Explorer

The issuer developed the ACL for loans collectively evaluated for impairment using various models that were maintained by a service organization. The firm obtained a service auditor's report for this service organization. The following deficiency was identified: • The firm selected for testing a control that consisted of the issuer's review of the ACL. The firm did not identify and test any controls over the accuracy and completeness of a report produced by the service organization that was used in the operation of this control. (AS 2201.39)

The issuer developed the ACL for loans collectively evaluated for impairment using various models that were maintained by a service organization. The firm obtained a service auditor's report for this service organization. The following deficiency was identified: • The firm selected for testing a control that included the issuer's review of certain ACL assumptions that the service organization used in its models. The firm did not perform procedures to evaluate the specific review procedures that the control owners performed to assess the reasonableness of these assumptions. (AS 2201.42 and .44)

The issuer developed the ACL for loans collectively evaluated for impairment using various models that were maintained by a service organization. The firm obtained a service auditor's report for this service organization. The following deficiency was identified: • The firm selected for testing a control that included the issuer's review of certain ACL assumptions that the service organization used in its models. The firm did not identify and test any controls over the review of an analysis that was prepared by a company specialist and used in the operation of this control. (AS 2201.39)

The firm selected for testing certain controls over the review of changes to risk ratings credit quality monitoring collateral impairment analysis and loan write-offs. The firm did not perform procedures to 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)

The firm did not identify and test any or test aspects of controls over the accuracy and/or completeness of the loan delinquency data and certain other loan data that the issuer used in the operation of controls over the ACL the firm selected for testing. (AS 2201.39)

The firm's approach for substantively testing the ACL was to test the issuer's process and the firm used the work of company specialists to evaluate the appropriateness of certain of the models the issuer used to develop the ACL for loans collectively evaluated for impairment. The following deficiency was identified: • The firm used a report produced by the service organization in its substantive testing of the ACL but did not perform procedures to test or test any controls over the accuracy of this report. (AS 2301.08 and .11)

The firm's approach for substantively testing the ACL was to test the issuer's process and the firm used the work of company specialists to evaluate the appropriateness of certain of the models the issuer used to develop the ACL for loans collectively evaluated for impairment. The following deficiency was identified: • The firm did not perform procedures to evaluate whether certain of the models the issuer used were in conformity with the requirements of GAAP and appropriate for the nature of the ACL beyond reading the company's specialist's report. Further the firm did not perform any procedures with respect to its use of the work of the company's specialist as audit evidence. (AS 1105.A1 - A.10; AS 2501.10)

The issuer entered into arrangements with its customers for cooperative promotion allowances that the issuer recorded as an operating expense. The firm did not evaluate whether recording these allowances as an operating expense was appropriate because it did not perform procedures beyond inquiry to evaluate whether these allowances were a distinct good or service in conformity with FASB ASC Topic 606 Revenue from Contracts with Customers. (AS 2810.30) In connection with our review the issuer reevaluated its accounting for cooperative promotion allowances 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.

During the year the issuer acquired certain businesses and engaged an external specialist to estimate the fair value of certain acquired assets. The issuer provided the external specialist prospective financial information and data that was used to determine the fair value of the assets. The firm's approach for testing the fair value of these assets was to review and test management's process. The firm did not perform any procedures to evaluate the reasonableness of the prospective financial information. (AS 1210.12)

During the year the issuer acquired certain businesses and engaged an external specialist to estimate the fair value of certain acquired assets. The issuer provided the external specialist prospective financial information and data that was used to determine the fair value of the assets. The firm's approach for testing the fair value of these assets was to review and test management's process. The firm did not test the accuracy and/or completeness of the issuer-provided data. (AS 1210.12)

