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PricewaterhouseCoopers LLP
United States · PricewaterhouseCoopers International Limited · Annually Inspected
- Inspection year
- 2018
- Report date
- 28-Apr-2020
- PCAOB release
- 104-2020-012
- Audits reviewed
- 55
- Audits w/ Part I.A deficiencies
- 14
- Part I.A deficiency rate
- 25%
- Part I.A deficiencies
- 45
- Part I.B deficiencies
- 2
- Report
- View PDF ↗
Deficiencies (45)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A8 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Investments | The issuer determined the fair value of an investment using projected cash flows of the investee company. The following deficiencies were identified: · The firm selected for testing a control that included a review of the reasonableness of the cash flows provided by the investee company. The firm did not evaluate the specific review procedures the control owner performed to assess the reasonableness of these cash flows. (AS 2201.42 and .44) As a result of our inspection procedures the firm reevaluated the issuer's control over the reasonableness of the cash flows used to determine the fair value of this investment and concluded along with the issuer that a control deficiency existed that constituted a material weakness that had not been previously identified. The issuer subsequently filed a Form 8-K and disclosed that the firm's opinion related to the effectiveness of the issuer's ICFR should no longer be relied upon due to this material weakness and the material weakness discussed below. Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Incorrect opinion |
| 2 | Investments | The issuer determined the fair value of an investment using projected cash flows of the investee company. The following deficiencies were identified: · The issuer determined the revenue projections underlying these cash flows by multiplying for each of the investee company's two products the quantities of units projected to be sold by an estimated selling price. For one of these products the firm did not evaluate the reasonableness of the projected quantities of units to be sold beyond inquiring of the investee company's management and comparing the current-year projected revenue for the investee company to actual revenue. (AS 2502.26 .28 and .31) Both financial statement and ICFR audits | AS 2502.26; AS 2502.28; AS 2502.31 | Incorrect opinion |
| 3 | Business Combinations | During the year the issuer acquired a business and determined the fair value of the acquired intangible assets using forecasted cash flows. The following deficiencies were identified: · The firm selected for testing a control that included the review of the reasonableness of the forecasted cash flows for the acquired business including an assessment of the reasonableness of the revenue-growth assumptions underlying these cash flows. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the revenue-growth assumptions. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Incorrect opinion |
| 4 | Business Combinations | During the year the issuer acquired a business and determined the fair value of the acquired intangible assets using forecasted cash flows. The following deficiencies were identified: · The issuer's forecasted cash flows were based on historical results. The firm concluded that the forecasted revenue growth rates underlying these cash flows were reasonable without performing procedures to evaluate whether the historical revenue growth rates of the acquired business and the historical industry results would be representative of future revenue growth rates of the acquired business beyond inquiring of management and comparing the forecasted revenue growth rates to either the historical revenue growth rates of the acquired business or to historical industry results. (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 | Incorrect opinion |
| 5 | Revenue | The issuer manually entered sales order quantities into the issuer's revenue system. This system was programmed to convert the quantities entered into weight sold to determine the customer invoice amount. The following deficiencies were identified: · The firm did not identify and test any controls that addressed the accuracy and completeness of sales quantities manually entered into the system. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | Incorrect opinion |
| 6 | Revenue | The issuer manually entered sales order quantities into the issuer's revenue system. This system was programmed to convert the quantities entered into weight sold to determine the customer invoice amount. The following deficiencies were identified: · The firm selected for testing controls that consisted of comparisons of the total weight of inventory shipped to (1) the weight of the products ordered by customers and (2) the weight information the issuer used to generate customer invoices. The firm did not identify and test any controls over the accuracy of the weight information used in the operation of these controls. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | Incorrect opinion |
| 7 | Revenue | The issuer manually entered sales order quantities into the issuer's revenue system. This system was programmed to convert the quantities entered into weight sold to determine the customer invoice amount. The following deficiencies were identified: · The firm selected for testing controls over the accuracy of sales prices that consisted of a review of sales order prices below a minimum price and above certain maximum prices. The firm did not identify and test any controls over the accuracy of prices that did not meet these criteria. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | Incorrect opinion |
| 8 | Revenue | The issuer manually entered sales order quantities into the issuer's revenue system. This system was programmed to convert the quantities entered into weight sold to determine the customer invoice amount. The following deficiencies were identified: · For certain other revenue the firm identified a control deficiency related to a lack of controls over the accuracy of quantities shipped to customers and recorded as revenue. The firm identified various controls that it believed would compensate for this deficiency but its conclusion that these controls had a mitigating effect was inappropriate because these controls did not address the risk of potential misstatement related to inaccurate quantities. (AS 2201.68) As a result of our inspection procedures the firm reevaluated the issuer's controls over this revenue and concluded along with the issuer that certain control deficiencies existed that constituted a material weakness that had not been previously identified. The issuer subsequently filed a Form 8-K and disclosed that the firm's opinion related to the effectiveness of the issuer's ICFR should no longer be relied upon due to this material weakness and the material weakness discussed above. Both financial statement and ICFR audits | AS 2201.68 | Incorrect opinion |
