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Ernst & Young LLP
United States · Ernst & Young Global Limited · Annually Inspected
- Inspection year
- 2018
- Report date
- 28-Apr-2020
- PCAOB release
- 104-2020-009
- Audits reviewed
- 54
- Audits w/ Part I.A deficiencies
- 14
- Part I.A deficiency rate
- 26%
- Part I.A deficiencies
- 59
- Part I.B deficiencies
- 1
- Report
- View PDF ↗
Deficiencies (59)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A4 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | For one of the locations the firm identified and tested a compensating control to address a control deficiency it identified related to access and the ability to make changes to the general ledger. This compensating control related to testing reviewing and approving changes prior to migration into the general ledger system. The firm did not evaluate the implications of one type of users' ability to modify certain information used in the operation of this control. (AS 2201.68) Both financial statement and ICFR audits | AS 2201.68 | Incorrect opinion |
| 2 | Inventory | For the other two locations the firm selected for testing three access controls that consisted of reviews of whether access to the general ledger system was appropriately restricted based on the system profiles. The firm did not evaluate whether the access provided through these profiles was appropriate based on users' functional needs. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Incorrect opinion |
| 3 | Inventory | As a result of our inspection the firm performed additional procedures related to the deficiencies in controls over revenue and inventory discussed above and requested that the issuer reevaluate these controls. As a result of this reevaluation the issuer identified a material weakness related to the aggregation of control deficiencies over the issuer's information technology (“IT”) systems that had not been previously identified. The firm modified its report on the effectiveness of the issuer's ICFR to include this additional material weakness. The firm relied on information in reports generated from these general ledger systems in performing its substantive procedures over revenue and inventory but did not test the completeness of the information in certain of these reports beyond comparing certain amounts in these reports to the general ledger systems. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | Incorrect opinion |
| 4 | Trade Payables | In addition to the control deficiencies discussed above the firm identified control deficiencies in the issuer's controls over trade payables that it had selected for testing and concluded that these deficiencies in the aggregate represented a significant deficiency. The firm did not sufficiently evaluate whether the deficiencies represented a material weakness because the firm did not evaluate the magnitude of potential misstatements resulting from these control deficiencies. (AS 2201.62 and .63) Both financial statement and ICFR audits | AS 2201.62; AS 2201.63 | Incorrect opinion |
Issuer B12 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | For all three business units the firm selected for testing an automated control over the pricing of revenue transactions within the revenue systems. Pricing for many cases was based on the issuer's costs. The firm did not evaluate whether this control was appropriately configured to operate over each scenario contained in customer contracts. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Revenue | In addition the firm did not identify and test any controls that addressed whether the revenue systems appropriately applied the item costs that were used to generate customer sales invoices. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 3 | Revenue | For one of the three business units the firm selected a control that consisted of the manual resolution of exceptions identified through an automated process to determine whether daily sales had shipped. The firm did not (1) test the configuration of the automated control that identified exceptions and (2) identify and test the aspects of the control related to the manual steps that the control owners performed to resolve the identified exceptions. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 4 | Revenue | For another one of the three business units the firm selected for testing controls that consisted of management's reviews of a sample of changes made to the pricing information within the revenue system. The firm did not evaluate whether the sample of changes subject to the reviews was sufficient to identify any misstatements that in the aggregate could be material. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 | |
| 5 | Revenue | For all three business units the firm's substantive procedures to test revenue consisted of testing samples of transactions. In performing its testing of the selected transactions the firm did not evaluate whether the selling prices that the issuer used to record revenue agreed with the terms in the customer contracts. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 | |
| 6 | Revenue | In addition the sample sizes the firm used 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) Both financial statement and ICFR audits | AS 2301.16; AS 2301.18; AS 2301.37; AS 2315.19; AS 2315.23; AS 2315.23A | |
| 7 | Accounts Receivable | The issuer initiated and processed transactions related to sales accounts receivable and inventory at numerous business units using various IT systems. With respect to controls for these business units the firm selected for testing two entity-level controls that used information generated by the IT systems. The firm did not test IT general controls (“ITGCs”) over the IT systems for these business units or test any other controls over the accuracy and completeness of the information that was generated by the systems and that the issuer used in the performance of the entity-level controls. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 8 | Accounts Receivable | The firm's reliance on the entity-level controls discussed above to reduce its substantive procedures was unsupported. As a result its analytical procedures which consisted of comparisons of certain current-year account balances to corresponding prior-period balances to test revenue accounts receivable and inventory for these locations did not provide sufficient appropriate audit evidence. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 | |
