Explorer

The issuer determined the fair value of investment securities using a price vector which was based on prices obtained from multiple pricing vendors. The firm obtained the service auditor's report for the issuer's primary pricing vendor ('service auditor's report') which contained a qualified opinion due to certain control deficiencies identified by the service auditor. The following deficiencies were identified with respect to the firm's testing of controls related to investment securities: · The firm identified and selected for testing a complementary user entity control (CUEC) over the valuation of investment securities that the service auditor's report described as necessary. The CEUC consisted of the issuer's review of the reasonableness of certain investment prices in the price vector. The firm did not evaluate the specific review procedures that the control owner performed to evaluate the price differences identified for further investigation to conclude on the reasonableness of the price vector. (AS 2201.42 .44 and .B22)

The issuer determined the fair value of investment securities using a price vector which was based on prices obtained from multiple pricing vendors. The firm obtained the service auditor's report for the issuer's primary pricing vendor ('service auditor's report') which contained a qualified opinion due to certain control deficiencies identified by the service auditor. The following deficiencies were identified with respect to the firm's testing of controls related to investment securities: · The firm selected for testing another control over the valuation of investment securities that consisted of the issuer's review of the daily variation of certain prices in the price vector. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the price variances identified for further investigation to conclude on the reasonableness of the price vector. (AS 2201.42 and .44)

The issuer determined the fair value of investment securities using a price vector which was based on prices obtained from multiple pricing vendors. The firm obtained the service auditor's report for the issuer's primary pricing vendor ('service auditor's report') which contained a qualified opinion due to certain control deficiencies identified by the service auditor. The following deficiencies were identified with respect to the firm's testing of controls related to investment securities: · The firm selected for testing another control over the valuation of investment securities that consisted of the issuer's review of the service auditor's report to evaluate the vendor's controls and their effects on the services provided to the issuer. The firm did not evaluate the specific review procedures that the control owner performed to determine the effects of the qualified opinion in the service auditor's report and the reliability of the prices provided by the vendor. (AS 2201.42 and .44)

The firm did not perform procedures to test or test any controls over the accuracy of certain data used in its substantive testing of the issuer's revenue disclosures. (AS 1105.10)

The firm selected for testing a control over management's review of the allowance for doubtful accounts calculation. The firm did not evaluate the review procedures that the control owner performed to assess the reasonableness of the assumptions used to determine the allowance 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's approach for substantively testing the allowance for doubtful accounts was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of the allowance because the firm did not perform procedures to test the reasonableness of the reserve percentages used by the issuer to estimate the allowance for doubtful accounts. (AS 2501.09 .10 and .11)

The firm was instructed by the principal auditor to audit the financial statements and the effectiveness of ICFR of a subsidiary of the issuer to support the principal auditor's opinions on the consolidated financial statements and ICFR. The firm identified control deficiencies in controls that it had selected for testing over revenue accounts receivable and inventory for the subsidiary's two branches. The firm did not evaluate the severity of certain identified control deficiencies in accordance with the instructions of the principal auditor. (AS 2201.62)

The sample sizes the firm used in certain of its substantive procedures to test revenue accounts receivable and inventory for both branches were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The firm was instructed by the principal auditor to audit the financial statements and the effectiveness of ICFR of two of the issuer's subsidiaries to support the principal auditor's opinions on the consolidated financial statements and ICFR. The issuer's processes related to revenue accounts receivable and inventory included automated transactions initiated processed and recorded by information technology ('IT') systems at both subsidiaries. The firm selected for testing automated and IT-dependent manual controls over revenue accounts receivable and inventory that used data and reports generated by the IT systems. The firm's approach to test the accuracy and completeness of the data and reports depended on effective IT general controls ('ITGCs'). For one subsidiary the firm identified several control deficiencies related to ITGCs. The firm did not evaluate the severity of the identified control deficiencies in accordance with the instructions of the principal auditor. (AS 2201.62)

The firm was instructed by the principal auditor to audit the financial statements and the effectiveness of ICFR of two of the issuer's subsidiaries to support the principal auditor's opinions on the consolidated financial statements and ICFR. The issuer's processes related to revenue accounts receivable and inventory included automated transactions initiated processed and recorded by information technology ('IT') systems at both subsidiaries. The firm selected for testing automated and IT-dependent manual controls over revenue accounts receivable and inventory that used data and reports generated by the IT systems. The firm's approach to test the accuracy and completeness of the data and reports depended on effective IT general controls ('ITGCs'). For the other subsidiary the firm did not test ITGCs or obtain confirmation from the principal auditor that ITGCs were not in scope for testing. (AS 2201.39)

