Explorer

The firm's approach for substantively testing the fair value of the intangible assets and goodwill was to test the issuer's process and the firm engaged an external specialist to evaluate the reasonableness of the assumptions developed by the company's specialist and the appropriateness of the methods used by the company's specialist. The firm did not sufficiently test the fair value of the intangible assets and goodwill because it did not identify that the auditor-engaged specialist did not evaluate (1) the reasonableness of the significant assumptions and (2) whether the method(s) used by the company's specialist were appropriate under the circumstances taking into account the requirements of the applicable financial reporting framework. (AS 1105.A8b and .A8c; AS 1210.09 and .12)

During the year the issuer recorded revenue net of sales discounts. The firm did not perform any substantive procedures to test sales discounts including the related disclosures. (AS 2301.08 and .13)

The firm's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The firm selected for testing a control that consisted of a review of impairment indicators for goodwill. 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's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The firm selected for testing certain controls over the reconciliation and/or review of revenue and accounts receivable. 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 firm did not perform any procedures to test the relevance and reliability of certain data obtained from an external vendor used in its substantive testing of revenue. (AS 1105.04 and .06)

The firm did not perform any procedures to test the existence of certain cash balances. (AS 2301.08 and .13)

The firm's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The firm did not identify and test any controls over the issuer's identification of reporting units in accordance with FASB ASC Topic 350 Intangibles – Goodwill and Other. (AS 2201.39)

The firm's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The issuer engaged a valuation specialist to perform its annual goodwill impairment analysis. The following deficiency was identified: · The firm did not perform any procedures to evaluate the relevance and reliability of certain data from external sources used by the company's specialist to develop a significant assumption. (AS 1105.A8a)

The firm's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The issuer engaged a valuation specialist to perform its annual goodwill impairment analysis. The following deficiency was identified: · The firm did not perform procedures to evaluate the reasonableness of certain significant assumptions developed by the company's specialist beyond inquiry of the company's specialist. (AS 1105.A8b)

The firm's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The issuer engaged a valuation specialist to perform its annual goodwill impairment analysis. The following deficiency was identified: · The firm did not perform procedures to evaluate the reasonableness of another significant assumption developed by the company's specialist beyond performing a sensitivity analysis. (AS 1105.A8b)

The firm's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The firm did not sufficiently evaluate whether the method used by the issuer to develop the fair value of its reporting units was in conformity with FASB ASC Topic 350 because the firm did not perform procedures to evaluate the appropriateness of the issuer's identification of its reporting units. (AS 2501.10)

The firm's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The firm did not perform procedures beyond reviewing the issuer's fourth quarter triggering event assessment to evaluate whether a quantitative assessment was required during the fourth quarter including consideration of contrary evidence included in the firm's audit work papers. (AS 2301.08 and .11; AS 2810.03)

The firm's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. The firm selected for testing a control that consisted of management's review of the issuer's ability to continue as a going concern for a reasonable period of time. 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's post-issuance monitoring program had inspected this audit and reviewed these areas but did not identify the deficiencies below. During the year under audit the firm identified conditions and events that caused it to believe there could be substantial doubt about the issuer's ability to continue as a going concern for a reasonable period of time and concluded that the substantial doubt was alleviated. The firm did not sufficiently evaluate management's plans as disclosed in the footnotes because it did not (1) assess the likelihood that the issuer could obtain additional funding beyond inquiries of management and review of historical funding and (2) sufficiently test the prospective financial information which was significant to overcoming the adverse conditions and events including consideration of contrary evidence included in the firm's audit work papers. (AS 2415.03 .08 and .09; AS 2810.03)

The issuer used an information-technology (IT) system to initiate process and record loan-related transactions. The firm did not perform any procedures to test the accuracy and completeness of the data that it used to test controls related to user access and change management over this IT system. (AS 1105.10)

The issuer used an information-technology (IT) system to initiate process and record loan-related transactions. The firm selected for testing a control over a review of user access rights for this IT system. 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 firm selected for testing a control over the review of the significant judgments and estimates used in the ALL. 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 firm selected for testing a control over the review of the significant judgments and estimates used in the ALL. Due to the deficiencies in the firm's testing of IT general controls the firm did not sufficiently test controls over the accuracy and completeness of data and reports used in the operation of this control. (AS 2201.46)

The firm selected for testing a control that included the issuer's review of the assumptions used to determine the qualitative factors used to estimate the ALL for loans collectively evaluated for impairment. The firm did not evaluate the specific review procedures that the control owner performed to evaluate the reasonableness of the basis points applied to each of the qualitative factors. (AS 2201.42 and .44)