| 9 | Inventory | The firm did not identify and test any controls that addressed whether the inventory subsidiary ledgers for these business units accurately calculated inventory values using the correct item cost at year end. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 10 | Inventory | The firm did not identify and test any controls over the calculation of last-in first-out values for one category of inventory. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 11 | Goodwill | The firm selected for testing a control that consisted of the issuer's review of the assumptions underlying the cash-flow forecasts used in the issuer's annual goodwill impairment assessment. The firm did not evaluate the review procedures that the control owners performed including the criteria that the control owners used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 12 | Goodwill | The firm performed certain substantive procedures to evaluate the significant assumptions underlying the cash-flow forecasts but did not obtain sufficient appropriate audit evidence regarding the issuer's ability to carry out its cost-saving strategies to achieve these forecasts. (AS 2502.26 .28 .31 and .36) Both financial statement and ICFR audits | AS 2502.26; AS 2502.28; AS 2502.31; AS 2502.36 |
Issuer C8 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Asset Retirement Obligations | The issuer recognized one type of revenue and the associated deferred revenue using certain customer rates and service dates recorded in the revenue system. The issuer recognized a second type of revenue and determined the asset retirement obligations (“ARO”) and asset retirement costs (“ARC”) using certain measurement information that was recorded in the revenue system. The firm identified various control deficiencies related to controls over both types of revenue and the deferred revenue and identified and tested four compensating controls that it believed mitigated these deficiencies. The following deficiencies were identified: · Two of the four compensating controls involved the review of certain revenue analyses. The firm did not evaluate the review procedures that the control owner performed to be able to conclude that the compensating controls mitigated identified control deficiencies. (AS 2201.68) Both financial statement and ICFR audits | AS 2201.68 | |
| 2 | Asset Retirement Obligations | The issuer recognized one type of revenue and the associated deferred revenue using certain customer rates and service dates recorded in the revenue system. The issuer recognized a second type of revenue and determined the asset retirement obligations (“ARO”) and asset retirement costs (“ARC”) using certain measurement information that was recorded in the revenue system. The firm identified various control deficiencies related to controls over both types of revenue and the deferred revenue and identified and tested four compensating controls that it believed mitigated these deficiencies. The following deficiencies were identified: · In addition the firm did not identify and test any controls over the accuracy and completeness of certain information including the measurement information which the issuer used in the performance of these two controls. (AS 2201.68) Both financial statement and ICFR audits | AS 2201.68 | |
| 3 | Asset Retirement Obligations | The issuer recognized one type of revenue and the associated deferred revenue using certain customer rates and service dates recorded in the revenue system. The issuer recognized a second type of revenue and determined the asset retirement obligations (“ARO”) and asset retirement costs (“ARC”) using certain measurement information that was recorded in the revenue system. The firm identified various control deficiencies related to controls over both types of revenue and the deferred revenue and identified and tested four compensating controls that it believed mitigated these deficiencies. The following deficiencies were identified: · The other two compensating controls involved the issuer's comparisons of the terms used to calculate revenue for a selection of transactions to supporting documentation. The firm did not evaluate whether these two controls sufficiently mitigated the identified control deficiencies given that these controls addressed only small portions of both types of revenue and the deferred revenue. (AS 2201.68) Both financial statement and ICFR audits | AS 2201.68 | |
| 4 | Asset Retirement Obligations | The issuer recognized one type of revenue and the associated deferred revenue using certain customer rates and service dates recorded in the revenue system. The issuer recognized a second type of revenue and determined the asset retirement obligations (“ARO”) and asset retirement costs (“ARC”) using certain measurement information that was recorded in the revenue system. The firm identified various control deficiencies related to controls over both types of revenue and the deferred revenue and identified and tested four compensating controls that it believed mitigated these deficiencies. The following deficiencies were identified: · The issuer identified errors in certain of the selected items it tested through the operation of one of the two compensating controls discussed directly above but the firm did not evaluate the implications of these errors on its opinion on the issuer's financial statements. (AS 2810.03) Both financial statement and ICFR audits | AS 2810.3 | |
| 5 | Asset Retirement Obligations | With respect to the firm's testing of various controls over the second type of revenue the ARO and the ARC the firm did not identify and test any controls over the accuracy and completeness of certain information that was used in the operation of these controls. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 6 | Asset Retirement Obligations | With respect to the firm's substantive testing of the second type of revenue the ARO and the ARC the firm used certain measurement information in its testing but did not perform any procedures to test the accuracy of this information. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | |
| 7 | Plant, Property, and Equipment | The firm did not identify and test any controls over the existence of one type of movable equipment. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 8 | Plant, Property, and Equipment | The firm did not perform sufficient substantive procedures related to the existence of two types of movable equipment because the firm's procedures were limited to (1) tracing an issuer-prepared roll-forward schedule for this equipment to the general ledger and (2) vouching a sample of equipment additions during the year to supporting documentation. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 |
Issuer D9 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | The issuer estimated the general reserve component of the ALL using the following significant assumptions: (1) loan segmentation (2) probability of default (“PD”) (3) loss given default (“LGD”) and (4) loan risk ratings (“LRR”). The issuer used a model to derive the PD and LGD assumptions using current and historical loan data (“loan data”) contained in two data warehouses. The following deficiencies were identified: · The firm did not identify and test any controls that addressed the reasonableness of the loan segmentation PD and LGD assumptions. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Allowance for Credit/Loan Losses | The issuer estimated the general reserve component of the ALL using the following significant assumptions: (1) loan segmentation (2) probability of default (“PD”) (3) loss given default (“LGD”) and (4) loan risk ratings (“LRR”). The issuer used a model to derive the PD and LGD assumptions using current and historical loan data (“loan data”) contained in two data warehouses. The following deficiencies were identified: · The firm did not identify and test any controls over the accuracy of the loan data contained in the two data warehouses. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 3 | Allowance for Credit/Loan Losses | The issuer estimated the general reserve component of the ALL using the following significant assumptions: (1) loan segmentation (2) probability of default (“PD”) (3) loss given default (“LGD”) and (4) loan risk ratings (“LRR”). The issuer used a model to derive the PD and LGD assumptions using current and historical loan data (“loan data”) contained in two data warehouses. The following deficiencies were identified: · The firm selected for testing a control that included (1) the issuer's review of the LRRs assigned to loans meeting certain criteria and (2) procedures to monitor whether the LRRs for these loans were updated within the time frame established for the control. The firm did not evaluate the review procedures that the control owners performed including the criteria that the control owners used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 4 | Allowance for Credit/Loan Losses | The issuer estimated the general reserve component of the ALL using the following significant assumptions: (1) loan segmentation (2) probability of default (“PD”) (3) loss given default (“LGD”) and (4) loan risk ratings (“LRR”). The issuer used a model to derive the PD and LGD assumptions using current and historical loan data (“loan data”) contained in two data warehouses. The following deficiencies were identified: · In addition the firm did not test the aspect of this control that addressed the appropriateness of the time frame established for the control for requiring updates to the LRRs. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 5 | Allowance for Credit/Loan Losses | The issuer estimated the general reserve component of the ALL using the following significant assumptions: (1) loan segmentation (2) probability of default (“PD”) (3) loss given default (“LGD”) and (4) loan risk ratings (“LRR”). The issuer used a model to derive the PD and LGD assumptions using current and historical loan data (“loan data”) contained in two data warehouses. The following deficiencies were identified: · In its substantive testing of the ALL the firm did not test the reasonableness of the loan segmentation PD and LGD assumptions. (AS 2501.11) Both financial statement and ICFR audits | AS 2501.11 | |
| 6 | Business Combinations | During the year the issuer acquired a business. The firm selected for testing various controls over the accounting for the business combination which included the issuer's reviews of the significant assumptions used in the valuation of certain assets acquired and liabilities assumed. In testing the aspects of these controls related to the review of these assumptions the firm did not evaluate the review procedures that the control owners performed including the criteria that the control owners used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 7 | Business Combinations | The sample sizes the firm used in certain of its substantive procedures to test certain assets acquired and liabilities assumed 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) Both financial statement and ICFR audits | AS 2301.16; AS 2301.18; AS 2301.37; AS 2315.19; AS 2315.23; AS 2315.23A | |
| 8 | Investments | The issuer recorded the fair value for available-for-sale (“AFS”) and held-to-maturity (“HTM”) debt securities based on the prices it received from an external pricing service. The firm selected for testing a control that consisted of the issuer's comparison for a selection of securities from various security categories of the prices it received from the external pricing service to prices it obtained from other sources and evaluation of any pricing differences that exceeded monetary thresholds. The firm did not evaluate whether the control was designed to address the risks of material misstatement presented by the different risk characteristics inherent in the population of securities in each category not subject to the control given the selection method applied. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 | |
| 9 | Investments | The sample sizes the firm used in certain of its substantive procedures to test the valuation of the AFS and HFM debt securities 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) Both financial statement and ICFR audits | AS 2301.16; AS 2301.18; AS 2301.37; AS 2315.19; AS 2315.23; AS 2315.23A |