The firm selected for testing a control that consisted of management's review of the accounting for a significant transaction. The firm did not evaluate the specific review procedures that the control owner performed to evaluate the reasonableness of an estimate related to the significant transaction. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of management's review of the accounting for a significant transaction. The issuer engaged a company specialist to assist in developing an estimate related to this significant transaction. The firm did not perform procedures beyond obtaining general industry information to evaluate the reasonableness of certain significant assumptions that were developed by the issuer and used by the company specialist. Further the firm did not perform any procedures to evaluate the relevance and reliability of the general industry information. (AS 1105.04 and .06; AS 2501.16)

The firm did not identify and evaluate departures 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 firm did not identify and evaluate a departure from GAAP related to the issuer's omission of a disclosure required by FASB ASC Topic 330 Inventory. (AS 2810.30 and .31) In connection with our review the issuer reevaluated its disclosures for inventory and determined that a disclosure was 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 this omission in a subsequent filing.

The firm's approach for substantively testing the valuation of certain equity-related transactions was to test the issuer's process. The firm did not perform sufficient procedures to evaluate whether the issuer had a reasonable basis for certain of the significant assumptions used to estimate the valuation of these equity-related transactions because the firm did not evaluate how the issuer considered certain relevant factors required under GAAP when developing these significant assumptions. (AS 2501.16)

The issuer engaged a specialist to perform an assessment of goodwill for possible impairment using cash-flow forecasts. The firm's approach for substantively testing this impairment assessment was to test the issuer's process. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate the reasonableness of a significant assumption developed by the company's specialist because the firm did not perform any procedures to evaluate the reasonableness of a component of this assumption. (AS 1105.A8b)

During the year the issuer entered into a significant transaction. The following deficiency was identified: • The firm did not identify and evaluate certain departures from GAAP related to the issuer's accounting for and disclosures associated with this transaction. (AS 2810.30 and .31)

During the year the issuer entered into a significant transaction. The following deficiency was identified: • The firm did not evaluate the appropriateness of certain other aspects of the issuer's accounting for this transaction. (AS 2301.08)

In addition the firm did not identify and evaluate departures from GAAP related to: • the issuer's method used to record estimated expenses associated with these transactions; (AS 2501.10)

In addition the firm did not identify and evaluate departures from GAAP related to: • the issuer's omission of certain disclosures required under GAAP for these transactions. (AS 2810.30 and .31)

The issuer engaged a specialist to perform an assessment of goodwill for possible impairment. The firm's approach for substantively testing this impairment assessment was to test the issuer's process. The firm did not perform procedures to evaluate the reasonableness of certain significant assumptions developed by the issuer and used in this impairment analysis. (AS 2501.16)

The issuer engaged a specialist to perform an assessment of goodwill for possible impairment. The firm's approach for substantively testing this impairment assessment was to test the issuer's process. The firm did not perform procedures to evaluate the reasonableness of certain other significant assumptions developed by the issuer and used in this impairment analysis beyond performing a sensitivity analysis. (AS 2501.16)

The firm did not perform substantive procedures beyond obtaining certain cash receipt evidence to evaluate (1) whether the performance obligations had been satisfied before revenue was recognized and (2) the accuracy of the transaction price used to record revenue. (AS 2301.08 and .13)

The issuer engaged a specialist to perform an assessment of goodwill for possible impairment using cash-flow forecasts. The firm's approach for substantively testing this impairment assessment was to test the issuer's process. The following deficiency was identified: • The firm did not perform procedures to evaluate whether the issuer's method to determine the fair value used in the assessment that excluded certain costs from these cash-flow forecasts was in conformity with GAAP. (AS 2501.10)

The issuer engaged a specialist to perform an assessment of goodwill for possible impairment using cash-flow forecasts. The firm's approach for substantively testing this impairment assessment was to test the issuer's process. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate the reasonableness of a significant assumption developed by the issuer because its procedures were limited to comparing this assumption with the assumption used in prior years' impairment assessments. Further the firm did not evaluate a significant difference between this assumption and the issuer's historical experience. (AS 2501.16)

