Explorer

As part of the issuer's overall credit risk assessment for corporate loans collectively evaluated for impairment the issuer determined a loan risk rating for each loan based on loan information for each borrower including a borrower risk rating. The following deficiencies were identified: · The firm selected for testing controls that consisted of the independent reviews of the assigned loan risk ratings for corporate loans that met certain criteria. The firm did not identify and test any controls over the accuracy and completeness of the loan information that the control owners used to evaluate the assigned loan risk ratings. (AS 2201.39)

The firm selected for testing a control over manually recorded period-end adjustments to reverse certain revenue for shipped products that had not been delivered to the issuer's customers by the end of the period. The firm did not identify and test any controls over the accuracy and completeness of the shipping terms entered into the revenue system that were used to determine whether adjustments were necessary. (AS 2201.39)

The firm did not identify and test any controls that addressed whether all manual sales orders were entered into the revenue system. (AS 2201.39)

The issuer entered into revenue arrangements with multiple elements and allocated consideration to the deliverables using vendor-specific objective evidence ('VSOE') of fair value or its BESP. The following deficiencies were identified: · The firm identified errors in the issuer's VSOE and BESP analyses and concluded that the issuer's control over the preparation and review of these analyses was not operating effectively as of year end. In determining whether the deficiency represented a material weakness the firm did not sufficiently evaluate the magnitude of the potential misstatements because it limited its procedures to evaluating the known misstatements. (AS 2201.62 and .63)

The issuer entered into revenue arrangements with multiple elements and allocated consideration to the deliverables using vendor-specific objective evidence ('VSOE') of fair value or its BESP. The following deficiencies were identified: · The firm's approach to substantively test the VSOE and BESP analyses was to review and test management's process. The firm did not test the accuracy and completeness of the stand-alone sales transactions the issuer used in these analyses or in the alternative test any controls over the accuracy and completeness of these transactions. (AS 2501.11)

The issuer entered into revenue arrangements with multiple elements and allocated consideration to the deliverables using vendor-specific objective evidence ('VSOE') of fair value or its BESP. The following deficiencies were identified: · In addition the issuer used certain sales order data that it obtained from the revenue system and manually entered into the analyses. The firm did not test or (as discussed above) sufficiently test controls over the completeness of the manually entered sales order data used in the analyses. (AS 2501.11)

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

The issuer prepared a schedule of numerous uncorrected misstatements that it had identified and that affected several financial statement accounts. The firm did not perform any procedures to determine whether the uncorrected misstatements included on this schedule were accurate and whether there were other uncorrected misstatements that the issuer identified that the firm should have evaluated. (AS 1105.10)

In addition the firm did not evaluate the effect of the uncorrected misstatements on the specific accounts and disclosures involved. (AS 2810.17)

One of the issuer's reinsurance agreements required both parties to maintain certain assets as collateral for the reinsurance recoverable. The firm did not identify and test any controls that addressed whether the assets maintained as collateral by both parties were in compliance with the provisions of the reinsurance agreement. (AS 2201.39)

The firm did not test whether the assets maintained as collateral by both parties were in compliance with the provisions of the reinsurance agreement. (AS 2301.08)

As part of the issuer's overall credit risk assessment for corporate loans collectively evaluated for impairment the issuer determined a loan risk rating for each loan based on loan information for each borrower including a borrower risk rating. The following deficiencies were identified: · The firm used this loan information in certain of its substantive procedures to evaluate the appropriateness of the issuer's loan risk ratings for these loans. The firm did not test or (as discussed above) test controls over the accuracy and completeness of this information. (AS 2501.11)

The firm selected for testing a control that included the review and approval of changes to the inputs that were used by the issuer to determine its proved oil and gas reserves. The number of changes selected for testing did not provide sufficient appropriate audit evidence in light of the volume of changes subject to the control. (AS 2201.46 and .47)

The sample size the firm used in its substantive procedures to test the appropriateness of certain inputs used to determine the issuer's proved oil and gas reserves 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 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 identify and test any controls over the accuracy and completeness of the actual costs for raw materials direct labor and overhead that were used by the issuer's inventory system to calculate manufacturing variances between actual and standard costs for the inventory at one of the issuer's locations. (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 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 substantive procedures that addressed the accuracy of the allocation of the direct labor and overhead costs to this inventory. (AS 2301.08)