Issuer E5 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | The issuer developed the qualitative component of the general reserve of the ALL by assigning risk-rating factors which it weighted using certain judgmental assumptions to qualitative considerations such as delinquency trends economic and business conditions and other external factors used in its calculation. The following deficiencies were identified: · With respect to controls over the qualitative component of the general reserve the firm selected for testing controls that consisted of reviews of trends in various qualitative considerations the issuer used to determine the risk-rating factors. The firm did not identify and test any controls that addressed the appropriateness of the risk-rating factors and weightings that were assigned to each of the qualitative considerations. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Allowance for Credit/Loan Losses | The issuer developed the qualitative component of the general reserve of the ALL by assigning risk-rating factors which it weighted using certain judgmental assumptions to qualitative considerations such as delinquency trends economic and business conditions and other external factors used in its calculation. The following deficiencies were identified: · With respect to its substantive procedures over the qualitative component of the general reserve the firm did not evaluate the appropriateness of the risk-rating factors and weightings that were assigned to each of the qualitative considerations. (AS 2501.11) Both financial statement and ICFR audits | AS 2501.11 | |
| 3 | Investments | The issuer recorded the fair value for AFS securities based on the prices it received from an external pricing service. The firm selected for testing a control that consisted of (1) comparing the recorded fair values to prices obtained from another pricing service for a sample of securities selected from certain categories of securities and (2) the analysis of pricing differences that exceeded an established threshold. The firm did not evaluate whether the control was designed to address the risks of material misstatement presented by the population of securities not subject to the control given the selection method applied by the issuer and the different valuation methods used by the issuer's external pricing services to value the securities. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 | |
| 4 | Investments | The sample sizes the firm used in certain of its substantive procedures to test the valuation of the AFS securities 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) Both financial statement and ICFR audits | AS 2301.16; AS 2301.18; AS 2301.37; AS 2315.19; AS 2315.23; AS 2315.23A | |
| 5 | Business Combinations | During the year the issuer acquired a business. The firm selected for testing a control over the valuation of certain acquired loans that consisted of the issuer's review of the significant assumptions that the issuer used in the valuation of these loans including the discount rate. The firm did not evaluate the specific review procedures the control owner performed to review two important components the issuer used to determine the discount rate. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 |
Issuer F4 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | For certain revenue the issuer's system initiated revenue recognition upon the issuer's review and input of shipment information into the system. The following deficiencies were identified: · The firm selected for testing an automated control over this revenue that was designed to record revenue once the shipment information was manually entered into the issuer's system. The firm did not test the configuration of the automated control or perform other procedures to obtain sufficient appropriate audit evidence that the automated control was operating as designed. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Revenue | For certain revenue the issuer's system initiated revenue recognition upon the issuer's review and input of shipment information into the system. The following deficiencies were identified: In addition the firm did not identify and test any controls over the issuer's review of the shipment information that was manually entered into the issuer's system. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 3 | Revenue | For certain revenue the issuer's system initiated revenue recognition upon the issuer's review and input of shipment information into the system. 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) Both financial statement and ICFR audits | AS 2301.16; AS 2301.18; AS 2301.37; AS 2315.19; AS 2315.23; AS 2315.23A | |
| 4 | Inventory | The issuer performed daily cycle counts of inventory but designed its counts to exclude a portion of inventory from the daily cycle counts. In evaluating the design of the cycle-count control the firm did not assess the effect of the issuer excluding this portion of inventory on the control's ability to effectively prevent or detect a material misstatement. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 |
Issuer G3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer entered into transactions including an acquisition which resulted in the recording of the fair value of investments. The firm selected for testing investments that met specific criteria. The firm did not perform any substantive procedures to test the portion of investments that did not meet these criteria. (AS 1105.27) Financial statement audit only | AS 1105.27 | |
| 2 | Business Combinations | The firm did not perform procedures beyond inquiry to evaluate significant differences it identified when performing certain comparisons to test the reasonableness of certain assumptions underlying the cash-flow forecasts that the issuer used to determine the fair value of the investments discussed above. (AS 2502.26 .28 .31 and .36) Financial statement audit only | AS 2502.26; AS 2502.28; AS 2502.31; AS 2502.36 | |
| 3 | Business Combinations | In addition the firm did not test the accuracy and completeness of certain data used in one of the comparisons. (AS 1105.10) Financial statement audit only | AS 1105.10 |
