Explorer

The firm did not identify and test any controls over the review of distributor and dealer arrangements to determine that relevant terms and conditions were identified and evaluated for appropriate revenue recognition. (AS 2201.39)

The firm did not perform sufficient substantive procedures to evaluate the issuer's identification of performance obligations in conformity with FASB ASC Topic 606 because it did not identify and evaluate certain relevant terms and conditions in the distributor and dealer arrangements that could affect revenue recognition. (AS 2810.30)

With respect to the firm's substantive testing of one type of revenue the firm did not perform any procedures to test or in the alternative test any controls that addressed the accuracy and completeness of certain system-generated reports used in its testing. (AS 1105.10)

For two types of revenue the following deficiencies were identified: · For one of these types of revenue the firm did not identify and test any controls that addressed whether the performance obligation was satisfied before revenue was recognized. (AS 2201.39)

For two types of revenue the following deficiencies were identified: · For this same type of revenue the firm did not perform any substantive procedures to test whether the performance obligation was satisfied before revenue was recognized. (AS 2301.08)

For a third type of revenue consisting of three categories the following deficiencies were identified: · The firm did not identify and test any controls over the identification and evaluation of contract terms that would affect revenue recognition. (AS 2201.39) Unrelated to our review the issuer reevaluated its controls over revenue 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.

For a third type of revenue consisting of three categories the following deficiencies were identified: · For two categories of this revenue the firm selected for testing two controls that consisted of the (1) approval of standard billing rates and (2) review of standard billing rates after they are input into the system. The firm did not identify and test any controls over the completeness of the report the issuer used in the operation of these controls. (AS 2201.39) Unrelated to our review the issuer reevaluated its controls over revenue 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.

The issuer used an information technology (IT) system to process and record transactions related to revenue accounts receivable and cash. The firm identified control deficiencies in certain IT general controls (ITGCs) over this IT system related to individuals having segregation of duties conflicts that provided these individuals with security administration privileges and the ability to both develop changes and migrate them into production. The following audit deficiencies were identified: · The firm identified and tested a compensating control that it believed would mitigate these ITGC deficiencies. The firm did not identify that this compensating control did not address the risks related to these deficiencies because the control owners performing the compensating control were among the individuals that the firm identified as having the segregation of duties conflicts. (AS 2201.68)

The firm selected for testing a control that consisted of the issuer's review of certain sales incentive reserves. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of certain assumptions the issuer used to determine these reserves. (AS 2201.42 and .44)

The firm's approach for substantively testing the sales returns reserve was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of this reserve because the firm did not test beyond inquiry of management the adjustments that the issuer made to this reserve. (AS 2501.09 .10 and .11)

The firm did not perform any substantive procedures to test or sufficiently test controls over the accuracy and completeness of certain data that it used in its substantive testing of the sales returns and sales incentive reserves. (AS 1105.10; AS 2501.11)

The issuer recognized certain revenue based on customer contracts that included financing arrangements with the customer. The firm selected for testing a control over this revenue that consisted of the issuer's review of these customer contracts including the review of the credit application supporting the customer's ability and intent to pay. The firm did not evaluate the specific review procedures that the control owners performed to evaluate whether these customer contracts met the collectability criteria required to recognize revenue. (AS 2201.42 and .44)

The firm did not perform any substantive procedures to evaluate whether these customer contracts met the collectability criteria required to recognize revenue. (AS 2301.08)

For loans that the issuer assessed collectively for impairment the issuer estimated the ALL using a model that included loan charge-offs as inputs; these charge-offs were determined based in part on the fair value of the underlying assets. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's reviews of the fair values of the underlying assets. 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)

For loans that the issuer assessed collectively for impairment the issuer estimated the ALL using a model that included loan charge-offs as inputs; these charge-offs were determined based in part on the fair value of the underlying assets. The following deficiencies were identified: · The firm's approach for substantively testing the ALL was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of the ALL because the firm did not test certain information that the issuer used to determine the fair value of the underlying assets. (AS 2501.09 .10 and .11)

The issuer acquired multiple businesses and determined the fair value of the acquired intangible assets using cash-flow forecasts. The firm's approach for substantively testing the valuation of the acquired intangible assets was to review and test management's process. The following deficiencies were identified: · To evaluate the reasonableness of certain assumptions used in these cash-flow forecasts the firm compared these assumptions to both historical and industry information and identified certain differences. The firm did not perform procedures beyond inquiring of management and obtaining industry growth information used by the issuer to evaluate these differences. (AS 2502.26 .28 .31 and .36)