The firm was instructed by the principal auditor to audit the financial statements and the effectiveness of ICFR of two of the issuer's subsidiaries to support the principal auditor's opinions on the consolidated financial statements and ICFR. The issuer's processes related to revenue accounts receivable and inventory included automated transactions initiated processed and recorded by information technology ('IT') systems at both subsidiaries. The firm selected for testing automated and IT-dependent manual controls over revenue accounts receivable and inventory that used data and reports generated by the IT systems. The firm's approach to test the accuracy and completeness of the data and reports depended on effective IT general controls ('ITGCs'). For one subsidiary the firm identified several control deficiencies related to ITGCs. The firm did not evaluate the severity of the identified control deficiencies in accordance with the instructions of the principal auditor. (AS 2201.62) For the other subsidiary the firm did not test ITGCs or obtain confirmation from the principal auditor that ITGCs were not in scope for testing. (AS 2201.39) As a result the firm's testing of the automated and IT-dependent manual controls over revenue accounts receivable and inventory for these two subsidiaries was not sufficient. (AS 2201.46)

The sample sizes the firm used in certain of its substantive procedures to test revenue accounts receivable and inventory for both subsidiaries were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The firm selected for testing a control that consisted of the issuer's review of the fair value of certain assets. The firm identified a deficiency in the operating effectiveness of this control. The firm identified and tested compensating controls that it believed would mitigate this deficiency. The firm did not identify that these other controls were not designed to address whether these assets were appropriately recorded at fair value. (AS 2201.68)

The firm used an auditor-employed specialist to test the fair value of certain of these assets which was determined by the company's specialist. The auditor-employed specialist's approach for substantively testing the fair value of these assets was to test the issuer's process. The firm did not sufficiently evaluate the work of the auditor-employed specialist and identify that it did not (1) evaluate the reasonableness of the significant assumptions developed by the company's specialist (2) evaluate whether the methods used by the company's specialist were appropriate under the circumstances taking into account the requirements of the applicable financial reporting framework and (3) test the accuracy and/or completeness of certain issuer-produced data used by the company's specialist. The firm did not perform additional procedures or request the auditor-employed specialist to perform additional procedures to address these issues. (AS 1105.A8a .A8b and .A8c; AS 1201.C6 and .C7)

The firm selected for testing a control that consisted of a review of customer contracts for proper revenue recognition including the identification and evaluation of terms and conditions in such contracts that affect the recognition of certain revenue. 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 sample sizes the firm used in certain of its substantive procedures to test revenue were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to the deficiency in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The firm did not perform sufficient substantive procedures to evaluate whether certain revenue was recognized in conformity with IFRS 15 Revenue from Contracts with Customers as it did not evaluate whether: · certain provisions in customer contracts represented distinct performance obligations and if so whether such performance obligations should be recognized at a point in time or over the relevant service period in accordance with IFRS 15; and · the issuer's allocation of transaction price to a series of performance obligations was in conformity with IFRS 15. (AS 2301.08 and .11)

The firm selected for testing a control that consisted of the issuer's review of customer contracts for proper revenue recognition and identified a significant deficiency related to this control. The firm identified and tested a compensating control that it believed would mitigate the deficiency which consisted of another review control over customer contracts. The firm did not evaluate the review procedures that the control owner performed to be able to conclude that the compensating control mitigated the identified significant deficiency. (AS 2201.68)

The sample sizes the firm used in certain of its substantive procedures to test revenue were too small to provide sufficient appropriate audit evidence because the procedures were designed based on a level of control reliance that was not supported due to the deficiency in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19. 23 and .23A)

The firm did not perform any procedures to evaluate the reliability of certain information used in its substantive testing of revenue. (AS 1105.04 and .06)

The issuer recorded revenue net of estimated allowances for contractual adjustments. The firm selected for testing controls that consisted of the monthly review of (1) the reasonableness of the estimated allowances for contractual adjustments and (2) the comparison of net revenue to cash collections. The firm did not identify and test any controls over (1) the accuracy and completeness of a report used in the operation of one of these controls and (2) the accuracy and/or completeness of certain data that were used in the operation of both controls. (AS 2201.39)

The issuer entered into revenue arrangements with multiple elements including arrangements that contained fees contingent upon the resolution of certain matters that were beyond the issuer's control (“contingent fees”). The issuer's policy was to recognize revenue and the related receivable from certain arrangements that contained contingent fees when services were provided which generally occurred before the resolution of the contingent matters. The following deficiencies were identified: · In addition the firm did not identify and appropriately address the inconsistency between the issuer's accounting for this revenue and its disclosure that it recognized revenue when the fee was fixed or determinable and collectability was reasonably assured. (AS 2810.30 and .31)

