Explorer

The firm identified control deficiencies related to controls over the review and approval of program changes for one of the issuer's revenue systems but did not evaluate the severity of these deficiencies. (AS 2201.62)

The firm selected for testing controls over the issuer's reviews of transaction reports and the resulting monthly journal entries used to record service revenue and deferred 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 used the information manually entered into the revenue systems in its substantive testing of this revenue but did not perform any procedures to test or (as discussed above) sufficiently test controls over the accuracy and completeness of this information. (AS 1105.10)

The firm selected for testing a control that consisted of the issuer's review of cash disbursements including whether those disbursements met the criteria to be capitalized. The firm did not perform any procedures beyond inquiring of management to test the aspect of this control related to the control owner's evaluation of whether disbursements were properly capitalized. (AS 2201.42 and .44)

To substantively test P&E additions the firm selected for testing additions that exceeded a monetary threshold. The firm did not perform any procedures to test the remaining population of P&E additions. (AS 1105.27)

The issuer used two service organizations for custody record keeping and the processing of investment transactions and those service organizations used sub-service organizations for certain functions. The service auditors' reports did not address the controls over the sub-service organizations. The firm did not obtain an understanding of and test any controls at the sub-service organizations that were relevant to the issuer. (AS 2201.39 and .B19)

The firm selected for testing a complementary user control that consisted of monthly cash and investment reconciliations but did not test the aspect of this control related to investments. (AS 2201.B22)

The firm used certain information obtained from the issuer and from outside sources in its substantive testing of revenue but did not perform any procedures to evaluate whether this information was reliable accurate and complete. (AS 1105.04 .06 and .10)

The firm selected for testing a complementary user control that consisted of monthly balance sheet reconciliations. The firm did not identify and test any controls over the accuracy and completeness of the investment statements from the sub-service organizations that the control owners used in the performance of this control. (AS 2201.39 and .B19)

The firm did not perform any substantive procedures to test the valuation of investments. (AS 2502.15)

The issuer granted stock options as payment for services and during the year changed service organizations that it used to value the options. One of the service organizations developed certain assumptions that it used in the valuation of certain options. The firm did not identify and test any controls over the reasonableness of these assumptions. (AS 2201.39)

The firm selected for testing controls that consisted of the issuer's reviews of (1) journal entries to record certain stock-based compensation expense (2) quarterly adjustments to certain stock-based compensation expense and (3) disclosures regarding the assumptions used to determine the fair value of certain stock options. 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)

An individual involved in the operation of each of the controls discussed above either as a preparer or control owner had privileged access to the service organizations' systems that provided this individual with the ability to make changes to data in those systems. The firm did not identify and evaluate the effect of this individual's access on its conclusions that the relevant controls were designed and operating effectively. (AS 2201.42 and .44)

The firm did not identify and test any controls other than certain cut-off controls over the issuer's revenue transactions for certain types of revenue. (AS 2201.39)

The issuer recognized revenue from a contract with a new customer. The firm did not sufficiently evaluate whether collectability of substantially all of the consideration was probable at contract inception because its procedures were limited to inquiring of management and reading an issuer-prepared memorandum. (AS 2301.08)

To evaluate an investment for potential impairment the firm used information related to transactions involving the investee's stock. The firm did not perform any procedures beyond inquiring of management of the investee to test whether this information was reliable and accurate. Further when determining whether the issuer's conclusion that the investment was not impaired was reasonable the firm did not evaluate potential impairment indicators including (1) the investee's negative operating results unsuccessful attempt to raise capital and workforce reduction shortly after year end and (2) a significant decline in the value of certain assets that were important to the issuer's and the investee's operations. (AS 2301.08; AS 2810.03)

For one type of revenue the issuer's system generated customer invoices and recorded revenue once the issuer processed invoices from the manufacturer of its products indicating that customer orders had been completed and shipped. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of support for revenue transactions. In testing the operating effectiveness of this control the firm did not test the aspect related to whether the manufacturer's invoices processed by the issuer were consistent with the customers' orders. (AS 2201.44)

For one type of revenue the issuer's system generated customer invoices and recorded revenue once the issuer processed invoices from the manufacturer of its products indicating that customer orders had been completed and shipped. The following deficiencies were identified: · The firm selected for testing an automated control over the generation of a customer invoice and the recording of revenue once the manufacturer's invoice was processed in the issuer's system. The firm did not obtain an understanding of how the issuer's system was configured to initiate process and record revenue transactions. As a result the firm did not test the configuration of this control or perform other procedures that would have provided sufficient appropriate audit evidence that the control was designed and operating effectively. (AS 2201.34 .42 and 44)

