Explorer

A portion of the issuer's loans had payment terms that allowed borrowers to make interest-only payments for a fixed period with the repayment of the outstanding principal balance due at a later date. The following deficiencies were identified: · The firm did not identify and test any controls that addressed the timely identification and evaluation of any indicators of deterioration in a borrower's ability to repay the principal associated with these loans. (AS 2201.39)

A portion of the issuer's loans had payment terms that allowed borrowers to make interest-only payments for a fixed period with the repayment of the outstanding principal balance due at a later date. The following deficiencies were identified: · The firm did not perform procedures to evaluate whether any impairment indicators existed for these loans beyond testing the collateral valuation for one loan. (AS 2301.08)

The issuer recorded the fair values of available-for-sale ('AFS') securities based on the prices it obtained from external pricing services. The firm selected for testing a control that consisted of meetings that the issuer held with the external pricing services to assess the appropriateness of the methods and assumptions used by the external pricing services to price those securities. The firm did not evaluate the specific procedures that the control owner performed to obtain an understanding of the methods and assumptions underlying the prices obtained from the pricing services. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the review of the categorization of AFS securities within the fair value hierarchy as set forth in FASB ASC Topic 820 Fair Value Measurement. The firm did not evaluate the specific procedures that the control owner performed to assess the appropriateness of the categorization within the fair value hierarchy. (AS 2201.42 and .44)

The firm's approach for testing the valuation of certain AFS securities was to develop an independent estimate of the fair values for a sample of these AFS securities using prices the firm obtained from various other external pricing services. For purposes of evaluating the reasonableness of the differences between its independent estimates and the issuer's estimates the firm did not obtain an understanding of the assumptions used by the issuer's external pricing services for the individual securities selected for testing. (AS 2502.40)

The issuer held investment securities that it classified based on original maturity as either cash equivalents or short-term investments in its financial statements. The firm did not identify and test any controls that addressed the appropriateness of the classification of these investments. (AS 2201.39)

The firm did not perform any substantive procedures that addressed the appropriateness of the classification of these investments. (AS 2301.08)

The firm did not identify and test any controls over the quantitative impairment analysis that the issuer performed over certain finite-lived intangible assets. (AS 2201.39)

The firm did not perform any substantive procedures to evaluate whether this revenue was appropriately recognized based on the contractual terms and conditions. (AS 2301.08)

The firm selected for testing a control that consisted of the review of the assumptions used to estimate post-retirement benefit obligations. 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 recognized certain revenue from contracts using the percentage-of-completion method. The following deficiencies were identified: · The firm selected for testing a control over this revenue that consisted of the review of an analysis of estimated gross margin by contract. 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)

During the year the issuer acquired a portfolio of loans and leases and accounted for the transaction as a business combination. The firm did not identify and test any controls over the valuation of the loans and leases acquired in this business combination. (AS 2201.39)

The firm did not perform any substantive procedures to test the valuation of the loans and leases acquired in this business combination. (AS 2502.15)

The firm selected for testing a control that consisted of the review of the price curves that the issuer used to determine the value of commodity derivatives. The firm did not evaluate the review procedures that the control owner performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The firm did not identify and test any controls that addressed the reasonableness of a significant assumption that the issuer used to value commodity derivatives for which monthly price quotes were not available. (AS 2201.39)

The firm did not perform any substantive procedures to evaluate the reasonableness of the significant assumption discussed above. (AS 2502.26 and .28)

The issuer's determination of whether to present gains and losses on derivative trades on a gross or net basis in the issuer's income statement was dependent on how the derivative trades were designated in the issuer's derivatives system. The firm did not identify and test any controls that addressed whether derivative trades had been appropriately designated in the system by the issuer's traders. (AS 2201.39)

The sample sizes the firm used in certain of its substantive procedures to test the presentation and disclosure of derivative trades 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 issuer had determined during the first and second quarters that one of its properties was not impaired based on the results of analyses that it had performed in those quarters to determine whether the carrying value of the property was recoverable. The firm did not identify and test any controls over these analyses. (AS 2201.39)

The issuer recognized certain revenue from contracts using the percentage-of-completion method. The following deficiencies were identified: · The firm selected for testing a control over this revenue that consisted of the review of an analysis of estimated gross margin by contract. The firm did not test the aspect of this control related to the control owner's assessment of whether the costs incurred to date included in the analysis were accurate complete and allowable under the contracts. (AS 2201.42 and. 44)

The issuer recognized certain revenue from contracts using the percentage-of-completion method. The following deficiencies were identified: · The firm did not perform any substantive procedures to evaluate the reasonableness of the estimated costs to complete open contracts. (AS 2501.07)

The issuer recognized certain revenue from contracts using the percentage-of-completion method. The following deficiencies were identified: · The firm did not perform any substantive procedures to test the completeness of the costs incurred to date and whether the costs incurred were allowable under the contracts. (AS 2301.08)

