Explorer

The issuer used an information-technology (IT) system to initiate process and record transactions related to certain revenue accounts receivable and inventory. In its testing over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by the IT system. With respect to change management: - The issuer's IT personnel processed certain changes directly into the production environment of the IT system. The firm did not identify and test any controls over these direct changes. (AS 2201.39)

The issuer used an information-technology (IT) system to initiate process and record transactions related to certain revenue accounts receivable and inventory. In its testing over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by the IT system. With respect to change management: - The firm's testing of certain automated controls over customer orders was not sufficient because the firm did not test changes made into the production environment of the IT system for those controls after the date of testing. (AS 2201.44)

For revenue and accounts receivable which were affected by the audit deficiencies related to change management the following additional deficiencies were identified: - The issuer recognized certain revenue net of chargeback and rebate accruals. The chargeback and rebate accruals were based on inventory quantity and claims data transmitted from certain of the issuer's customers to its IT system through an electronic data interface (EDI). In its testing of controls over chargeback and rebate accruals the firm tested certain automated controls and IT-dependent manual controls that used this EDI data. The firm did not identify and test any controls over the accuracy and completeness of the inventory information received through EDI that was used in the operation of the controls. (AS 2201.39)

For revenue and accounts receivable which were affected by the audit deficiencies related to change management the following additional deficiencies were identified: - The issuer recognized certain revenue net of chargeback and rebate accruals. The chargeback and rebate accruals were based on inventory quantity and claims data transmitted from certain of the issuer's customers to its IT system through an electronic data interface (EDI). In its testing of controls over chargeback and rebate accruals the firm tested certain automated controls and IT-dependent manual controls that used this EDI data. The firm used a 'test of one' approach to test an automated control over the claims data but did not perform testing of ITGCs over the EDI to allow for the use of such an approach. (AS 2201.42 and .44)

The firm did not perform any substantive procedures to test or in the alternative identify and test any controls over the accuracy and completeness of data and reports obtained from the issuer's IT system that it used to test certain revenue. (AS 1105.10)

The sample sizes the firm used in its substantive procedures to test the existence 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 due to deficiencies in the firm's IT control testing. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

For inventory which was affected by the audit deficiencies related to change management the following additional deficiencies were identified: - The firm selected for testing a control over inventory that consisted of the performance of physical inventory counts at certain locations by a third-party stock counter. The issuer designed the control to exclude a portion of inventory from those counts. In evaluating the design of the control the firm did not evaluate the effect of the issuer's exclusion of a portion of inventory from the physical counts on the control's ability to effectively prevent or detect a material misstatement. (AS 2201.42)

The firm did not perform procedures to evaluate the issuer's presentation and disclosure of the current and non-current portions of debt beyond obtaining and reviewing a checklist prepared by management. (AS 2301.08)

The firm was instructed by the principal auditor of the issuer to test specific controls of the component in the areas of revenue accounts receivable and inventory. During the audit the principal auditor provided additional information to the firm regarding certain of these controls including the existence of additional control attributes and changes to the description of the controls. The firm did not perform procedures to (1) understand if the revised control descriptions as communicated by the principal auditor were indicative of changes to the controls and if so change its tests of design and operating effectiveness and (2) test the additional control attributes communicated by the principal auditor including one such attribute related to the component's monitoring of the accuracy and frequency of inventory cycle counts. (AS 2201.42 and .44)

The firm selected for testing as instructed by the principal auditor a control that consisted of the review and approval of price quotes. 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 sample size the firm used in certain of its substantive procedures to test accounts receivable 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; AS 2315.19 .23 and .23A)

The firm selected for testing as instructed by the principal auditor a control that consisted of the performance of periodic cycle counts and the review and approval of related adjustments. The firm did not evaluate whether the documentation it inspected for unobserved inventory cycle counts provided evidence that all steps related to those counts were performed as designed. (AS 2201.44)

The firm did not obtain sufficient appropriate audit evidence that the issuer's inventory cycle count procedures were sufficiently reliable to produce results substantially the same as those that would have been obtained by a count of all items during the year due to the deficiencies in the firm's control testing discussed above. (AS 2510.11)