The issuer acquired multiple businesses and determined the fair value of the acquired intangible assets using cash-flow forecasts. The firm's approach for substantively testing the valuation of the acquired intangible assets was to review and test management's process. The following deficiencies were identified: · The firm did not perform procedures to test the accuracy and/or completeness of certain data and reports that (1) the issuer used to develop certain assumptions underlying these cash-flow forecasts and/or (2) the firm used in its procedures. (AS 2502.39)

For one of these acquired businesses the firm selected for testing a control over the accounting for the business combination including the issuer's reviews of the valuation of acquired intangible assets. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The issuer used an information technology (IT) system to process and record transactions related to revenue accounts receivable and cash. The firm identified control deficiencies in certain IT general controls (ITGCs) over this IT system related to individuals having segregation of duties conflicts that provided these individuals with security administration privileges and the ability to both develop changes and migrate them into production. The following audit deficiencies were identified: · The firm tested certain automated and IT-dependent manual controls over revenue accounts receivable and cash that used data and reports generated or maintained by this IT system. As a result of the audit deficiency discussed above the firm's testing of these automated and IT-dependent manual controls was not sufficient. (AS 2201.46)

For one of these acquired businesses the firm selected for testing a control over the accounting for the business combination including the issuer's reviews of the valuation of acquired intangible assets. The firm did not identify and test any controls over the accuracy and completeness of certain information that the control owners used in the operation of this control. (AS 2201.39)

The issuer estimated certain liabilities for self-insurance reserves using loss triangles that were developed based on the issuer's claims data. The following deficiencies were identified: · For certain types of claims the firm selected for testing two controls that included the issuer's reviews of the accuracy of the claims data from the claims systems. The firm did not evaluate the specific procedures that the control owner performed to assess the accuracy of certain attributes of these data including the claims' incident and reported dates. (AS 2201.42 and .44)

The issuer estimated certain liabilities for self-insurance reserves using loss triangles that were developed based on the issuer's claims data. The following deficiencies were identified: · For certain other types of claims the firm did not identify and test any controls that addressed the accuracy and completeness of the claims data from the claims systems. (AS 2201.39)

The issuer estimated certain liabilities for self-insurance reserves using loss triangles that were developed based on the issuer's claims data. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of the determination of these liabilities. The firm did not evaluate the specific procedures that the control owner performed to assess the accurate development of the loss triangles. (AS 2201.42 and .44)

The issuer estimated certain liabilities for self-insurance reserves using loss triangles that were developed based on the issuer's claims data. The following deficiencies were identified: · The firm's approach to substantively test these liabilities was to review and test management's process. The firm did not perform any procedures to test or to sufficiently test controls over the accuracy of the claims data included in the loss triangles. (AS 1105.10; AS 2501.11)

The sample sizes the firm used in certain of its substantive procedures to test revenue and 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 control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The issuer recognized certain revenue upon shipment of its products to distributors and estimated an accrual for rebates it had not yet paid based on a rolling average of actual rebates paid in previous months. The following deficiencies were identified: · The firm did not identify and test any controls that addressed the reasonableness of the assumptions the issuer used to estimate this accrual. (AS 2201.39)

The issuer recognized certain revenue upon shipment of its products to distributors and estimated an accrual for rebates it had not yet paid based on a rolling average of actual rebates paid in previous months. The following deficiencies were identified: · The firm's approach for substantively testing the rebate accrual was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of the rebate accrual because the firm did not test beyond inquiry of management whether the time period that the issuer used to calculate the rolling average was reasonable. (AS 2501.09 .10 and .11)

The firm used reports generated or maintained by the IT system discussed above in performing certain of its substantive procedures to test revenue. The firm did not perform any substantive procedures to test or (as a result of the compensating control testing deficiency) sufficiently test controls over the accuracy and completeness of these reports. (AS 1105.10)

The issuer recorded a sales returns reserve based in part on customer data that the issuer obtained from a service organization. Certain relevant controls at this service organization were not operating effectively. The firm identified and tested a control that consisted of the issuer's review of customer data for certain customers that the firm believed would compensate for these ineffective controls. The firm did not evaluate whether the issuer's review was sufficient to address the risk of material misstatement given not all customers were covered by this control. (AS 2201.68)

The firm selected for testing a control that consisted of the issuer's review of the calculation of the sales returns reserve. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the adjustments that the issuer made to this reserve. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the issuer's review of the calculation of the sales returns reserve. As the compensating control did not address certain customers the firm did not sufficiently test controls over the accuracy and completeness of certain customer data that were used in the operation of this control. (AS 2201.46)

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

The firm's approach for substantively testing the fair values of the acquired intangible assets and consideration transferred was to test the issuer's process. The following deficiencies were identified: · For another acquired business the following deficiencies were identified: o The firm did not evaluate the reasonableness of certain assumptions the issuer used to determine the fair values. (AS 2501.16)