The firm used certain data derived from the issuer's system in its substantive testing of revenue and related accounts. The firm did not perform any substantive procedures to test or in the alternative identify and test any controls over the completeness and/or accuracy of this data. (AS 1105.10)

The issuer calculated a provision for certain assets by applying established percentages to each category of these assets. The firm's approach for testing the provision was to review and test management's process. The firm did not perform any procedures to test the reasonableness of the percentages used by the issuer to determine the provision. (AS 2501.11)

The issuer used various models to value certain derivatives. The firm selected for testing a control that consisted of the review and validation of (1) new or updated models and (2) existing models based on issuer-assigned risk ratings. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The issuer capitalized certain employee and contractor labor costs to long-lived assets. The following deficiencies were identified: · The firm used employee and contractor hours derived from the issuer's time recording system in its substantive testing of these capitalized labor costs. The firm did not test or (as discussed above) test or sufficiently test controls over the accuracy of the employee or contractor hours. (AS 1105.10)

The issuer entered into arrangements with multiple elements that consisted of software and professional services. The issuer determined that professional services represented separate performance obligations and recognized revenue related to these services separately from the software revenue. The firm selected for testing controls that consisted of the issuer's reviews of contracts for appropriate revenue recognition. The firm did not evaluate the specific review procedures that the control owners performed to determine that professional services represented separate performance obligations. (AS 2201.42 and .44)

The firm did not perform any substantive procedures to evaluate whether the issuer's treatment of professional services as separate performance obligations was in conformity with FASB ASC Topic 606 Revenue from Contracts with Customers. (AS 2810.30)

The issuer identified indicators of potential impairment related to certain CGUs performed an impairment analysis over those CGUs and recorded an impairment charge. The firm selected for testing a control that included the issuer's review of the assumptions used in the impairment analysis. 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 consisted of the (1) review and validation at least annually of all models and (2) quarterly review of back testing results using historical loan information to assess the performance of certain models. The firm did not sufficiently test the first control because the firm's sample primarily consisted of models that the issuer had validated in the prior year which did not provide sufficient appropriate audit evidence as of the date of management's assessment of the effectiveness of the issuer's ICFR due to the (1) length of time that had passed between the instances of the control the firm tested and the date of management's assessment (2) higher risk associated with the control and (3) sensitivity and complexity of the models covered by the control. (AS 2201.46 and .52)

The firm selected for testing controls that consisted of the (1) review and validation at least annually of all models and (2) quarterly review of back testing results using historical loan information to assess the performance of certain models. For the second control the firm did not identify and test any controls over the accuracy and completeness of the historical loan information used in the operation of that control. (AS 2201.39)

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 perform procedures to test certain factors and assumptions the issuer developed in the prior year and used to determine the ALL in the current year. (AS 2501.09 .10 and .11)

The issuer had multiple cash generating units ('CGUs'). For one CGU the issuer concluded that there were no indicators of potential impairment. For another CGU the issuer identified indicators of potential impairment performed an impairment analysis and recorded an impairment charge. The firm selected for testing controls over the issuer's evaluation of long-lived assets for possible impairment that included the issuer's reviews of (1) potential indicators of impairment and (2) assumptions underlying the forecasted operating costs capital expenditures and discount rates used in the impairment analysis. The firm did not evaluate the specific review procedures that the control owners performed (1) with respect to potential indicators of impairment related to the first CGU and (2) to assess the reasonableness of the forecasted operating costs capital expenditures and discount rates used in the impairment analysis for the second CGU. (AS 2201.42 and .44)

The firm did not evaluate management's determination that there were no indicators of potential impairment for the first CGU beyond inquiring of management and reading the issuer's impairment indicator memorandum and a reserves report prepared by an external specialist. (AS 2301.08)

The firm's approach for substantively testing the impairment analysis for the second CGU was to review and test management's process. The firm did not sufficiently test the impairment analysis for this CGU because the firm did not perform procedures to evaluate the reasonableness of the discount rates and the forecasted operating costs and capital expenditures beyond the first year that the issuer used in the impairment analysis. (AS 2501.09 10 and .11)

The issuer capitalized certain employee and contractor labor costs to long-lived assets. The following deficiencies were identified: · The firm did not identify and test any controls over the accuracy of the employee labor hours associated with the employee labor costs capitalized to long-lived assets. (AS 2201.39)

The issuer capitalized certain employee and contractor labor costs to long-lived assets. The following deficiencies were identified: · The firm selected for testing a control that consisted of the review and approval of contractor labor hours. The firm did not evaluate the specific review procedures that the control owners performed to address the accuracy of the contractor labor hours associated with the contractor labor costs capitalized to long-lived assets. (AS 2201.42 and .44)