Issuer B7 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | The issuer's processes related to loans receivable the ALL investments derivatives and investment and brokerage services income were highly automated with transactions being initiated processed and recorded by numerous information-technology (“IT”) systems. The firm tested certain automated and IT-dependent manual controls that used data and reports generated or maintained by these IT systems. The accuracy and completeness of these data and reports depended on effective IT general controls (“ITGCs”). The firm's sampling approach for testing ITGCs was inappropriate because it was based on an unsupported assumption that the population of ITGCs was homogeneous. As a result the firm's testing of these automated and IT-dependent manual controls over these areas was not sufficient. (AS 2201.46 and .47) Both financial statement and ICFR audits | AS 2201.46; AS 2201.47 | |
| 2 | Leases | The firm's procedures to test the outstanding balances of certain commercial loans and leases included confirmation procedures based on a nonstatistical sampling approach that was designed assuming a certain level of substantive evidence the firm planned to obtain from its other substantive procedures. These other substantive procedures did not provide the planned level of substantive evidence because these procedures were limited to testing account reconciliations and a small number of loans and leases. As a result the nonstatistical samples were too small to provide sufficient appropriate audit evidence over these commercial loan and lease balances. (AS 2301.42; AS 2315.19 .23 and .23A) Both financial statement and ICFR audits | AS 2301.42; AS 2315.19; AS 2315.23; AS 2315.23A | |
| 3 | Allowance for Credit/Loan Losses | As part of the issuer's overall credit risk assessment for commercial loans collectively evaluated for impairment the issuer determined loan grades for each loan. These loan grades were an important factor in estimating the ALL for commercial loans. The following deficiencies were identified: · The firm selected for testing a control that consisted of an independent review of the loan grades and other key inputs used to estimate the ALL. All loans and commitments were subject to this review within a three-year period. The firm also selected for testing another control that consisted of the approval of all loan-grade changes made subsequent to the origination of the loan. The firm did not consider that these controls were not designed to require in the period under audit that all loans that the issuer had identified as having a high risk of inappropriate loan grades be subject to an independent loan-grade review. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 | |
| 4 | Allowance for Credit/Loan Losses | As part of the issuer's overall credit risk assessment for commercial loans collectively evaluated for impairment the issuer determined loan grades for each loan. These loan grades were an important factor in estimating the ALL for commercial loans. The following deficiencies were identified: · The issuer determined loan grades using loan scorecards that were prepared for each borrower. The firm selected for testing a control that consisted of the monthly review of a sample of loan scorecards to evaluate the accuracy and completeness of the loan information and numerous other key inputs. The firm did not test the review procedures the control owner performed to evaluate numerous inputs to the scorecard that were important in determining the loan grade. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 5 | Allowance for Credit/Loan Losses | As part of the issuer's overall credit risk assessment for commercial loans collectively evaluated for impairment the issuer determined loan grades for each loan. These loan grades were an important factor in estimating the ALL for commercial loans. The following deficiencies were identified: · The firm used the loan scorecards in its substantive testing of the appropriateness of the assigned loan grades for commercial loans. The firm did not test or (as discussed above) sufficiently test controls over the accuracy and completeness of the loan information and other key inputs included in these scorecards. (AS 2501.11) Both financial statement and ICFR audits | AS 2501.11 | |
| 6 | Allowance for Credit/Loan Losses | As part of the issuer's overall credit risk assessment for commercial loans collectively evaluated for impairment the issuer determined loan grades for each loan. These loan grades were an important factor in estimating the ALL for commercial loans. The following deficiencies were identified: · The sample size the firm used in certain of its substantive procedures to test the appropriateness of the assigned loan grades for commercial loans 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 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 | Allowance for Credit/Loan Losses | The issuer used various models including models to value certain derivatives and to determine certain components of the ALL. The firm selected for testing controls that consisted of the (1) periodic validation of certain of these models including new or updated models and (2) annual review of all models. For the validation control the firm did not evaluate the specific review procedures the control owners performed to validate certain aspects of certain models. Further the firm did not evaluate certain review procedures that the control owners performed as part of the annual model review. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 |
Issuer C4 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Investments | The issuer recorded the fair values of available-for-sale (“AFS”) securities based on the prices it obtained from an external pricing service. The firm selected for testing a control that consisted of the comparison of these prices to prices obtained from another external pricing service; the securities and prices obtained from each external pricing service were manually entered by the issuer into a spreadsheet for this comparison. The firm did not identify and test any controls over whether the prices that were manually entered into this spreadsheet were accurate and complete. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Investments | 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 review procedures that the control owner performed including the criteria the control owner used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and 44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 3 | Deposit Liabilities | The issuer placed items in deposit clearing or suspense accounts when the items required further evaluation. The firm selected for testing controls that consisted of reviews of monthly reconciliations of the issuer's deposit clearing and suspense accounts. The firm did not evaluate the review procedures performed including the assessment of whether items that had been cleared from these accounts had been appropriately resolved. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 4 | Loans Receivable | For the population of loans that the firm did not subject to confirmation procedures the firm did not perform any procedures to obtain evidence that the outstanding loan balances were accurate at year end. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 |