For loans collectively evaluated for impairment the firm's approach for substantively testing the ALL was to test the issuer's process. The firm did not evaluate whether the issuer had a reasonable basis for the significant assumptions related to the basis points used for the qualitative factors. (AS 2501.16)

During the year the issuer acquired multiple businesses and used an external specialist to determine the fair values of the assets acquired and the liabilities assumed. The firm's approach for testing these fair values was to review and test management's process. The firm did not evaluate the reasonableness of assumptions used by the specialist to determine the fair values of the assets acquired and the liabilities assumed. (AS 2502.26 and .28)

The firm did not perform any procedures to test or in the alternative test any controls over the accuracy and completeness of system-generated reports used in its substantive testing of certain revenue transactions. (AS 1105.10)

The issuer's products had expiration dates and the issuer determined that a reserve for excess or obsolete inventory was not necessary. In its testing of the process including assumptions used by management to evaluate the need for an inventory reserve the firm did not evaluate whether the issuer's products could be sold at or above cost prior to their expiration dates. (AS 2501.11)

The issuer's products consisted of various categories and each category included numerous individual parts. The issuer determined that a reserve for excess or obsolete inventory was not necessary. In its testing of the process including assumptions used by management to evaluate the need for a reserve for excess and obsolete inventory the firm only performed procedures at the product level and did not consider individual parts for excess quantities or obsolescence. (AS 2501.11)

For one category of revenue the firm selected for testing an automated application control over the generation of customer invoices and recording of revenue. The firm did not test the configuration of the automated control or perform other procedures that would have provided sufficient appropriate audit evidence that the automated control was designed and operating effectively. (AS 2201.42 and .44)

The issuer amended its convertible debt agreements. The following audit deficiencies were identified: · The firm did not identify and evaluate the significance of the issuer's omission of a required disclosure under FASB ASC Subtopic 470-60 regarding its accounting for the amendments as a troubled debt restructuring. (AS 2810.30 and .31)

The firm also identified an error related to the debt discount balance affecting the prior year that the issuer corrected in the current year. The firm did not evaluate whether this correction was in conformity with FASB ASC Topic 250 Accounting Changes and Error Corrections. (AS 2810.30)

The firm's approach for substantively testing the fair value of the derivative liability was to review and test management's process. The firm did not perform any procedures beyond inquiring of management to evaluate whether the model the issuer used to estimate the fair value of the derivative liability was appropriate. (AS 2502.26)

During the year the issuer acquired a business and used an external specialist to estimate the fair value of certain of the acquired intangible assets. The firm's approach for substantively testing the fair value of the acquired intangible assets was to review and test management's process. The following deficiencies were identified: · The firm did not sufficiently evaluate the reasonableness of the revenue growth rate assumptions the issuer provided to the external specialist that the specialist used to estimate the fair value of the acquired intangible assets because it limited its procedures to inquiring of management and comparing the growth rates to historical revenue growth information of another company without performing procedures to evaluate whether that company's historical results would be representative of the future revenue growth rates of the acquired business. Further the firm did not evaluate contradictory evidence the specialist included in the valuation report that indicated that the expected revenue growth rate for the issuer's industry was significantly lower than the expected growth rates for the acquired business. (AS 1210.12; AS 2810.03)

During the year the issuer acquired a business and used an external specialist to estimate the fair value of certain of the acquired intangible assets. The firm's approach for substantively testing the fair value of the acquired intangible assets was to review and test management's process. The following deficiencies were identified: · The firm did not sufficiently evaluate the reasonableness of the discount rate developed and used by the external specialist to estimate the fair value of the acquired intangible assets because it limited its procedures to inquiring of the specialist regarding data used in determining the discount rate and comparing certain of those data to data for other companies without performing procedures to evaluate whether the data for those companies would be representative of the data for the issuer. (AS 2502.26 and .28)

During the year the issuer acquired a business and used an external specialist to estimate the fair value of certain of the acquired intangible assets. The firm's approach for substantively testing the fair value of the acquired intangible assets was to review and test management's process. The following deficiencies were identified: · The firm did not identify and evaluate the significance of the issuer's omission of a required disclosure under FASB ASC Topic 805 Business Combinations. (AS 2810.30 and .31)

The firm did not perform any substantive procedures to test the issuer's income tax provision deferred income tax accounts income tax accruals and related disclosures. (AS 2301.08)