The issuer used two information-technology (IT) systems to process and record certain revenue transactions related to services provided to its customers; one of these systems was maintained by an external service organization. The following deficiencies were identified: · With respect to the IT system that was maintained by an external service organization the firm selected for testing a control over access by employees of the service organization to this system and identified control exceptions related to inappropriate access for numerous employees. The firm did not sufficiently evaluate the effect of these exceptions on the effectiveness of this control because its evaluation was limited to inquiring of management of the service organization regarding access privileges. (AS 2201.48)

The issuer recorded certain revenue based on information about the quantities sold and delivery dates that was provided by a third-party administrator. The following deficiencies were identified: · The firm used the quantities sold and delivery date information in its substantive testing of this revenue but did not perform any substantive procedures to test or in the alternative identify and test any controls over (as discussed above) the accuracy and completeness of this information. (AS 1105.10)

The issuer recorded certain revenue based on information about the quantities sold and delivery dates that was provided by a third-party administrator. The following deficiencies were identified: · 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 issuer recorded certain other revenue based on the completion of services provided to its customers. The following deficiencies were identified: · The firm did not identify and test any controls that addressed the risk that revenue was recognized before the performance obligation for these services was satisfied. (AS 2201.39)

The issuer recorded certain other revenue based on the completion of services provided to its customers. The following deficiencies were identified: · The firm did not perform any substantive procedures to test whether the performance obligation for these services was satisfied before revenue was recognized. (AS 2301.08)

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows that assumed significant revenue growth for the majority of the forecast period. The following deficiencies were identified: · For certain years within the forecast period the firm's procedures to evaluate the reasonableness of the revenue growth rates consisted of comparing the issuer's forecasted revenue growth rate to those reported in an industry publication over the same period. The firm did not evaluate significant differences between the issuer's forecasted revenue growth rates and the industry publication's growth rate for these years. (AS 2502.26 .28 .31 and .36)

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows that assumed significant revenue growth for the majority of the forecast period. The following deficiencies were identified: · For certain other years within the forecast period the firm did not perform any procedures to evaluate the reasonableness of the forecasted revenue growth rates. (AS 2502.26 .28 and .31)

During the year the issuer acquired a business and determined the fair value of an acquired intangible asset using forecasted cash flows that assumed significant revenue growth for the majority of the forecast period. The following deficiencies were identified: · The firm did not perform any procedures to evaluate the reasonableness of certain forecasted expenses beyond comparing the current-year forecasted expenses to actual expenses. (AS 2502.26 .28 and .31)

For certain revenue related to services that the issuer provided to its customers the issuer used two IT systems to process and record revenue transactions. The issuer assigned service codes to each customer based on the prices for the services provided and the specific terms of the customer arrangement. These systems calculated and recorded revenue using those service codes. The following deficiencies were identified: · For certain of this revenue the firm did not identify and test any controls that addressed the risks that the service codes used to record revenue did not represent the services ordered and terms agreed to by the customer. (AS 2201.39)

For certain revenue related to services that the issuer provided to its customers the issuer used two IT systems to process and record revenue transactions. The issuer assigned service codes to each customer based on the prices for the services provided and the specific terms of the customer arrangement. These systems calculated and recorded revenue using those service codes. The following deficiencies were identified: · For the remainder of this revenue the firm selected for testing a control that included an aspect that addressed the appropriateness of the service codes used to record revenue. The firm however did not test this aspect of the control. (AS 2201.42 and .44)

For certain revenue related to services that the issuer provided to its customers the issuer used two IT systems to process and record revenue transactions. The issuer assigned service codes to each customer based on the prices for the services provided and the specific terms of the customer arrangement. These systems calculated and recorded revenue using those service codes. The following deficiencies were identified: · For revenue processed and recorded by one of these IT systems the firm did not identify and test any controls to address certain other risks related to the accuracy of customer invoices and revenue calculated by this system. (AS 2201.39)

The issuer used two information-technology (IT) systems to process and record certain revenue transactions related to services provided to its customers; one of these systems was maintained by an external service organization. The following deficiencies were identified: · With respect to the other IT system the firm selected for testing a control over access by employees of the issuer to this system and identified control exceptions related to inappropriate access for numerous employees. The firm concluded that this control was operating effectively based on its evaluation of these exceptions and the effectiveness of a complementary control and that the combination of these two controls addressed the risks of inappropriate access. The firm's conclusion was inappropriate because the complementary control was not designed to operate during the fourth quarter of the issuer's fiscal year and therefore the two controls discussed above did not address the risks related to inappropriate access to this system as of the date of management's assessment. (AS 2201.48)

The firm selected for testing certain manual controls over this revenue that used reports that were generated by these IT systems. The firm's testing of these controls was not sufficient due to the deficiencies in testing controls over the IT systems discussed above. (AS 2201.46)