The issuer entered into revenue arrangements with multiple elements including arrangements that contained fees contingent upon the resolution of certain matters that were beyond the issuer's control (“contingent fees”). The issuer's policy was to recognize revenue and the related receivable from certain arrangements that contained contingent fees when services were provided which generally occurred before the resolution of the contingent matters. The following deficiencies were identified: · The firm did not evaluate whether (1) the issuer identified all elements in its arrangements and appropriately determined the units of accounting and (2) separate contracts entered into with the same individual customers within a short time frame should have been combined and accounted for as multiple-element arrangements. (AS 2301.08)

For certain revenue the firm selected for testing an automated control within the general ledger system that was designed to generate invoices and recognize revenue once the shipment was confirmed in the general ledger system. The firm did not identify and test any controls over (1) confirmed shipment data that were manually entered into the general ledger system and (2) the completeness and accuracy of the shipment data transferred to the general ledger from the issuer's shipping tracking systems. (AS 2201.39)

The sample sizes 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 due to the deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

For revenue at a foreign location the firm selected for testing two entity-level controls. The following deficiencies were identified: · One of these controls consisted of the quarterly review of the financial reporting information for the issuer's segment that included this location. The firm did not evaluate the review procedures the control owner performed including the criteria that the control owner used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44)

For revenue at a foreign location the firm selected for testing two entity-level controls. The following deficiencies were identified: · The second control consisted of (1) a review of the issuer's consolidated financial statements (2) a review of transactions over a threshold (3) meetings with the controllers for all segments to discuss financial results and (4) a review of revised consolidated financial statements as a result of adjustments identified as part of the review. The firm did not evaluate whether the criteria used by the control owner to identify items for follow up were sufficiently precise to detect misstatements in the revenue for this location that could be material to the consolidated financial statements. (AS 2201.42 and .44)

Certain of the issuer's inventory was subject to daily cycle counts and the issuer used a system-generated report that specified which items to count each day. The firm selected for testing a control that consisted of the issuer's daily cycle-count procedures. The firm did not test whether the system was properly configured to achieve the frequency schedule established by management and did not test the aspects of this control that addressed (1) the review and approval of the assignment of the frequency to each item and (2) whether approved frequencies were completely and accurately entered into the system. (AS 2201.42 and .44)

The firm selected for testing an annual control that consisted of the review of the valuation models that the issuer used to determine its environmental liabilities including underlying inputs and assumptions. The firm did not test the aspect of this control that consisted of the review of an assumption that the issuer used in these models. (AS 2201.42 and .44)

The firm did not perform any substantive procedures to evaluate the reasonableness of the assumption discussed above that the issuer used as an input to the valuation models used to determine its environmental liabilities. (AS 2501.11)

During the year the issuer completed multiple business combinations. The firm selected for testing a control that included a review of the cash-flow forecasts and assumptions that the issuer used in determining the fair value of the acquired intangible assets. The firm did not evaluate the review procedures the control owner performed to assess the reasonableness of the prospective financial information and certain assumptions used in determining the fair value of the acquired intangible assets including the criteria that the control owner used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44)

The firm did not test the accuracy of the billing rates that the issuer used to determine the allowances for contractual adjustments. Further the firm did not sufficiently test the accuracy and completeness of the cash collection data the issuer used to determine the allowances because the firm limited its procedures to comparing the data to a system-generated report that it had not tested. (AS 2501.11)

The firm did not perform any substantive procedures to evaluate the reasonableness of the prospective financial information and certain assumptions underlying the valuation of the acquired intangible assets. (AS 2502.26 .28 .31 and .36)

The issuer recognized certain of its revenue from contracts using the percentage-of-completion method. While the firm performed certain procedures that provided some evidence about historical margins on contracts these procedures provided little to no evidence regarding the estimated costs to complete the specific contracts open at year end. (AS 2501.07)

The firm limited its substantive procedures to test inventory at certain of the issuer's locations to analytical procedures because of its reliance on an entity-level control that the firm selected for testing. This entity-level control consisted of the review of the financial statement level information for each of these locations. The firm identified two significant deficiencies and one control deficiency that were relevant to the issuer's controls over inventory. The firm's reliance on the entity-level control was not supported because the firm did not consider the implications of these deficiencies on the effectiveness of the entity-level control. As a result for these locations the firm inappropriately limited its substantive testing to analytical procedures that provided little to no substantive evidence. (AS 2101.11 and .12; AS 2301.16)

At another location the issuer calculated a reserve for excess and obsolete inventory by applying established percentages to each inventory aging category. The firm did not (1) test the accuracy of the inventory aging and (2) evaluate the reasonableness of the established percentages applied to each of the inventory aging categories. (AS 2501.11)

The firm selected for testing a control that included a review of the assumptions underlying the forecasted cash flows that the issuer used in its evaluation of certain proved properties for possible impairment. The firm did not test the aspect of this control that addressed the reasonableness of certain of these assumptions and the accuracy of the historical data that the issuer used in developing these assumptions. (AS 2201.42 and .44)