The firm selected for testing another control that consisted of the issuer's review of a monthly report and the resulting journal entries that were recorded to adjust revenue. 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 firm selected for testing another control that consisted of the issuer's review of a monthly report and the resulting journal entries that were recorded to adjust revenue. The firm did not identify and test any controls over the accuracy and completeness of the report used in the operation of this control. (AS 2201.39)

For another category of revenue the firm selected for testing two controls that consisted of the issuer's reviews of the source documents and transaction reports that were used to record revenue. The firm did not evaluate the specific review procedures that the control owners performed to determine whether the amount to be recorded as revenue was appropriate. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the issuer's review of the assumptions used to estimate the fair value of certain acquired intangible assets for reasonableness. 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's approach for substantively testing these assets was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of certain assumptions that the issuer used to value these assets because its procedures were limited to inquiring of management and performing a sensitivity analysis to determine whether changes to the assumptions would result in differences in excess of the firm's established materiality. (AS 2502.26 and .28)

The firm's approach for substantively testing these assets was to review and test management's process. The firm did not perform any substantive procedures to test another assumption. (AS 2502.26 and .28)

The issuer entered into a sales agreement with a new customer that contained various terms and conditions that afforded the issuer and the customer certain rights and obligations. The firm did not perform procedures to evaluate whether revenue from this sales agreement was recognized in conformity with FASB ASC Topic 606 Revenue from Contracts with Customers beyond reading the issuer's revenue recognition memo the sales agreement and the bill of sale. (AS 2810.30)

The issuer amended its convertible debt agreements. The following audit deficiencies were identified: · The firm did not evaluate the amendments to the convertible debt agreements to determine whether the issuer's accounting was in conformity with FASB ASC Subtopic 470-60 Troubled Debt Restructurings by Debtors. (AS 2810.30)

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 used the fair value of the acquired business at the acquisition date to record a goodwill impairment at year end. The following deficiencies were identified: - The firm did not perform procedures to determine whether the fair value of the acquired business at the acquisition date was an appropriate or relevant measurement for use in the goodwill impairment analysis as of year end. (AS 2301.08)

The issuer used the fair value of the acquired business at the acquisition date to record a goodwill impairment at year end. The following deficiencies were identified: - The firm did not identify and appropriately address a GAAP departure related to the issuer's omission of disclosures related to the facts and circumstances leading to the goodwill impairment as required by FASB ASC Topic 350 Intangibles — Goodwill and Other. (AS 2810.30 and .31)

The firm selected for testing controls over the review of journal entries to record cash equivalents and the presentation and disclosure of cash equivalents. The firm did not evaluate the specific review procedures that the control owners performed to determine the completeness of cash equivalents and whether certain investments met the definition and requirements of cash equivalents. (AS 2201.42 and .44)

The firm did not sufficiently evaluate whether certain investments were appropriately presented as cash equivalents because it did not obtain an understanding of and evaluate the nature of those investments including the underlying investments and the associated risks. (AS 2301.08)

The firm did not perform any substantive procedures to test whether the description of certain cash equivalents in the notes to the financial statements was appropriate. (AS 2301.08)

The issuer reported the valuation of certain investments based on investee financial results including both audited and unaudited financial statements and financial statements that were prepared using different accounting principles. The following deficiencies were identified: - The firm selected for testing a control over the valuation of these investments including the review of an impairment analysis of these investments. 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 reported the valuation of certain investments based on investee financial results including both audited and unaudited financial statements and financial statements that were prepared using different accounting principles. The following deficiencies were identified: - The firm did not apply sufficient auditing procedures to the unaudited financial statements for certain investees because it limited its procedures to a fluctuation analysis. (AS 1105.63)

The issuer reported the valuation of certain investments based on investee financial results including both audited and unaudited financial statements and financial statements that were prepared using different accounting principles. The following deficiencies were identified: - The firm did not obtain sufficient appropriate audit evidence for an investee's financial statements prepared using different accounting principles because it did not perform procedures to obtain evidence related to significant differences in accounting principles. (AS 1105.61 and .B2)

The issuer entered into contracts with certain customers that required revenue to be recognized over time based on costs incurred to date relative to total estimated costs to complete these contracts. To substantively test revenue the firm selected a sample of invoices and performed procedures. The following deficiencies were identified: - With respect to invoices related to contracts for which all revenue was recognized by year end the firm did not perform procedures to test if the issuer's performance obligations were satisfied before revenue was recognized beyond obtaining issuer-prepared documents. (AS 2301.08)