For one type of revenue the issuer's system generated customer invoices and recorded revenue once the issuer processed invoices from the manufacturer of its products indicating that customer orders had been completed and shipped. The following deficiencies were identified: · The firm selected for testing a control over manually recorded period-end adjustments to reverse 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 delivery dates obtained from the manufacturer that the control owners used to determine whether adjustments were necessary. (AS 2201.39)

For two other types of revenue the issuer recognized revenue monthly based on sales reported by external parties. The firm selected for testing controls that consisted of the issuer's reviews of the reasonableness of the sales reported by these external parties. 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 used the sales reported by the external parties in its substantive testing of this revenue but did not perform any procedures to test or (as discussed above) sufficiently test controls over the accuracy and completeness of this information. (AS 1105.10)

The firm selected for testing controls that consisted of the issuer's reviews of the allowance for doubtful accounts. 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 identify and test any controls over the accuracy and completeness of the shipment information from the system that the issuer used to record revenue. (AS 2201.39)

The firm identified the issuer's omission of a required disclosure under FASB ASC Topic 606 Revenue from Contracts with Customers related to the disaggregation of revenue recognized over time and at a point in time. The firm concluded that the omission did not represent a material misstatement but did not evaluate the significance of a misstatement in the total amount of point-in-time revenue disclosed. (AS 2810.17)

The issuer recognized certain revenue based on electronic activity that was tracked using an internally developed information-technology (IT) system. In its substantive testing of this revenue the firm used activity information obtained from external parties to test the electronic activity in this system but did not perform any procedures to evaluate the reliability of this activity information. (AS 1105.04 and .06)

The issuer recognized certain other revenue based on user activity in an electronic environment that was tracked and provided by two external parties. The firm obtained this information from the issuer and used it in its substantive testing of this revenue. The following deficiencies were identified: · With respect to the user activity information provided by one external party the firm did not sufficiently test the accuracy and completeness of the information because it did not test the parameters that the issuer input into the IT system that the external party used to track the activity. (AS 1105.10)

The issuer recognized certain other revenue based on user activity in an electronic environment that was tracked and provided by two external parties. The firm obtained this information from the issuer and used it in its substantive testing of this revenue. The following deficiencies were identified: · With respect to the user activity information provided by the other external party the firm did not sufficiently test the accuracy and completeness of the information because its procedures were limited to obtaining an understanding of and testing certain IT general controls over the IT system that the external party used to track the activity. (AS 1105.10)

The issuer entered into revenue arrangements with multiple performance obligations. The firm did not perform any substantive procedures to evaluate whether the issuer's identification of the performance obligations was in conformity with FASB ASC Topic 606 and whether such obligations had been satisfied before revenue was recognized. (AS 2810.30)

The issuer recognized revenue from certain other arrangements based on information provided by external parties. The firm obtained this information from the issuer and used it in its substantive testing of this revenue. The following deficiencies were identified: · The firm did not perform any procedures to test or in the alternative test any controls over the accuracy and completeness of this information. (AS 1105.10)

The issuer recognized revenue from certain other arrangements based on information provided by external parties. The firm obtained this information from the issuer and used it in its substantive testing of this revenue. The following deficiencies were identified: · The firm selected the issuer's largest revenue transactions for testing but did not perform any substantive procedures to test the remaining portion of this revenue. (AS 1105.27)

The issuer held certain investments in privately held companies that were categorized as level 3 within the fair value hierarchy as set forth in FASB ASC Topic 820 Fair Value Measurement. The following deficiencies were identified: · The firm's approach for substantively testing the valuation of certain of these investments was to review and test management's process. The firm did not perform any procedures to test the share price the issuer used to record the fair value of each investment beyond (1) obtaining for one investment an unexecuted consent of the investee company's board of directors regarding a possible equity transaction and (2) obtaining for the other investments an email that the issuer had received from a broker indicating the weighted-average share price for trades that the broker executed in the last quarter of the year under audit. (AS 2502.26 and .28)

