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Ernst & Young LLP
United States · Ernst & Young Global Limited · Annually Inspected
- Inspection year
- 2019
- Report date
- 17-Dec-2020
- PCAOB release
- 104-2021-006a
- Audits reviewed
- 60
- Audits w/ Part I.A deficiencies
- 11
- Part I.A deficiency rate
- 18%
- Part I.A deficiencies
- 37
- Part I.B deficiencies
- 4
- Report
- View PDF ↗
Deficiencies (37)
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 | Revenue | The firm did not identify and test any controls over this revenue. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | Incorrect opinion |
| 2 | Revenue | The firm did not perform any substantive procedures to test this revenue. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 | Incorrect opinion |
| 3 | Deferred Revenue | The firm selected for testing controls over these two types of revenue and the related deferred revenue. The firm did not identify and test any controls over the accuracy and completeness of certain information that the control owners used in the performance of these controls. (AS 2201.39) In connection with our review the issuer reevaluated its controls and concluded that a material weakness existed that had not been previously identified. The issuer subsequently revised its report on ICFR to reflect this material weakness and the firm modified its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report. Both financial statement and ICFR audits | AS 2201.39 | Incorrect opinion |
| 4 | Deferred Revenue | The firm did not perform substantive procedures to test or test controls over the accuracy and completeness of certain information used in its substantive testing of this revenue and deferred revenue. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | Incorrect opinion |
Issuer B3 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 review of the assumptions underlying the cash-flow forecasts used in the valuation of the acquired intangible assets. 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) In connection with our review the issuer reevaluated its controls over accounting for business combinations and concluded that a material weakness existed that had not been previously identified. The issuer subsequently revised its report on ICFR to reflect this material weakness and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report. Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Incorrect opinion |
| 2 | Business Combinations | The firm's approach for substantively testing the valuation of the acquired intangible assets was to review and test management's process. The firm performed 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 acquired intangible assets. The firm did not perform procedures beyond inquiring of management to evaluate the differences it identified in these comparisons. (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 |
| 3 | Business Combinations | The firm's approach for substantively testing the valuation of the acquired intangible assets was to review and test management's process. The firm did not perform procedures beyond inquiring of management to evaluate the reasonableness of certain other assumptions underlying these cash-flow 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 | Incorrect opinion |
Issuer C12 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Property, Plant, and Equipment | The issuer used multiple information-technology ('IT') systems to initiate process and record transactions related to certain revenue and property plant and equipment. The firm tested information technology general controls ('ITGCs') for these IT systems. The following deficiencies were identified: · The firm selected for testing controls over managing developer-level access to these IT systems. The firm did not evaluate the procedures that the control owners performed to determine whether developers had the ability to migrate changes to production. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Property, Plant, and Equipment | The issuer used multiple information-technology ('IT') systems to initiate process and record transactions related to certain revenue and property plant and equipment. The firm tested information technology general controls ('ITGCs') for these IT systems. The following deficiencies were identified: · The issuer used various change management processes for these IT systems including multiple tools to manage and migrate changes into the production environments. The firm's sampling approach for testing ITGCs related to change management and segregation of duties was inappropriate because it was based on an unsupported assumption that the population of ITGCs was homogeneous. (AS 2201.46) Both financial statement and ICFR audits | AS 2201.46 | |
| 3 | Property, Plant, and Equipment | The issuer used multiple information-technology ('IT') systems to initiate process and record transactions related to certain revenue and property plant and equipment. The firm tested information technology general controls ('ITGCs') for these IT systems. The following deficiencies were identified: · The firm did not test or in the alternative test any controls over the accuracy and completeness of the system-generated reports that it used to select its sample for testing controls over change management. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | |
| 4 | Property, Plant, and Equipment | The issuer used multiple information-technology ('IT') systems to initiate process and record transactions related to certain revenue and property plant and equipment. The firm tested information technology general controls ('ITGCs') for these IT systems. The following deficiencies were identified: · The firm tested certain automated and IT-dependent manual controls that used data from these IT systems. As a result of the deficiencies in the firm's testing of ITGCs discussed above the firm's testing of these automated and IT-dependent manual controls was not sufficient. (AS 2201.46) Both financial statement and ICFR audits | AS 2201.46 | |
| 5 | Property, Plant, and Equipment | The issuer used multiple information-technology ('IT') systems to initiate process and record transactions related to certain revenue and property plant and equipment. The firm tested information technology general controls ('ITGCs') for these IT systems. The following deficiencies were identified: · The firm used information that was produced by these IT systems in performing certain of its substantive procedures to test revenue property plant and equipment and related manual journal entries but did not have a basis to rely on this information due to the deficiencies in the firm's testing of ITGCs discussed above. The firm did not test or in the alternative test any other controls over the accuracy and completeness of this information. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | |
| 6 | Revenue | The issuer processed revenue for one of its business units using two billing systems. The firm selected for testing various automated controls related to the revenue recorded by both systems. The firm did not test the configuration of the automated controls or perform other procedures that would have provided sufficient appropriate audit evidence that the automated controls were designed and operating effectively. (AS 2201.42 .44 and .B9) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44; AS 2201.B9 | |
| 7 | Revenue | The sample sizes the firm used in certain of its substantive procedures to test 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 deficiencies in the firm's testing of ITGCs discussed and the deficiency in the firm's control testing related to certain revenue 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 | Property, Plant, and Equipment | The issuer incurred costs related to property plant and equipment including costs of internally-developed software; certain of these costs were expensed and others were capitalized. The firm did not identify and test any controls that addressed whether (1) the non-software costs incurred for individual projects and (2) costs of internally-developed software were appropriately expensed or capitalized. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 9 | Property, Plant, and Equipment | The issuer assigned estimated useful lives to each type of property plant and equipment. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of the estimated useful lives. 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) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 10 | Property, Plant, and Equipment | The issuer assigned estimated useful lives to each type of property plant and equipment. The following deficiencies were identified: · The firm did not perform sufficient substantive procedures to evaluate the reasonableness of the estimated useful lives because its procedures were limited to reading the useful life study prepared by an external specialist in a previous year and inspecting the issuer's depreciation schedule. (AS 2501.11) Both financial statement and ICFR audits | AS 2501.11 | |
| 11 | Property, Plant, and Equipment | The issuer's policy was to group all of its property plant and equipment when evaluating the assets for possible impairment because the cash flows were largely interdependent. The following deficiencies were identified: · The firm selected for testing a control over the impairment of property plant and equipment which included the determination of its asset groupings. The firm did not test beyond inquiry the aspect of the control that addressed the appropriateness of the issuer's conclusion that it had one asset group. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 12 | Property, Plant, and Equipment | The issuer's policy was to group all of its property plant and equipment when evaluating the assets for possible impairment because the cash flows were largely interdependent. The following deficiencies were identified: · In concluding that the issuer's impairment assessment was reasonable the firm did not sufficiently evaluate whether the issuer's identification of one asset group was appropriate because the firm's procedures were limited to reading the issuer's memorandum documenting its conclusion that there was no impairment of property plant and equipment. (AS 2501.11) Both financial statement and ICFR audits | AS 2501.11 |
Issuer D7 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | With respect to the ALL for loans that the issuer assessed collectively for impairment: The firm selected for testing controls that included a committee's review of certain assumptions used to estimate this 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) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Allowance for Credit/Loan Losses | With respect to the ALL for loans that the issuer assessed collectively for impairment: The firm selected for testing a control that consisted of the issuer's review of the assigned loan grades which included a review by senior management of the assigned loan grades for certain loans. The loan grades were an important factor in estimating this ALL. The firm did not perform procedures to test the aspect of the control related to senior management's review of the assigned loan grades beyond inspecting loan files for sign-off as evidence of review. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 3 | Allowance for Credit/Loan Losses | With respect to the ALL for loans that the issuer assessed individually for impairment: The firm selected for testing a control that consisted of the issuer's review of loans that exceeded a loan grade threshold and the review of the impairment calculations for individually impaired loans. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of certain inputs and assumptions underlying the impairment calculations for individually impaired loans. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 4 | Allowance for Credit/Loan Losses | With respect to the ALL for loans that the issuer assessed individually for impairment: The firm selected for testing a control that consisted of the issuer's review of appraisals used to determine the fair value of the underlying collateral for collateral-dependent loans that it had determined to be individually impaired. The firm used only the work of the issuer's internal audit as evidence of the operating effectiveness of the control. This approach did not provide sufficient appropriate audit evidence that the control was operating as designed because of the amount of subjectivity involved in reviewing the appraised collateral values. (AS 2201.19; AS 2605.20 and .21) Both financial statement and ICFR audits | AS 2201.19; AS 2605.20; AS 2605.21 | |
| 5 | Investments | The firm selected for testing a control that included the issuer's review of the categorization of the available-for-sale and trading securities within the fair value hierarchy as set forth in FASB ASC Topic 820 Fair Value Measurement. The firm did not perform procedures to test the aspect of the control related to assessing the appropriateness of the categorization of these securities within the fair value hierarchy. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 6 | Investments | The firm did not perform any substantive procedures to evaluate the appropriateness of the issuer's categorization of these securities within the fair value hierarchy. (AS 2502.43) Both financial statement and ICFR audits | AS 2502.43 | |