The firm selected for testing a control that consisted of the review of the issuer's risk assessment for graded loans. This review included the determination of which loans would be subject to an independent loan-grade review. The loan grades were an important factor in estimating the ALL. The firm did not evaluate the specific review procedures that the control owner performed to determine which loans would be subject to an independent loan-grade review. (AS 2201.42 and .44)

The issuer used a model in the valuation of the ALL that used various data including historical loan-loss data derived from the issuer's data warehouse systems. The firm did not identify and test any controls over the accuracy of the transfer of these data from the issuer's source systems to the data warehouse systems or test other controls that would have provided evidence over the accuracy of these data. (AS 2201.39)

The firm's approach for testing the ALL was to review and test management's process. The firm did not perform any substantive procedures to test or in the alternative identify and test any controls over the accuracy of the historical loan-loss data as discussed above. (AS 2501.11)

For one category of revenue that comprised six types of revenue arrangements the firm selected for testing a control that consisted of a monthly comparison by project type of certain financial information and the investigation of variances over established thresholds. The firm did not evaluate whether certain thresholds the control owners used were sufficiently precise to detect misstatements that could be material. (AS 2201.42 and .44)

In addition the firm did not identify and test any controls over the accuracy of certain data that the control owners used in the performance of this control. (AS 2201.39)

As part of the issuer's overall credit risk assessment for corporate loans collectively evaluated for impairment the issuer determined a loan risk rating for each loan based on loan information for each borrower including a borrower risk rating. The following deficiencies were identified: · The issuer used various models to determine the borrower risk ratings for certain corporate loans. The firm did not identify and test any controls over the issuer's evaluation of the appropriateness of these models. (AS 2201.39)

For four types of these revenue arrangements the firm selected for testing a control that included the review of invoices. The firm did not test the procedures the control owners performed to determine whether the services were provided for the revenue recorded for three of these types of revenue arrangements. (AS 2201.44)

In addition the firm did not identify and test any controls over the accuracy of certain data that the control owners used in the performance of this control for one of these three types of arrangements. (AS 2201.39)

For the other two types of revenue arrangements the firm selected for testing controls that consisted of the review and approval of journal entries. The firm did not identify and test any controls over the accuracy of the data that the control owners used in the performance of these controls. (AS 2201.39)

For another category of revenue the firm selected for testing a control that consisted of the review of revenue transactions greater than an established monetary threshold. The firm did not identify and test any controls over revenue transactions that were less than this established threshold. (AS 2201.39)

The firm selected for testing a control over certain revenue and the related accounts receivable that consisted of the review of sales orders the issuer entered into its revenue system. The firm did not identify and test any controls that addressed whether all sales orders were subject to this review. (AS 2201.39)

The firm did not identify and test any controls that addressed whether all approved requests for changes in billing rates were processed in the revenue system. (AS 2201.39)

In response to ineffective IT general controls over the general ledger and revenue systems for one of its business units the issuer implemented and the firm selected for testing an annual control at year end that consisted of testing a sample of revenue transactions from the revenue system to determine whether revenue had been appropriately recognized. The following deficiencies were identified: · The firm did not identify that this annual control did not address the accuracy and completeness of the data and reports that were derived from the revenue system throughout the year and used in the operation of certain IT-dependent manual controls that the firm had selected for testing. (AS 2201.68)

In response to ineffective IT general controls over the general ledger and revenue systems for one of its business units the issuer implemented and the firm selected for testing an annual control at year end that consisted of testing a sample of revenue transactions from the revenue system to determine whether revenue had been appropriately recognized. The following deficiencies were identified: · The firm did not sufficiently test the annual control because the firm did not (1) evaluate whether the issuer's selection process resulted in all transactions having an opportunity of being selected and (2) test the control owner's procedures to determine whether revenue or deferred revenue had been appropriately recorded for certain items selected for testing. Further the firm did not identify and test any controls over the completeness of the reports derived from the revenue system that the control owner used to select transactions for testing. (AS 2201.68)

In response to ineffective IT general controls over the general ledger and revenue systems for one of its business units the issuer implemented and the firm selected for testing an annual control at year end that consisted of testing a sample of revenue transactions from the revenue system to determine whether revenue had been appropriately recognized. The following deficiencies were identified: · The firm did not identify and test any controls over the accuracy and completeness of the data derived from the general ledger system that were used in the operation of certain IT-dependent manual controls that the firm had selected for testing. (AS 2201.68)