The issuer held certain investments in privately held companies that were categorized as level 3 within the fair value hierarchy as set forth in FASB ASC Topic 820 Fair Value Measurement. The following deficiencies were identified: · The firm's approach for substantively testing the valuation of another investment was to develop an independent estimate. The firm did not evaluate the appropriateness of the peer companies determined by the issuer that the firm used in developing its fair value estimate of this investment. (AS 2502.40)

The issuer recorded two types of revenue for one of its subsidiaries net of customer discounts rebates and other deductions. The firm did not perform any substantive procedures to test these sales deductions beyond comparing the total amount recorded by the issuer to an amount the firm calculated by applying the issuer's historical sales deduction rates to the gross sales for each revenue type. (AS 2301.08)

The firm selected for testing controls that consisted of the issuer's review of sales orders. The firm used the results of its substantive testing of this revenue as evidence that these controls were operating effectively. The firm's procedures did not provide sufficient appropriate audit evidence because the firm did not directly test the review procedures that the control owners performed. (AS 2201.42 .44 and .B9)

Certain of the issuer's inventory was subject to weekly cycle counts and the issuer used system-generated reports to determine the frequency with which each item should be counted and to select the items that should be counted each week. The firm did not perform any substantive procedures to test or in the alternative test any controls over the accuracy and completeness of these reports. As a result the firm did not obtain sufficient appropriate audit evidence that the cycle-count procedures the issuer used for this inventory were sufficiently reliable to produce results substantially the same as those that would have been obtained by a count of all items each year. (AS 1105.10; AS 2510.11)

For certain investments the issuer held the firm performed confirmation procedures for a small number of these investments but did not perform any procedures to obtain evidence that the remaining population of these investments existed at year end. (AS 2503.21)

The firm selected for testing a control that included the review of the issuer's accounting for leases for conformity with FASB ASC Topic 842 Leases. 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 selected for testing a control that consisted of the issuer's review of the calculation of the rebate accrual. The firm did not identify and test any controls over the accuracy and completeness of the system-generated reports used in the operation of this control. (AS 2201.39)

The firm did not identify and test any controls that addressed the issuer's determination of the cost of its inventory and whether the amounts relieved from inventory and recorded to cost of goods sold were accurate. (AS 2201.39)

The firm selected for testing the issuer's daily cycle-count control over the existence of this inventory. The small number of cycle-counts that the firm selected for testing did not provide sufficient appropriate audit evidence in light of the frequency of the operation of the control. (AS 2201.46)

The firm selected for testing a control that consisted of the issuer's review of the reserve for excess and obsolete inventory. The firm did not identify and test any controls over the accuracy and completeness of the system-generated report used in the operation of this control. (AS 2201.39)

Due to the deficiency related to the cycle-count control discussed above the firm did not obtain sufficient appropriate audit evidence that the cycle-count procedures the issuer used for this inventory were sufficiently reliable to produce results substantially the same as those that would have been obtained by a count of all items each year. (AS 2510.11)

The issuer recognized certain revenue from contracts over time using an input method based on costs incurred. 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 at year end beyond (1) comparing in the aggregate estimated total costs for open contracts as of the prior year end to the revised estimated total costs for those contracts as of the current year end and (2) obtaining for two open contracts a summary of actual costs incurred during a period of time subsequent to year end and inquiring of management. (AS 2501.07)

The issuer recognized certain revenue from contracts over time using an input method based on costs incurred. The following deficiencies were identified: · The firm used certain labor information in its substantive testing of the costs incurred to date that the issuer used to recognize this revenue but did not test or in the alternative test any controls over the accuracy and completeness of this information. (AS 1105.10)

The firm did not identify and test any controls over information that the issuer manually entered into the revenue systems and used to record service revenue and deferred revenue. (AS 2201.39)

During the audit the firm did not identify and appropriately address that the issuer's accounting for certain redeemable shares as permanent equity was not in conformity with FASB ASC Topic 480 Distinguishing Liabilities from Equity. (AS 2810.30) Unrelated to our review the issuer reevaluated its accounting for these shares 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.

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. (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.

During the audit the firm did not identify and appropriately address that the issuer's accounting for certain redeemable shares as permanent equity was not in conformity with FASB ASC Topic 480. (AS 2810.30)

During the audit the firm did not identify and appropriately address that the issuer's accounting for certain warrants as equity was not in conformity with FASB ASC Topic 815. (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 firm did not identify and evaluate the significance to the restated financial statements of the omission of and a misstatement in certain required disclosures under FASB ASC Topic 820 Fair Value Measurement. (AS 2810.30 and .31)