Issuer D3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Loss Reserves | The firm did not identify and test any controls over the issuer's determination of the discount rates that it used in cash-flow models to calculate its loss and loss adjustment expense reserves (“loss reserves”). (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Loss Reserves | For one of the issuer's segments the firm selected for testing various controls over the models and underlying assumptions the issuer used to estimate its loss reserves. The firm did not evaluate the specific review procedures the control owners performed to assess the reasonableness of these models and the assumptions used to estimate the loss reserves. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 3 | Loans Receivable | The issuer held certain loans receivable that were measured at fair value. These receivables were collateralized by secured loans to and equity interests in privately-held companies (“the portfolio companies”). To estimate the fair value of the receivables the issuer valued the portfolio companies using models for which the inputs included the historical financial information of the portfolio companies and certain assumptions. Due to certain circumstances the historical information that was available to the issuer and used in these models was limited to unaudited financial information that was one to three years old and the firm used this information in its substantive testing to develop independent estimates of fair value for a sample of the portfolio companies. The firm's procedures did not address the relevance of the historical financial information. (AS 2502.26 .28 and .39) Both financial statement and ICFR audits | AS 2502.26; AS 2502.28; AS 2502.39 |
Issuer E3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Goodwill | The firm selected for testing a control that consisted of a review of the reasonableness of the forecasts used in the issuer's goodwill impairment analysis including an evaluation of the revenue-growth assumptions underlying these forecasts. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the revenue-growth assumptions. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Intangible Assets | The issuer's policy was to group long-lived assets including customer-relationship intangible assets together at the reportable segment level for purposes of evaluating its long-lived assets for possible impairment. The following deficiencies were identified: · The firm did not identify and test any controls over the determination of the issuer's asset groupings. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 3 | Intangible Assets | The issuer's policy was to group long-lived assets including customer-relationship intangible assets together at the reportable segment level for purposes of evaluating its long-lived assets for possible impairment. The following deficiencies were identified: · The firm did not evaluate beyond reading the issuer's accounting policy whether the issuer's determination that the lowest level of identifiable and independent cash flows available were at the issuer's reportable segments level was in conformity with FASB ASC Subtopic 360-10 Property Plant and Equipment - Overall. (AS 2501.11; AS 2810.30) Both financial statement and ICFR audits | AS 2501.11; AS 2810.30 |
Issuer F4 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired a business and determined the fair value of the acquired intangible assets using forecasted sales and cash flows and other assumptions including customer attrition rates. The following deficiencies were identified: · The firm selected for testing a control that included reviews of the reasonableness of the (1) revenue-growth assumptions underlying the forecast for the acquired business and (2) attrition-rate assumptions. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of the revenue-growth assumptions. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Business Combinations | During the year the issuer acquired a business and determined the fair value of the acquired intangible assets using forecasted sales and cash flows and other assumptions including customer attrition rates. The following deficiencies were identified: · In addition the firm did not perform any procedures beyond inquiring of management to test the aspect of this control related to the issuer's evaluation of the accuracy and completeness of the historical revenue data used to determine the attrition rates. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 3 | Business Combinations | During the year the issuer acquired a business and determined the fair value of the acquired intangible assets using forecasted sales and cash flows and other assumptions including customer attrition rates. The following deficiencies were identified: · The forecast the issuer used to determine the fair value of acquired intangible assets assumed significant revenue growth and the firm documented that the issuer planned to implement various strategies to increase the revenue of the acquired business. The firm concluded that the forecasted revenue growth rates were reasonable without performing any procedures beyond inquiring of management to evaluate the issuer's ability to carry out its planned 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 | |
| 4 | Business Combinations | During the year the issuer acquired a business and determined the fair value of the acquired intangible assets using forecasted sales and cash flows and other assumptions including customer attrition rates. The following deficiencies were identified: · The firm did not perform any substantive procedures to test the accuracy of the historical revenue data of the acquired business that the issuer used to determine the attrition rates. (AS 2502.39) Both financial statement and ICFR audits | AS 2502.39 |