In response to ineffective IT general controls over the general ledger and revenue systems for one of its business units the issuer implemented and the firm selected for testing an annual control at year end that consisted of testing a sample of revenue transactions from the revenue system to determine whether revenue had been appropriately recognized. The following deficiencies were identified: · 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)

As part of the issuer's overall credit risk assessment for corporate loans collectively evaluated for impairment the issuer determined a loan risk rating for each loan based on loan information for each borrower including a borrower risk rating. The following deficiencies were identified: · The firm's approach for testing the ALL for these loans was to review and test management's process. The firm did not perform any procedures to test the calculations in these models. (AS 2501.11)

The issuer generated certain revenue from its distribution of electricity that its customers purchased from other energy companies. The firm selected for testing a control over the volumes of electricity distributed by the issuer. The firm did not identify and test any controls over the accuracy and completeness of the volumes of electricity that the issuer's customers purchased from other energy companies that were used in this control. (AS 2201.39)

The firm used these volume data in its substantive testing of this revenue but did not perform any procedures to test or in the alternative identify and test any controls over the accuracy and completeness of these data as discussed above. (AS 1105.10)

The firm selected for testing a control over certain revenue that consisted of a comparison by contract of actual profit to forecasted amounts. The firm did not identify and test any controls over the data and assumptions used to develop the forecasted profits that were used in the performance of this control. (AS 2201.39)

The sample size the firm used in certain of its substantive procedures to test this revenue 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 deficiency 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 over the existence of certain inventory that included reviews of the issuer's cycle-count results to assess the reliability of the cycle-count process. The issuer used cycle-count data from its inventory systems to manually prepare the cycle-count analyses that were used in the operation of this control. The firm did not identify and test any controls that addressed whether these analyses were accurate and complete. (AS 2201.39)

The sample sizes the firm used in certain of its substantive procedures to test this inventory 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 selected for testing controls over adjustments to one type of revenue and related accounts receivable and the gain on the sale of certain real estate assets. The issuer used system-generated reports in the performance of these controls. To test controls over the accuracy and completeness of these reports the firm either relied on testing performed in a prior year or tested one instance of the reports as of an interim date. The firm did not identify and evaluate the nature of the changes that were made to the configuration of these reports after the testing dates to update its conclusion to the date of management's assessment. (AS 2201.55 and .56)

The sample size the firm used in its substantive procedures to test adjustments to one type of revenue and related 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 deficiency in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

During the year the issuer acquired certain real estate assets. The firm selected for testing certain controls each of which consisted of the review of a significant assumption used to determine the fair value of these acquired assets. The firm did not evaluate whether certain items that the control owners identified for follow up had been appropriately resolved. (AS 2201.42 and .44)

During the year the issuer acquired numerous businesses. The firm did not identify and test any controls over the valuation of the assets acquired and liabilities assumed in these business combinations. (AS 2201.39)

The firm did not identify and test any controls over certain types of loans receivable including unfunded commitments. (AS 2201.39)

The firm did not perform any substantive procedures to test the valuation of the assets acquired and liabilities assumed in these business combinations. (AS 2502.15)

During the year the issuer acquired a business. The firm selected for testing a control that consisted of a review of certain assumptions underlying the cash-flow forecasts that the issuer used to determine the fair value of certain acquired intangible assets. The firm did not evaluate the review procedures performed including the criteria the control owner used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44)

In addition the firm did not test the aspect of this control that addressed the accuracy and completeness of certain data used in the valuation of these intangible assets. (AS 2201.42 and .44)

The firm's approach for testing the fair value of these acquired intangible assets was to review and test management's process. The firm did not sufficiently test the accuracy and completeness of certain data that the issuer used to value these acquired intangible assets because its procedures were limited to comparing certain of these data to schedules the issuer had obtained from the acquired company. (AS 2502.39)

In addition the firm did not sufficiently test certain assumptions underlying the forecasted revenue that the issuer used to value one of these intangible assets beyond inquiring of management and comparing these assumptions to an issuer-prepared schedule. (AS 2502.26 and .28)