuer's reviews of litigation contingencies. The firm did not evaluate the specific review procedures that the control owners performed to assess the appropriateness of the accounting for and disclosure of this litigation matter including the control owners' procedures to assess the degree of probability of an unfavorable outcome and the amount or range of potential loss. (AS 2201.42 and .44)

With respect to a significant litigation matter that was included in the issuer's contingencies disclosure the following deficiencies were identified: · The firm did not sufficiently evaluate whether the issuer's accounting for and disclosure of this litigation matter was appropriate in light of certain evidence the firm had obtained related to the probability of an unfavorable outcome and the amount or range of potential loss. (AS 2505.04; AS 2810.03)

The issuer recorded a loss reserve for certain insurance claims that were reinsured. The following deficiencies were identified: · The firm did not identify and test any controls that addressed whether these insurance claims were valid and in compliance with the terms of the reinsurance agreement. (AS 2201.39)

The issuer recorded a loss reserve for certain insurance claims that were reinsured. The following deficiencies were identified: · The firm did not perform any substantive procedures to test whether these insurance claims were valid and in compliance with the terms of the reinsurance agreement. (AS 2301.08)

The issuer used a service organization to perform recordkeeping and pricing for its available-for-sale securities. The firm selected for testing a control that consisted of the issuer's comparison of prices this service organization used to prices that the issuer obtained from an external pricing service. The firm did not evaluate the specific review procedures that the control owners performed to determine whether items identified for follow up were appropriately resolved. (AS 2201.42 and .44)

The issuer used a service organization to perform recordkeeping and pricing for its available-for-sale securities. The firm selected for testing a control that consisted of the issuer's comparison of prices this service organization used to prices that the issuer obtained from an external pricing service. The firm did not identify and test any controls over the accuracy and completeness of a system-generated report used in the operation of this control. (AS 2201.39)

The issuer assigned a risk rating to each of its commercial loans. The loan risk rating was an important input in estimating the ACL for commercial loans collectively assessed for impairment. The firm selected for testing a control that consisted of the issuer's review for a sample of loans of the loan risk ratings assigned to certain commercial loans. The firm did not evaluate (1) the criteria the control owners used to select loans for review and (2) whether the sample of loans that were reviewed was sufficient to address the risks of material misstatement presented by the different risk characteristics inherent in the population of these loans. (AS 2201.42)

With respect to the allowance for loan losses (ALL) at one of the issuer's subsidiaries: The firm selected for testing a control that consisted of the issuer's review of the ALL. The firm did not identify and test any controls over the completeness of a manually prepared spreadsheet that was used in the operation of this control. (AS 2201.39)

The issuer assigned a risk rating to each of its commercial loans. The loan risk rating was an important input in estimating the ACL for commercial loans collectively assessed for impairment. The firm selected for testing a control that consisted of the issuer's review for a sample of loans of the loan risk ratings assigned to certain commercial loans. The firm did not identify and test any controls over the accuracy and completeness of certain loan information that the control owners used to select loans for review. (AS 2201.39)

The firm did not identify and test any controls that addressed the risk that certain types of journal entries could be posted to the issuer's general ledger system without review or approval. (AS 2201.39)

The firm's substantive procedures to test certain revenue included performing substantive analytical procedures. The firm did not determine whether the expectations used in these substantive analytical procedures were based on predictable relationships. Further the expectations the firm used were not sufficiently precise to identify differences that could be potential material misstatements individually or in the aggregate because the data used to develop the expectations did not address important factors that the issuer disclosed as having an effect on sales. (AS 2305.13 .14 and .17)

The firm's substantive procedures to test certain revenue included selecting a sample of transactions for testing. The firm's sample was too small to provide sufficient appropriate audit evidence because in determining the sample size the firm did not take into account the allowable risk of incorrect acceptance. (AS 2315.16 .23 and .23A)

The issuer recognized certain revenue based on product volumes delivered to customers. The firm used volume data in its substantive testing of this revenue but did not perform any procedures to test or test any controls over the accuracy and completeness of these data. (AS 1105.10)

The issuer used a significant assumption to estimate certain of its insurance-related liabilities. The firm did not perform any procedures to test or test any controls over the accuracy and completeness of certain issuer-produced data that was used to develop this significant assumption. (AS 1105.10)

The issuer performed cycle counts of certain inventory. The firm selected for testing controls that included the issuer's reviews of the cycle count results. When testing the operating effectiveness of these controls the firm did not evaluate the specific review procedures that the control owners performed to investigate and resolve differences between the cycle counts and the quantities recorded in the issuer's inventory system. (AS 2201.44)

With respect to the allowance for loan losses (ALL) at one of the issuer's subsidiaries: The firm used this spreadsheet in its substantive testing of the ALL but did not perform any procedures to test or test any controls over the completeness of this spreadsheet. (AS 1105.10)

The firm's internal inspection program had inspected this audit reviewed these areas and also identified the deficiencies below. The firm's substantive procedures to test revenue at certain of the issuer's locations consisted of substantive analytical procedures. For these substantive analytical procedures the firm developed its expectations in part using data derived from the recorded amounts of revenue. The firm did not evaluate whether these data were sufficiently relevant and reliable for the purpose of achieving its audit objectives. (AS 1105.04 and .06; AS 2305.16)

The firm's internal inspection program had inspected this audit reviewed these areas and also identified the deficiencies below. For two of the issuer's reporting units the firm selected for testing controls that consisted of the issuer's reviews of the forecasts used in its goodwill impairment analysis including certain assumptions used in these forecasts. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of these assumptions. (AS 2201.42 and .44)

The firm did not perform any substantive procedures to test certain revenue. (AS 2301.08)

The issuer valued certain inventory using the last-in first-out (LIFO) method. The following deficiencies were identified: · The firm did not identify and test any controls over the LIFO inventory reserve. (AS 2201.39)