Issuer G3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | The firm tested controls over the issuer's physical observations which occurred as of various interim dates within the last four months of the issuer's fiscal year. The firm did not identify and test controls that addressed changes to physical inventory quantities between the dates of the physical inventory observations and year end. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Inventory | In addition certain inventory for one location was not subject to the issuer's physical observation controls and the firm did not identify and test any controls over the existence of this inventory. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 3 | Inventory | The firm performed substantive analytical procedures to extend its conclusions on the existence of inventory from the interim dates at which it performed physical observations to year end. The firm did not perform procedures to obtain evidence that the expectations it used in these analytical procedures would be predictive of inventory as of year end. Further the firm identified a significant difference between the expected and actual year-end inventory balances for one location but did not evaluate this difference beyond inquiring of management. (AS 2305.13 .14 and .21) Both financial statement and ICFR audits | AS 2305.13; AS 2305.14; AS 2305.21 |
Issuer H2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | For certain revenue the issuer received customer orders electronically that were processed through its sales system. The firm selected for testing various automated controls over the processing of orders generation of invoices and recording of revenue. The firm obtained an understanding of the system's configuration settings but did not test whether these automated controls were designed and operating effectively. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Revenue | 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 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 I2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | Customer-shipment information which was manually entered into the issuer's shipping system was transferred from the shipping system to the sales system to record certain revenue and generate customer invoices. The firm selected for testing a control that included the issuer's review of the customer-shipment information to determine whether revenue was appropriately recorded. The firm did not identify and test any controls over the accuracy and completeness of the customer-shipment information that was entered into the shipping system and used in the operation of this control. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Revenue | 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 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 J2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | For certain revenue the firm did not identify and test any controls over the accuracy of sales order prices manually entered into the sales system and quantities shipped and/or invoiced to customers. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Revenue | 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 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 K4 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired a business. The firm did not perform procedures to evaluate whether all identifiable assets acquired were recognized in conformity with FASB ASC Topic 805 Business Combinations beyond reading the merger agreement and purchase-price allocation that the issuer prepared and inquiring of management. (AS 2810.30) Financial statement audit only | AS 2810.30 | |
| 2 | Business Combinations | The issuer used historical cost data as an input to determine the fair value of certain acquired intangible assets. The firm did not sufficiently test the accuracy and completeness of these cost data because its procedures were limited to inquiring of management comparing the cost data to unaudited information and determining that certain costs were appropriately excluded. (AS 2502.39) Financial statement audit only | AS 2502.39 | |
| 3 | Business Combinations | The issuer used projected sales of three acquired products adjusted by probability assumptions to determine the fair value of certain contingent consideration arrangements related to the acquisition. The firm did not sufficiently evaluate the probability assumptions for all three products and the reasonableness of the projected sales for two of these products because its procedures were limited to inquiring of management and reading general market information. (AS 2502.26 and .28) Financial statement audit only | AS 2502.26; AS 2502.28 | |
| 4 | Business Combinations | In addition the firm did not perform any procedures to evaluate the reasonableness of the projected sales for the third product. (AS 2502.26 and .28) Financial statement audit only | AS 2502.26; AS 2502.28 |
Issuer L1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired a business and determined the fair value of an acquired intangible asset based on a valuation model that used forecasted revenue and gross margin assumptions as inputs. The firm selected for testing a control that included the review of the reasonableness of these assumptions. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the forecasted revenue and gross margin assumptions. (AS 2201.42 and .44) ICFR audit only | AS 2201.42; AS 2201.44 |
Issuer M1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Long-Lived Assets | The issuer performed an impairment analysis for an energy-producing asset using projected cash-flow scenarios that were based on possible changes to the revenue contract underlying this asset. The issuer weighted each cash-flow scenario to develop a probability-weighted estimate of the asset's undiscounted cash flows to evaluate whether the carrying value of the asset was recoverable. The firm did not perform procedures to obtain evidence about the reasonableness of the probability weighting assigned to each of the cash-flow scenarios. (AS 2501.11) Financial statement audit only | AS 2501.11 |
Issuer N1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | The issuer concluded that an excess and obsolete reserve for one of the issuer's products was not necessary based on potential sales opportunities with certain customers despite a significant decline in sales in the year under audit and a forecasted further decline in sales for the following year. The firm did not evaluate the reasonableness of the issuer's assumption that it would achieve these potential sales opportunities beyond inquiring of management and reading certain issuer-prepared marketing and sales information. (AS 2501.11) Financial statement audit only | AS 2501.11 |