The issuer reported a loss from operations that did not include a loss recognized on a long-lived asset held for sale that was not a discontinued operation (the 'loss'). The firm did not identify and appropriately address a departure from GAAP related to the issuer's presentation of the loss which was not in conformity with FASB ASC Topic 360 Property Plant and Equipment. (AS 2810.30) Unrelated and prior to our review the issuer reevaluated its presentation of the loss in its consolidated statements of operations and concluded that a material misstatement existed that had not been previously identified. The issuer subsequently restated its financial statements and the firm revised and reissued its report on the financial statements. The issuer also reevaluated its controls over financial reporting 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 revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: · The firm selected for testing controls that consisted of the issuer's (1) review and approval of material changes to amounts affecting the income statement account and a significant account and (2) review of data entered into the system and used to estimate and record the income statement account and significant account. The following deficiency was identified regarding the firm's testing of these controls: · When testing the operating effectiveness of these controls the firm did not select its samples from a complete population of data subject to the operation of the controls. Further the firm did not perform procedures to test or test controls over the accuracy and completeness of certain other data that it used to test the controls. (AS 1105.10)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: The sample sizes the firm used in certain of its substantive procedures to test the income statement account and significant account 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)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: · The firm selected for testing controls that consisted of the issuer's (1) review and approval of material changes to amounts affecting the income statement account and a significant account and (2) review of data entered into the system and used to estimate and record the income statement account and significant account. The following deficiency was identified regarding the firm's testing of these controls: · For one of these controls 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 2301.19 and .21)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: · The firm selected for testing controls that consisted of the issuer's (1) review and approval of material changes to amounts affecting the income statement account and a significant account and (2) review of data entered into the system and used to estimate and record the income statement account and significant account. The following deficiency was identified regarding the firm's testing of these controls: · For this same control the firm did not identify and test any controls over the accuracy and completeness of certain data used in the operation of the control. (AS 2301.16)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: · The firm selected for testing controls that consisted of the issuer's (1) review and approval of material changes to amounts affecting the income statement account and a significant account and (2) review of data entered into the system and used to estimate and record the income statement account and significant account. The following deficiency was identified regarding the firm's testing of these controls: · For the other control the firm did not test the operating effectiveness of an aspect of the control related to the issuer's review of the accuracy and completeness of certain data entered into the system and used to estimate and record the income statement account and significant account. (AS 2301.21)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: The firm selected for testing other controls that consisted of the issuer's review and analysis of the income statement account and/or significant account. 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 2301.19 and .21)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: · The firm selected for testing other controls that consisted of the issuer's review and analysis of the income statement account and/or significant account. For certain of these controls the firm did not identify and test any controls over the accuracy and/or completeness of certain system-generated reports and/or other end user computing files used in the operation of the controls. (AS 2301.16)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: The firm did not identify and test any controls over the issuer's review of data contained in reports provided by external parties that the issuer entered into its system and used to estimate and record the income statement account and significant account to ensure it was accurate and complete and in accordance with terms of the contracts. (AS 2301.16)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: The firm did not perform sufficient substantive procedures to test the income statement account because the firm did not evaluate whether the income statement account was recorded in accordance with the terms of the contracts. (AS 2301.08)

To reduce the extent of its substantive procedures for an income statement account and a significant account the firm tested and placed reliance on certain controls. The following deficiency was identified: The firm did not perform substantive procedures to test the issuer's estimate of the income statement account and significant account beyond inquiry of management and comparing amounts recorded to documentation produced by the issuer. (AS 2501.07)

