- Inspection year
- 2019
- Report date
- 17-Dec-2020
- PCAOB release
- 104-2021-012a
- Audits reviewed
- 11
- Audits w/ Part I.A deficiencies
- 3
- Part I.A deficiency rate
- 27%
- Part I.A deficiencies
- 7
- Part I.B deficiencies
- 2
- Report
- View PDF ↗
Deficiencies (7)
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 issuer developed the qualitative component of the general reserve of the ALL by applying certain qualitative factors to each of its classes of loans. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of the ALL including the development and review of the qualitative factors. In evaluating the design of this control the firm did not assess the effect of the same individuals both developing and reviewing the qualitative factors. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 | |
| 2 | Allowance for Credit/Loan Losses | The issuer developed the qualitative component of the general reserve of the ALL by applying certain qualitative factors to each of its classes of loans. The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of the ALL including the development and review of the qualitative factors. 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 | |
| 3 | Allowance for Credit/Loan Losses | The issuer developed the qualitative component of the general reserve of the ALL by applying certain qualitative factors to each of its classes of loans. The following deficiencies were identified: · With respect to the firm's substantive procedures to test the qualitative component of the reserve the firm did not evaluate the reasonableness of certain adjustments that the issuer made to the qualitative factors beyond reading the issuer's ALL memorandum and comparing the current year's general reserve to the prior year's. (AS 2501.07) Both financial statement and ICFR audits | AS 2501.7 |
Issuer B3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | The issuer used an information technology ('IT') application to record revenue and inventory. The firm selected for testing certain automated and IT-dependent manual controls over revenue and inventory that used information generated or maintained by this application. The accuracy and completeness of this information depended on effective IT general controls ('ITGCs'). The firm's testing of ITGCs was not sufficient because it did not identify and test a complete population of operating system changes that could potentially affect change management controls over the application. As a result the firm's testing of the automated and IT-dependent manual controls was not sufficient. (AS 2201.46) Both financial statement and ICFR audits | AS 2201.46 | |
| 2 | Inventory | The sample sizes the firm used in certain of its substantive procedures to test revenue and inventory 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 | |
| 3 | Revenue | The firm's substantive procedures to test revenue included analytical procedures. The firm used the information generated from this revenue application to develop its expectations but did not test or (as discussed above) sufficiently test controls over the accuracy and completeness of this information. (AS 2305.16) Both financial statement and ICFR audits | AS 2305.16 |
Issuer C1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Notes Receivable | The issuer held a note receivable from a related party that was collateralized by shares of the issuer's stock and guaranteed by other parties. The issuer recognized interest payments received from the borrower as income. On various occasions the issuer extended the maturity date and modified certain payment terms rather than enforcing the guarantees by either requiring the (1) redemption of the collateral or (2) repayment of the receivable when it was due and payable. The firm did not identify and appropriately address that the issuer's accounting treatment for the receivable and related interest payments was not in conformity with FASB ASC Topic 310 Receivables. (AS 2810.30) Unrelated to our review the issuer reevaluated its accounting for the receivable and related interest payments and concluded that a material misstatement existed that had not been previously identified. The issuer subsequently restated its financial statements and the firm revised and reissued its report on the financial statements. The issuer also reevaluated its controls over the note receivable 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. Financial statement audit only | AS 2810.30 |