The firm did not test (1) the reasonableness of certain assumptions that the issuer used in its evaluation of these properties beyond inquiry and (2) the accuracy of the historical data that the issuer used in developing one of these assumptions. (AS 2501.11)

The majority of the issuer's inventory was subject to daily cycle counts and the issuer used its inventory system to determine the frequency of cycle counts. The firm selected for testing a control that consisted of the review of an analysis to monitor the frequency and accuracy of the counts. The firm did not evaluate whether items the control owners identified for follow up were appropriately resolved. (AS 2201.42 and .44)

In addition the firm did not test whether the system was properly configured to calculate inventory turnover which was used to determine the frequency of cycle counts. (AS 2201.39)

The sample size the firm used in certain of its substantive procedures to test this inventory 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)

For two of the issuer's operating units the issuer used the percentage-of-completion method to recognize certain revenue and recognized other revenue upon delivery of its products to its customers or when installation services were rendered. The firm did not identify and test any controls that addressed the risk of improper recognition of this revenue. (AS 2201.39)

The issuer reclassified credit balances in accounts receivable to accounts payable at year end. The firm did not identify and test any controls that addressed the risk that these credit balances may have resulted from errors in the allowances for contractual adjustments. (AS 2201.39)

The firm did not perform any substantive procedures to corroborate management's assertion that the credit balances discussed above represented amounts due to third parties rather than errors in the amounts recorded as allowances for contractual adjustments. (AS 2301.08)

During the year the issuer extinguished certain partnership interests through the issuance of new interests. The issuer reported these new interests at fair value which it determined to be equal to the redemption amounts of the extinguished interests. The following deficiencies were identified: · The firm selected for testing a control over the valuation of the new partnership interests that consisted of the review of the appropriateness of the accounting for new unusual or infrequent transactions. The firm did not test the aspect of this control that addressed the control owners' evaluation of the conclusion that the fair value of the new partnership interests was equal to the redemption amounts of the extinguished interests. (AS 2201.42 and .44)

During the year the issuer extinguished certain partnership interests through the issuance of new interests. The issuer reported these new interests at fair value which it determined to be equal to the redemption amounts of the extinguished interests. The following deficiencies were identified: · The firm did not perform any substantive procedures to evaluate whether the fair value of the new partnership interests was equal to the redemption amounts of the extinguished interests. (AS 2810.30)

During the year the issuer completed multiple business combinations. The firm selected for testing a control that included a review of the data and assumptions used to value the acquired intangible assets but the firm did not test this aspect of the control for those business combinations for which the issuer had not yet received a final valuation report from an external valuation specialist as of year end. (AS 2201.42 and .44)

The issuer entered into revenue arrangements with multiple elements including arrangements that contained fees contingent upon the resolution of certain matters that were beyond the issuer's control (“contingent fees”). The issuer's policy was to recognize revenue and the related receivable from certain arrangements that contained contingent fees when services were provided which generally occurred before the resolution of the contingent matters. The following deficiencies were identified: · For certain of the issuer's revenue the firm did not identify and test any controls that addressed whether the issuer's revenue recognition policies for its multiple-element arrangements including those with contingent fees were in conformity with GAAP. (AS 2201.39)

The issuer entered into revenue arrangements with multiple elements including arrangements that contained fees contingent upon the resolution of certain matters that were beyond the issuer's control (“contingent fees”). The issuer's policy was to recognize revenue and the related receivable from certain arrangements that contained contingent fees when services were provided which generally occurred before the resolution of the contingent matters. The following deficiencies were identified: · The firm did not evaluate whether the issuer's accounting for recognizing revenue for contingent fees prior to the resolution of the contingent matters and the determination of the amount to be collected was in conformity with FASB ASC Topic 605 Revenue Recognition and with GAAP as interpreted by the SEC Codification of Staff Accounting Bulletins Topic 13 Revenue Recognition. (AS 2810.30)

The firm identified deficiencies in the information technology general controls ('ITGCs') related to security administration for the issuer's general ledger system and two of its revenue systems and concluded that these deficiencies in the aggregate represented a significant deficiency. The firm also identified a deficiency in the ITGCs related to program maintenance over these revenue systems. The following audit deficiencies were identified: · With respect to the security administration control deficiencies the firm identified compensating controls but did not evaluate whether these controls would mitigate the risks including fraud risks posed by the ITGC deficiencies. Further in performing its testing of the identified compensating controls the firm did not (1) identify that the control owners used data and reports in the performance of certain of these controls that were produced by the systems that were subject to the ITGC deficiencies and (2) as discussed below sufficiently test certain of these controls. (AS 2201.68) Unrelated to our review the issuer reevaluated its controls over security administration and program maintenance ITGCs 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 other material weaknesses discussed herein and the firm modified its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report.