Issuer H4 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | Certain inventory held by the issuer in several locations was subject to cycle counts. The following deficiencies were identified: · The firm did not identify and test any controls over the issuer's monitoring of the results of the cycle counts to assess whether its perpetual inventory records were reliable. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Inventory | Certain inventory held by the issuer in several locations was subject to cycle counts. The following deficiencies were identified: · For inventory at certain of these locations the firm identified deficiencies in certain controls over the issuer's cycle-count program related to whether sufficient inventory items were counted with sufficient frequency in accordance with the issuer's cycle-count program. The firm identified and tested compensating controls that it believed mitigated these deficiencies. The firm did not identify that these compensating controls did not address whether sufficient inventory items were counted with sufficient frequency in accordance with the issuer's cycle-count program. (AS 2201.68) Both financial statement and ICFR audits | AS 2201.68 | |
| 3 | Inventory | Certain inventory held by the issuer in several locations was subject to cycle counts. The following deficiencies were identified: · For another one of these locations the issuer used an inventory management system in performing its cycle counts. The firm did not identify and test controls over the accuracy and completeness of the cycle-count selection reports generated by this system and used by the issuer in the performance of the cycle counts at this location. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 4 | Inventory | Certain inventory held by the issuer in several locations was subject to cycle counts. The following deficiencies were identified: · Due to the deficiencies discussed above the firm's testing of controls did not provide 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) Both financial statement and ICFR audits | AS 2510.11 |
Issuer I3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired a business. The firm selected for testing controls over the accounting for the business combination which included the issuer's reviews of the data and significant assumptions that the issuer used in the valuation of certain obligations assumed in this acquisition. The firm did not evaluate the review procedures that the control owners performed including the criteria that the control owners used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Business Combinations | In its substantive testing the firm did not evaluate the reasonableness of the significant assumptions underlying the fair values of the obligations assumed. (AS 2502.26 and .28) Both financial statement and ICFR audits | AS 2502.26; AS 2502.28 | |
| 3 | Business Combinations | In addition the firm did not test the accuracy and completeness of data used to determine the fair values of these obligations assumed. (AS 2502.26 .28 and .39) Both financial statement and ICFR audits | AS 2502.26; AS 2502.28; AS 2502.39 |
Issuer J2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired a business. The firm selected for testing a control that included the issuer's review of the significant assumptions used in the valuation of the intangible assets acquired in this transaction. The firm did not evaluate the review procedures that the control owners performed including the criteria that the control owners used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Business Combinations | The firm performed substantive procedures to evaluate the significant assumptions underlying the forecasts the issuer used in the valuation of the acquired intangible assets but did not obtain sufficient appropriate audit evidence related to the issuer's ability to carry out its cost-saving strategies to achieve these forecasts. (AS 2502.26 .28 .31 and .36) Both financial statement and ICFR audits | AS 2502.26; AS 2502.28; AS 2502.31; AS 2502.36 |
Issuer K2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | The firm's testing of controls for inventory held at certain locations consisted primarily of testing an entity-level control that involved the issuer's reviews of regional and component-level income statements and balance sheets. The firm did not evaluate the review procedures that the control owner performed including the criteria that the control owner used to identify items for follow up and whether those items were appropriately resolved with respect to the component-level financial information. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Inventory | Based on the firm's reliance on this entity-level control which was not supported due to the deficiency discussed above the firm limited its substantive procedures to test this inventory to various analytical procedures. These analytical procedures as designed provided little or no substantive evidence. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 |
Issuer L1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | For loans that the issuer assessed collectively for impairment the issuer estimated the ALL using a model that consisted of quantitative and qualitative components. The issuer developed the qualitative component of the ALL by applying certain qualitative factors to each of its classes of loans. The firm selected for testing a control that consisted of a committee's review of the ALL including the qualitative factors. The firm did not evaluate the review procedures that the control owners performed to evaluate the qualitative factors including the criteria that the control owners used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44) ICFR audit only | AS 2201.42; AS 2201.44 |
Issuer M1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Period-End Financial Reporting Process | The issuer used data generated by an IT system including data related to revenue and inventory in the financial statement consolidation process. The firm selected for testing a control over the financial statement consolidation process but did not identify and test any controls over the accuracy and completeness of the data and reports generated by this system and used in the operation of the control. (AS 2201.39) ICFR audit only | AS 2201.39 |
Issuer N1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired a business. The firm selected for testing a control over the accounting for this business combination which included the issuer's review of the significant assumptions including forecasted revenue and EBITDA margins that the issuer used in the valuation of the acquired intangible assets. The firm did not evaluate the review procedures that the control owners performed to assess the reasonableness of the forecasted revenue and EBITDA margins including the criteria that the control owners used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44) ICFR audit only | AS 2201.42; AS 2201.44 |