The issuer used multiple information-technology (IT) systems to initiate process and record transactions related to certain revenue and long-lived assets. The issuer outsourced its IT operations to a third-party service organization including the operation of certain IT automated controls ('ITACs'). The transaction data processed through these IT systems and the IT systems themselves which were maintained by the service organization were owned by the issuer. The firm selected for testing various ITACs over certain revenue and long-lived assets. The firm used the work of the service organization's auditor ('service auditor') as evidence of the design and operating effectiveness of these ITACs whereby the firm provided guidance to the service auditor related to the testing of these ITACs and the firm obtained the service auditor's report which described the service auditor's testing procedures and results. The firm did not perform sufficient procedures to test the design and operating effectiveness of these ITACs because the firm did not identify that the service auditor had not performed procedures to (1) test the design of these ITACs and (2) evaluate program customizations to support the use of a 'test of one' approach to test the operating effectiveness of these ITACs. (AS 2201.42 and .44)

The firm did not perform sufficient substantive procedures to test certain revenue because the firm did not subject all relevant revenue transactions to these procedures as it did not compile a complete population of transactions from which it made its selections for testing and the firm did not perform any other procedures to test the remaining revenue transactions. (AS 2301.08 and .13)

The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm selected for testing a control that consisted of the issuer's review of the determination of the reporting units. The firm did not test an aspect of this control that addressed the considerations for the aggregation of the two components into one reporting unit including the similarity of the economic characteristics of the components and various qualitative factors as required by FASB ASC Topic 350 Intangibles – Goodwill and Other. (AS 2201.42 and .44)

The issuer derives revenue through a consolidated VIE and relies on contractual arrangements with the VIE and its shareholders to control the business operations of the consolidated VIE. The issuer engaged an external specialist to provide a legal opinion regarding the validity and enforceability of contractual arrangements with the issuer's consolidated VIE and its shareholders and the firm used the work of the company's specialist as audit evidence. The firm did not sufficiently evaluate the relevance and reliability of the work performed by the company's specialist and whether the specialist's findings support or contradict the issuer's rights and obligations related to the consolidation of the VIE because it did not evaluate the nature of uncertainties described in the legal opinion prepared by the company's specialist and perform additional procedures to address the risks associated with those uncertainties. (AS 1105.A9 and .A10)

The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm selected for testing another control that consisted of the issuer's review of the reasonableness of significant assumptions used in the quantitative assessment of goodwill. The firm did not evaluate the specific review procedures the control owner performed to evaluate the reasonableness of the projected amounts for revenue growth and certain costs used in this assessment. (AS 2201.42 and .44)

The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate whether the issuer identified the reporting units in conformity with FASB ASC Topic 350 because it did not perform any procedures to evaluate the similarities in the economic characteristics of the components and the various qualitative factors considered by the issuer when determining whether the two components should be aggregated into one reporting unit. (AS 2301.08 and .11)

The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm did not evaluate whether the issuer had a reasonable basis for the significant assumptions related to revenue growth rates used in its quantitative assessment of goodwill at the Reporting Unit including consideration of the recent declines in the Reporting Unit's revenue growth rate. (AS 2501.16)

The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this 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 the significant assumptions related to the revenue growth rates and certain costs for the Reporting Unit because it did not take into account beyond reading the issuer's overall business plan the issuer's ability to carry out its intended courses of action. (AS 2501.17)

The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • For one component within the Reporting Unit the firm did not evaluate whether the significant assumptions the issuer used in its quantitative assessment were consistent with the issuer's historical and recent experience taking into account changes in conditions and events affecting the issuer beyond observing that the assumptions were directionally consistent with the issuer's overall business plan and strategy. (AS 2501.16 and .17)

The issuer derives revenue through consolidated VIEs and relies on contractual arrangements with the VIEs and their shareholders to control the business operations of the consolidated VIEs. The issuer engaged an external specialist to provide a legal opinion regarding the validity and enforceability of contractual arrangements with the issuer's consolidated VIEs and their shareholders and the firm used the work of the company's specialist as audit evidence. The firm did not sufficiently evaluate the relevance and reliability of the work performed by the company's specialist and whether the specialist's findings support or contradict the issuer's rights and obligations related to the consolidation of the VIEs because it did not evaluate the nature of uncertainties described in the legal opinion prepared by the company's specialist and perform additional procedures to address the risks associated with those uncertainties. (AS 1105.A9 and .A10)