The issuer engaged a specialist to perform an assessment of goodwill for possible impairment using cash-flow forecasts. The firm's approach for substantively testing this impairment assessment was to test the issuer's process. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate the reasonableness of another significant assumption developed by the issuer because it did not evaluate the consistency of this assumption with historical or recent experience taking into account that this assumption was based on certain conditions or events that affected the company in the current year that may not recur in future years. (AS 2501.16)

The firm selected for testing a control that consisted of the issuer's review of certain loans based on risk indicators including an identification of problem loans which operated during the first seven months of the year. 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)

The firm selected for testing a control that consisted of the issuer's review of certain loans based on risk indicators including an identification of problem loans which operated during the first seven months of the year. The firm did not identify and test any controls over the issuer's review of loans for the last five months of the year. (AS 2201.39)

The firm's approach for substantively testing the ALL was to review and test management's process. The firm did not perform sufficient procedures to evaluate the reasonableness of the ALL because the firm did not perform procedures to test certain factors and assumptions used by the issuer to determine the qualitative component of the ALL. (AS 2501.09 .10 and .11)

The firm selected for testing a control that included the issuer's review of the comparison of fair values of certain investments provided by external parties for one investment from each investment type held by the issuer. The firm did not evaluate whether the control could effectively prevent or detect a material misstatement as designed. Further 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)

The firm did not identify and test any controls over the appropriateness of the classification of investments. (AS 2201.39)

The issuer's general reserve component of the ALL included a qualitative reserve that included two components based on qualitative adjustments. The firm's approach for substantively testing the ALL was to test the issuer's process. The firm did not perform sufficient procedures to evaluate the reasonableness of the basis points applied to qualitative factors used by the issuer to determine one of the qualitative adjustments because the firm did not evaluate whether the issuer had a reasonable basis for the basis points used. (AS 2501.16)

The issuer's general reserve component of the ALL included a qualitative reserve that included two components based on qualitative adjustments. The firm's approach for substantively testing the ALL was to test the issuer's process. The firm did not perform sufficient procedures to test the other qualitative adjustment because the firm did not evaluate the reasonableness of a significant assumption used in the calculation. (AS 2501.16)

The issuer's general reserve component of the ALL included a qualitative reserve that included two components based on qualitative adjustments. The firm's approach for substantively testing the ALL was to test the issuer's process. The firm did not evaluate the relevance of certain external data the issuer used to determine the adjustment. (AS 1105.04 and .06)

The issuer's general reserve component of the ALL included a qualitative reserve that included two components based on qualitative adjustments. The firm's approach for substantively testing the ALL was to test the issuer's process. The firm did not perform any substantive procedures to test or in the alternative test any controls over the accuracy and completeness of certain internal data used in the calculation. (AS 1105.10)

The issuer used information from a service organization in developing its estimate of the ACL. The firm selected for testing certain controls that used data and reports from the service organization. The firm did not (1) perform any procedures to obtain evidence regarding the service organization's controls for the year under audit or (2) identify and test any other controls over the accuracy and completeness of the data and reports used in the performance of these controls. (AS 2201.39 and .B19)

The firm used certain of these data and reports in its substantive testing of the ACL but did not test or identify and test any controls over (as discussed above) the accuracy and/or completeness of these data and reports. (AS 2301.08 and .11)

The firm's approach for substantively testing certain revenue consisted primarily of performing a software-assisted analysis which included performing procedures to test the accuracy of information used in this analysis. The software-assisted analysis was designed to test the relationships among revenue accounts receivable deferred revenue and cash that the issuer recorded through journal entries. The firm did not perform sufficient procedures to test the appropriateness of certain information used in this analysis because it did not test that all of the cash data was subject to the controls selected for testing. (AS 1105.10)

The issuer used seven information-technology (IT) systems to initiate process and record transactions related to certain revenue and the related accounts receivable and deferred revenue. 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 certain of these IT systems. As a result of the following deficiencies in the firm's testing of IT general controls (ITGCs) the firm's testing of these automated and IT-dependent controls was not sufficient. (AS 2201.46)