The firm's approach for substantively testing the fair values of the acquired intangible assets and consideration transferred was to test the issuer's process. The following deficiencies were identified: · The firm did not perform procedures to evaluate whether the accounting for contingent payments to certain sellers in these business combinations was in conformity with FASB ASC Topic 805 Business Combinations. (AS 2810.30)

The issuer recognized certain revenue based in part on contractual rates input into the systems the issuer used to process revenue. The firm selected for testing a control that consisted of the issuer's reviews of changes to these contractual rates in these systems. The firm did not identify and test any controls over the completeness of the report the issuer used in the operation of this control. (AS 2201.39)

The issuer used a service organization to process certain revenue and accounts receivable. The firm obtained two service auditor's reports that addressed information technology general controls (ITGCs) at this service organization. The service auditor's report that addressed 11 months of the year under audit contained a qualified opinion for certain ITGCs that were ineffective. The firm did not perform any procedures to evaluate the effect of this qualified opinion on the audit. (AS 2201.B21)

The issuer recorded certain revenue net of estimated allowances for contractual adjustments. These estimated allowances were determined based in part on historical cash collections data applied at the transaction level. The firm did not identify and test any controls that addressed the accuracy of these data. (AS 2201.39)

For certain customer contracts the firm did not identify and test any controls that addressed whether relevant terms and conditions were identified and evaluated for appropriate revenue recognition. (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)

The firm did not perform substantive procedures to evaluate the terms and conditions included in certain customer contracts when testing whether the issuer appropriately recognized revenue related to these contracts. (AS 2301.08)

The firm selected for testing a control that included the issuer's review of forecasts used in the issuer's analysis of possible impairment of operating lease right-of-use assets. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of the revenue growth rates that the issuer used in these forecasts. (AS 2201.42 and .44)

The firm selected for testing controls that included the issuer's reviews of new and amended lease agreements and the reconciliation of the lease asset balance from the lease sub-ledger to the general ledger. The firm did not identify and test any controls over the accuracy and completeness of the lease information that was used in the operation of these controls. (AS 2201.39)

During the year the issuer acquired multiple businesses and determined the fair values of the acquired intangible assets and consideration transferred using forecasted cash flows and other assumptions. Each business combination contained provisions for contingent consideration to be paid to the sellers. The following deficiencies were identified: · The firm selected for testing two controls over the preliminary valuation of acquisitions that included reviews of the assumptions the issuer used in these forecasted cash flows and other assumptions the issuer used to determine these fair values. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of these assumptions. (AS 2201.42 and .44)

The firm selected for testing controls that included the issuer's review of the estimated useful lives assigned to long-lived assets and the calculation of depreciation expense for these assets. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the useful lives assigned to these assets. (AS 2201.42 and .44)

With respect to the issuer's disclosure of transaction prices allocated to unsatisfied performance obligations the following deficiencies were identified: · The firm did not identify and test any controls that addressed whether the estimated transaction prices for certain types of contracts included in this disclosure were determined in conformity with FASB ASC Topic 606 Revenue from Contracts with Customers. (AS 2201.39)

With respect to the issuer's disclosure of transaction prices allocated to unsatisfied performance obligations the following deficiencies were identified: · The firm did not identify and evaluate the significance to the financial statements of misstatements in this disclosure under FASB ASC Topic 606. (AS 2810.30 and .31)

The firm did not perform sufficient substantive procedures to evaluate whether one type of revenue was appropriately recognized because the firm did not review certain customer contracts which was necessary in order to identify performance obligations and evaluate whether this revenue was appropriately recognized. (AS 2301.08)

The firm's approach for substantively testing the reserve for excess and obsolete inventory was to review and test management'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 the forecasted demand data that the issuer used to develop the reserve for excess and obsolete inventory. (AS 1105.10; AS 2501.11) [This citation refers to AS 2501 Auditing Accounting Estimates which was in effect for this audit. This standard was replaced by AS 2501 Auditing Accounting Estimates Including Fair Value Measurements which became effective for audits of financial statements for fiscal years ending on or after December 15 2020.]

The issuer intended to use a significant portion of its inventory on hand at year end to manufacture a product type it had sold at a significant loss during the year. The following deficiencies were identified: · The firm did not identify and test any controls that addressed whether this inventory was recorded at the lower of cost or net realizable value. (AS 2201.39)

The issuer intended to use a significant portion of its inventory on hand at year end to manufacture a product type it had sold at a significant loss during the year. The following deficiencies were identified: · The firm did not perform any substantive procedures to test whether this inventory was recorded at the lower of cost or net realizable value. (AS 2301.08)