The firm did not identify and test any controls over the accuracy of information that the issuer used to record certain revenue. (AS 2201.39)

The firm did not identify and test any controls over the existence of inventory held at customers' warehouses. (AS 2201.39)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory 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 IT general controls (ITGCs) over certain of these IT systems the firm's testing of these automated and IT-dependent controls was not sufficient. (AS 2201.46)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to change management: The firm selected for testing change management controls over an IT system that consisted of the documentation review testing and approval of changes in the testing/QA environment prior to their migration into production. The firm selected for testing change management controls over another IT system that consisted of the (1) approval of changes after deployment in the production environment by the business users to confirm that they were satisfied with the changes and had tested them (2) periodic review of a list of all manual changes made to the accounting database tables by users with direct database access to verify that all changes agreed to an approved change request and (3) review and approval of all direct changes made to published data. The following deficiency was identified: · For the first control the firm did not perform procedures to test or test any controls over the completeness of the population of changes from which it made its selections for testing. (AS 1105.10)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to change management: The firm selected for testing change management controls over an IT system that consisted of the documentation review testing and approval of changes in the testing/QA environment prior to their migration into production. The firm selected for testing change management controls over another IT system that consisted of the (1) approval of changes after deployment in the production environment by the business users to confirm that they were satisfied with the changes and had tested them (2) periodic review of a list of all manual changes made to the accounting database tables by users with direct database access to verify that all changes agreed to an approved change request and (3) review and approval of all direct changes made to published data. The following deficiency was identified: · For the first control the firm did not evaluate the specific review procedures that the control owner or business users performed to validate and approve the appropriateness of the migrated changes to the production environment. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to change management: The firm selected for testing change management controls over an IT system that consisted of the documentation review testing and approval of changes in the testing/QA environment prior to their migration into production. The firm selected for testing change management controls over another IT system that consisted of the (1) approval of changes after deployment in the production environment by the business users to confirm that they were satisfied with the changes and had tested them (2) periodic review of a list of all manual changes made to the accounting database tables by users with direct database access to verify that all changes agreed to an approved change request and (3) review and approval of all direct changes made to published data. The following deficiency was identified: · For the second control the firm did not evaluate the effect of the control owner excluding certain information when performing the control on the control's ability to effectively prevent or detect a material misstatement. (AS 2201.42)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to change management: The firm selected for testing change management controls over an IT system that consisted of the documentation review testing and approval of changes in the testing/QA environment prior to their migration into production. The firm selected for testing change management controls over another IT system that consisted of the (1) approval of changes after deployment in the production environment by the business users to confirm that they were satisfied with the changes and had tested them (2) periodic review of a list of all manual changes made to the accounting database tables by users with direct database access to verify that all changes agreed to an approved change request and (3) review and approval of all direct changes made to published data. The following deficiency was identified: · For the second and third controls the firm did not evaluate the specific review procedures that the control owners performed to validate the appropriateness of direct data changes to the system database. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to change management: The firm selected for testing change management controls over an IT system that consisted of the documentation review testing and approval of changes in the testing/QA environment prior to their migration into production. The firm selected for testing change management controls over another IT system that consisted of the (1) approval of changes after deployment in the production environment by the business users to confirm that they were satisfied with the changes and had tested them (2) periodic review of a list of all manual changes made to the accounting database tables by users with direct database access to verify that all changes agreed to an approved change request and (3) review and approval of all direct changes made to published data. The following deficiency was identified: · For the third control the firm did not identify and test any controls over the completeness of direct data changes to the system database. (AS 2201.39)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to other tests of controls and substantive procedures related to inventory certain of which were affected by the audit deficiencies discussed above related to user access and change management the following additional deficiency was identified: · The firm selected for testing controls that consisted of the configuration of an IT system used to test inventory ('inventory testing system') to automatically calculate the assay results of each sample based on a pre-established formula and the issuer's periodic validation of those calculations. The firm used a 'test of one' approach to test these controls but did not evaluate whether the tested configurations were applied to all relevant metals and locations across the inventory testing system and an inventory subledger system to support the use of such an approach. (AS 2201.46)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to other tests of controls and substantive procedures related to inventory certain of which were affected by the audit deficiencies discussed above related to user access and change management the following additional deficiency was identified: · The firm selected for testing a control that consisted of the configuration of the inventory subledger system to automatically calculate the metal content of each data entry based on the weight and assay results. The firm did not test all significant processing alternatives of this control for each relevant metal content type used for calculating the value of inventory. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to other tests of controls and substantive procedures related to inventory certain of which were affected by the audit deficiencies discussed above related to user access and change management the following additional deficiency was identified: · The firm selected for testing controls that consisted of management's review and approval of the assay results in the inventory testing system. For one of these controls the firm did not evaluate the specific review procedures that the control owner performed to assess the accuracy of the assay results. (AS 2201.42 and .44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to other tests of controls and substantive procedures related to inventory certain of which were affected by the audit deficiencies discussed above related to user access and change management the following additional deficiency was identified: · The firm selected for testing controls that consisted of management's review and approval of the assay results in the inventory testing system. For the other control the firm did not test an aspect of the control related to the control owner's assessment of the reasonableness of the assay results for more than half of the assay results selected for testing. (AS 2201.44)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to other tests of controls and substantive procedures related to inventory certain of which were affected by the audit deficiencies discussed above related to user access and change management the following additional deficiency was identified: · The firm selected for testing a control that consisted of management's verification and approval of the recorded weight of certain inventory. The firm did not evaluate the effect of certain exceptions identified during its substantive audit procedures related to inventory on its conclusions regarding the operating effectiveness of this control. (AS 2201.B8)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to user access: The issuer's IT systems had development testing/quality assurance (QA) and production environments. Changes to the IT systems were typically tested in the testing environment prior to their migration to the production environment. Changes could however be made directly in the production environment in certain situations on an emergency basis. The firm performed a review of the security settings in place over certain of the issuer's accounting systems using an unapproved custom software audit tool that included tests of privileged access password settings and client production settings. The firm also selected for testing a control over user access to the production environment of these IT systems that consisted of (1) a security setting in these systems that would not allow any direct changes to be made in the production environment by any user and (2) management's review and approval of a system-generated report that listed any changes made to the system security settings. The following deficiency was identified: · The firm did not perform any procedures to evaluate the reliability of the information produced from the custom software audit tool that was used to test the security settings of these IT systems. (AS 1105.04 and .06)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to other tests of controls and substantive procedures related to inventory certain of which were affected by the audit deficiencies discussed above related to user access and change management the following additional deficiency was identified: · To test the existence of certain inventory the firm observed the physical inventory counts at all locations and performed procedures to test the rollforward of inventory from the dates in which the inventory was physically counted to year-end using system-generated reports provided by the issuer. The firm did not perform sufficient procedures to test the existence of certain inventory. Specifically the firm's observation procedures were not suitable because the firm did not perform any substantive procedures to reconcile the quantities of certain inventory counted as reflected in the stock count records to the issuer's inventory records. Therefore these observations did not provide sufficient evidence of the quantity of inventory at these locations. (AS 2510.09)

The issuer used multiple information-technology (IT) systems to initiate process and record inventory and inventory-related transactions. In its testing of controls over inventory the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. With respect to other tests of controls and substantive procedures related to inventory certain of which were affected by the audit deficiencies discussed above related to user access and change management the following additional deficiency was identified: · To test the existence of certain inventory the firm observed the physical inventory counts at all locations and performed procedures to test the rollforward of inventory from the dates in which the inventory was physically counted to year-end using system-generated reports provided by the issuer. The firm did not perform sufficient procedures to test the existence of certain inventory. The firm did not perform sufficient procedures to evaluate the reliability of a report used to test the rollforward of certain inventory quantities from the dates in which the inventory was physically counted to year-end because it did not evaluate the nature and cause of certain exceptions identified during its substantive audit procedures. (AS 1105.04 and .06)