| 7 | Deposit Liabilities | During the year the issuer acquired a business. The firm's procedures to test the acquired deposit liabilities included sending positive confirmation requests for deposit accounts over an established threshold. For the positive confirmations that were not returned the firm did not perform alternative procedures that provided sufficient appropriate audit evidence that the recorded amounts of the acquired deposit liabilities were accurate as of the confirmation date. (AS 2310.31) Both financial statement and ICFR audits | AS 2310.31 |
Issuer E2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired a business. The firm selected for testing controls that consisted of the issuer's review of the cash-flow forecasts used in the valuation of certain acquired intangible assets. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of a revenue assumption underlying the cash-flow forecasts. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Business Combinations | The firm's approach for substantively testing the valuation of certain acquired intangible assets was to review and test management's process. The firm did not perform procedures beyond inquiring of management to evaluate the reasonableness of a revenue assumption underlying the cash-flow forecasts for any of the periods beyond the first two years of the 20-year forecast period. (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 F3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Long-Lived Assets | The issuer used multiple IT systems to initiate process and record transactions related to certain revenue and long-lived assets. The following deficiencies were identified: · The firm tested ITGCs for these IT systems. The firm selected for testing controls over change management that consisted of (1) the review and testing of planned changes to the IT systems and (2) approval of these changes prior to implementation into the production environment. The firm did not evaluate the specific procedures that the control owners performed to identify evaluate the appropriateness of and approve certain changes made to the IT systems. (AS 2201.42 and .44) ICFR audit only | AS 2201.42; AS 2201.44 | |
| 2 | Long-Lived Assets | The issuer used multiple IT systems to initiate process and record transactions related to certain revenue and long-lived assets. The following deficiencies were identified: · The firm did not test or in the alternative test controls over the completeness of the population of changes that were processed internally by the issuer's IT personnel and that the firm used in its testing of the controls over change management. (AS 1105.10) ICFR audit only | AS 1105.10 | |
| 3 | Long-Lived Assets | The issuer used multiple IT systems to initiate process and record transactions related to certain revenue and long-lived assets. The following deficiencies were identified: · The firm tested certain automated and IT-dependent manual controls over certain revenue and long-lived assets that used information from these IT systems. As a result of the deficiencies in the firm's testing of ITGCs discussed above the firm's testing of these automated and IT-dependent manual controls was not sufficient because these controls used information generated by these IT systems. (AS 2201.46) ICFR audit only | AS 2201.46 |
Issuer G2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm selected for testing a control that consisted of the review of the issuer's accounting for certain revenue arrangements for conformity with GAAP. The firm did not identify and test any controls over the completeness of certain information that the control owners used in the performance of this control. (AS 2201.39) ICFR audit only | AS 2201.39 | |
| 2 | Revenue | The firm selected for testing a manual control that consisted of the review of pricing in all new and modified contracts. The sample that the firm used to test this control was too small to provide sufficient appropriate audit evidence that the control was operating effectively because it limited the sample to one contract modification. (AS 2201.44) ICFR audit only | AS 2201.44 |
Issuer H1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm's approach for substantively testing certain revenue consisted primarily of performing a software-assisted analysis which included performing procedures to test the accuracy of information used in this analysis. The software-assisted analysis was designed to test the relationships among revenue accounts receivable and cash that the issuer recorded through journal entries. The firm however did not perform procedures to test the appropriateness of the cash data used in this analysis. (AS 1105.10) Financial statement audit only | AS 1105.10 |
Issuer I1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm's approach for substantively testing certain revenue consisted primarily of performing a software-assisted analysis which included performing procedures to test the accuracy of information used in this analysis. The software-assisted analysis was designed to test the relationships between revenue and cash that the issuer recorded through journal entries. The firm however did not perform procedures to test the appropriateness of the cash data used in this analysis. (AS 1105.10) Financial statement audit only | AS 1105.10 |
Issuer J1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm's approach for substantively testing certain revenue consisted primarily of performing a software-assisted analysis which included performing procedures to test the accuracy of information used in this analysis. The software-assisted analysis was designed to test the relationships among revenue accounts receivable and cash that the issuer recorded through journal entries. The firm did not perform sufficient procedures to test the appropriateness of certain information used in this analysis because it did not perform procedures to test whether the cash receipts were relevant to the revenue being tested. (AS 1105.10) Financial statement audit only | AS 1105.10 |
Issuer K1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Pension Assets | The issuer reported its pension plan assets at fair value. The firm did not perform any substantive procedures to test the valuation of certain of the issuer's pension plan assets it had planned to test. (AS 2301.08) Financial statement audit only | AS 2301.8 |