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 cash receipts data underlying the analysis. To test this data the firm took a controls reliance approach. The firm selected for testing a control over the application of cash receipts from the bank statements to outstanding sales invoices that included the matching of unallocated cash receipts to the corresponding customer receivable accounts. The firm did not perform any substantive procedures to test or in the alternative test any controls over the completeness of the population of transactions from which it made its selections to test this control. (AS 1105.10)

With respect to change management: The firm selected for testing a change management control over all seven IT systems that consisted of the documentation testing and approval of changes prior to their implementation into production and all changes made in the production environment were to be recorded in a ticketing system. The following deficiency was identified: · For one IT system the firm did not evaluate the effect of the issuer's exclusion of a known change to a system report that did not have a ticket on the firm's conclusions regarding the design and operating effectiveness of this control. (AS 2201.48)

With respect to change management: The firm selected for testing a change management control over all seven IT systems that consisted of the documentation testing and approval of changes prior to their implementation into production and all changes made in the production environment were to be recorded in a ticketing system. The following deficiency was identified: · For all seven IT systems the firm did not perform sufficient procedures to test the completeness of the population of changes from which it made its selections because for a seven-month interim period the firm obtained tickets for a sample of changes from certain IT systems but did not verify that they were included in the population and the firm did not perform any procedures to test completeness of the population subsequent to the interim period. Further the firm did not (1) sufficiently evaluate a known change that did not have a ticket and whether other changes could have been made without a ticket and (2) evaluate another known change to a report that had a ticket but was excluded from the population. (AS 1105.10; AS 2810.03)

As a result of the firm's ITGC testing deficiencies discussed above the firm did not perform sufficient substantive procedures as follows: · The sample sizes the firm used in certain of its substantive procedures to test the existence and valuation of certain accounts receivable 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)

As a result of the firm's ITGC testing deficiencies discussed above the firm did not perform sufficient substantive procedures as follows: · The firm did not perform any substantive procedures to test or as discussed above with respect to change management sufficiently test controls over the accuracy and completeness of certain system-generated data or reports the firm used to substantively test certain deferred revenue. (AS 1105.10)

For certain revenue the firm selected for testing a control that consisted of the reconciliation of data used to recognize revenue between two IT applications. The firm did not evaluate the specific review procedures that the control owner performed to investigate and resolve certain reconciling differences identified during the performance of the control. (AS 2201.42 and .44)

For certain revenue the firm selected for testing a control that consisted of the reconciliation of data used to recognize revenue between two IT applications. The firm did not identify and test any controls over the accuracy and completeness of a manually generated spreadsheet used in the operation of this control. (AS 2201.39)

For certain other revenue the firm selected for testing a control that consisted of the reconciliation of data used to recognize revenue and the generation and review of a system-generated exception report. 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)

For certain other revenue the firm selected for testing a control that consisted of the reconciliation of data used to recognize revenue between two other IT applications. The firm did not perform procedures to test an IT application control over the accuracy and completeness of a system-generated exception report used in the operation of this control beyond manually reperforming a reconciliation and evaluating the reasonableness of certain differences it had identified between the exceptions listed in the system-generated report and the exceptions identified in its independently prepared reconciliation. (AS 2201.42 and .44)

The issuer used an information technology (IT) system to initiate process and/or record transactions related to certain revenue and related accounts. In its testing of controls over a revenue-related account the firm tested various automated and 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 IT general controls (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 change management controls over this IT system that consisted of the documentation review testing and approval of changes in a ticketing system prior to their migration into production. The firm did not perform sufficient procedures to test the operating effectiveness of these controls because it limited its selection of changes for testing to a population of changes that were initiated during the period under audit without considering changes initiated outside of the period under audit but made within the period under audit. (AS 2201.44)