- Inspection year
- 2019
- Report date
- 17-Dec-2020
- PCAOB release
- 104-2021-009a
- Audits reviewed
- 15
- Audits w/ Part I.A deficiencies
- 3
- Part I.A deficiency rate
- 20%
- Part I.A deficiencies
- 10
- Part I.B deficiencies
- 1
- Report
- View PDF ↗
Deficiencies (10)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | The firm selected for testing two review controls over the qualitative component of the ALL. The firm did not evaluate the review procedures that the control owners performed including the procedures used 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 | The firm's approach to substantively test the qualitative component of the ALL was to review and test management's process. The firm did not sufficiently evaluate the appropriateness of the issuer's ALL methodology and the reasonableness of the significant inputs and assumptions used because it limited its procedures to comparing the basis-point adjustments for economic and other factors that the issuer used at year end to those used in the prior period. (AS 2501.11) Both financial statement and ICFR audits | AS 2501.11 | |
| 3 | Investment Securities | The issuer recorded the fair values of available-for-sale 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. In evaluating the design of this control the firm did not identify that the prices obtained from the other pricing service were derived from the same pricing source as the one the issuer used to record the fair value of the securities. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 |
Issuer B2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | The firm selected for testing a control that the issuer intended to be an objective review of assigned loan grades. The firm concluded that this control was deficient because the control owners were not independent of the department responsible for assigning the loan grades. The firm identified other controls over the review of assigned loan grades that it believed would compensate for this control deficiency. The firm did not identify that the control owners for these controls also were not independent of the department responsible for assigning the loan grades. (AS 2201.68) Both financial statement and ICFR audits | AS 2201.68 | |
| 2 | Allowance for Credit/Loan Losses | The sample sizes the firm used in certain of its substantive procedures to test the reasonableness of assigned loan grades 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 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 C5 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The issuer processed and recorded transactions related to revenue inventory and sales commission expense and sales commission payable using several information-technology ('IT') systems including its enterprise resource planning ('ERP') system. The accuracy and completeness of the data and reports from the ERP system depended on effective IT general controls ('ITGCs'). The firm identified a significant deficiency in ITGCs related to user access to the ERP system. The firm selected for testing an automated control designed to recognize revenue when goods were shipped based on interfaces between various IT systems. The firm did not directly test this control because its procedures were substantive in nature. (AS 2201.42 .44 and .B9) ICFR audit only | AS 2201.42; AS 2201.44; AS 2201.B9 | |
| 2 | Revenue | The issuer processed and recorded transactions related to revenue inventory and sales commission expense and sales commission payable using several information-technology ('IT') systems including its enterprise resource planning ('ERP') system. The accuracy and completeness of the data and reports from the ERP system depended on effective IT general controls ('ITGCs'). The firm identified a significant deficiency in ITGCs related to user access to the ERP system. The firm selected for testing a control that consisted of the issuer's review of revenue transactions for appropriate cut-off that used data and reports generated and maintained by the ERP system and an inventory management system. The firm's testing of this control was not sufficient because it did not consider the implications of the ineffective ITGCs over the ERP system as discussed above. Further the firm did not identify and test any controls over the accuracy and completeness of the data and reports from the issuer's inventory management system beyond determining that the control owner had reviewed the parameters of the reports generated by this system. (AS 2201.39 and .46) ICFR audit only | AS 2201.39; AS 2201.46 | |
| 3 | Inventory | The issuer processed and recorded transactions related to revenue inventory and sales commission expense and sales commission payable using several information-technology ('IT') systems including its enterprise resource planning ('ERP') system. The accuracy and completeness of the data and reports from the ERP system depended on effective IT general controls ('ITGCs'). The firm identified a significant deficiency in ITGCs related to user access to the ERP system. The firm selected for testing various controls over inventory that used data maintained by the ERP system. The firm's testing of these controls was not sufficient because it did not consider the implications of the ineffective ITGCs over this system as discussed above. (AS 2201.46) ICFR audit only | AS 2201.46 | |
| 4 | Inventory | The issuer processed and recorded transactions related to revenue inventory and sales commission expense and sales commission payable using several information-technology ('IT') systems including its enterprise resource planning ('ERP') system. The accuracy and completeness of the data and reports from the ERP system depended on effective IT general controls ('ITGCs'). The firm identified a significant deficiency in ITGCs related to user access to the ERP system. The firm selected for testing an automated control that consisted of the recording of inventory upon receipt. The firm did not obtain an understanding of how the system was configured to initiate process and record the receipt of inventory. 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) ICFR audit only | AS 2201.34; AS 2201.42; AS 2201.44 | |
| 5 | Sales Commission Expense and Sales Commission Payable | The issuer processed and recorded transactions related to revenue inventory and sales commission expense and sales commission payable using several information-technology ('IT') systems including its enterprise resource planning ('ERP') system. The accuracy and completeness of the data and reports from the ERP system depended on effective IT general controls ('ITGCs'). The firm identified a significant deficiency in ITGCs related to user access to the ERP system. The firm selected for testing controls that consisted of the issuer's reviews of sales commission expense sales commission payable related adjustments exceptions and a reconciliation of data between certain systems. The firm did not identify and test any controls over the accuracy and completeness of the commissionable sales volume data that the control owners used in the operation of these controls. (AS 2201.39) ICFR audit only | AS 2201.39 |