- Inspection year
- 2019
- Report date
- 06-Jul-2021
- PCAOB release
- 104-2021-137a
- Audits reviewed
- 8
- Audits w/ Part I.A deficiencies
- 5
- Part I.A deficiency rate
- 63%
- Part I.A deficiencies
- 13
- Part I.B deficiencies
- —
- Report
- View PDF ↗
Deficiencies (13)
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 | Derivatives | The issuer used various models to value certain derivatives. The firm selected for testing a control that consisted of the review and validation of (1) new or updated models and (2) existing models based on issuer-assigned risk ratings. The firm did not evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and 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 selected for testing controls that consisted of the (1) review and validation at least annually of all models and (2) quarterly review of back testing results using historical loan information to assess the performance of certain models. The firm did not sufficiently test the first control because the firm's sample primarily consisted of models that the issuer had validated in the prior year which did not provide sufficient appropriate audit evidence as of the date of management's assessment of the effectiveness of the issuer's ICFR due to the (1) length of time that had passed between the instances of the control the firm tested and the date of management's assessment (2) higher risk associated with the control and (3) sensitivity and complexity of the models covered by the control. (AS 2201.46 and .52) Both financial statement and ICFR audits | AS 2201.46; AS 2201.52 | |
| 3 | Allowance for Credit/Loan Losses | The firm selected for testing controls that consisted of the (1) review and validation at least annually of all models and (2) quarterly review of back testing results using historical loan information to assess the performance of certain models. For the second control the firm did not identify and test any controls over the accuracy and completeness of the historical loan information used in the operation of that control. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 4 | Allowance for Credit/Loan Losses | The firm's approach for substantively testing the ALL was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of the ALL because the firm did not perform procedures to test certain factors and assumptions the issuer developed in the prior year and used to determine the ALL in the current year. (AS 2501.09 .10 and .11) Both financial statement and ICFR audits | AS 2501.9; AS 2501.10; AS 2501.11 |
Issuer B3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Long-Lived Assets | The issuer had multiple cash generating units ('CGUs'). For one CGU the issuer concluded that there were no indicators of potential impairment. For another CGU the issuer identified indicators of potential impairment performed an impairment analysis and recorded an impairment charge. The firm selected for testing controls over the issuer's evaluation of long-lived assets for possible impairment that included the issuer's reviews of (1) potential indicators of impairment and (2) assumptions underlying the forecasted operating costs capital expenditures and discount rates used in the impairment analysis. The firm did not evaluate the specific review procedures that the control owners performed (1) with respect to potential indicators of impairment related to the first CGU and (2) to assess the reasonableness of the forecasted operating costs capital expenditures and discount rates used in the impairment analysis for the second CGU. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Long-Lived Assets | The firm did not evaluate management's determination that there were no indicators of potential impairment for the first CGU beyond inquiring of management and reading the issuer's impairment indicator memorandum and a reserves report prepared by an external specialist. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 | |
| 3 | Long-Lived Assets | The firm's approach for substantively testing the impairment analysis for the second CGU was to review and test management's process. The firm did not sufficiently test the impairment analysis for this CGU because the firm did not perform procedures to evaluate the reasonableness of the discount rates and the forecasted operating costs and capital expenditures beyond the first year that the issuer used in the impairment analysis. (AS 2501.09 10 and .11) Both financial statement and ICFR audits | AS 2501.9; AS 2501.10; AS 2501.11 |
Issuer C3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Long-Lived Assets | The issuer capitalized certain employee and contractor labor costs to long-lived assets. The following deficiencies were identified: · The firm did not identify and test any controls over the accuracy of the employee labor hours associated with the employee labor costs capitalized to long-lived assets. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Long-Lived Assets | The issuer capitalized certain employee and contractor labor costs to long-lived assets. The following deficiencies were identified: · The firm selected for testing a control that consisted of the review and approval of contractor labor hours. The firm did not evaluate the specific review procedures that the control owners performed to address the accuracy of the contractor labor hours associated with the contractor labor costs capitalized to long-lived assets. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 3 | Long-Lived Assets | The issuer capitalized certain employee and contractor labor costs to long-lived assets. The following deficiencies were identified: · The firm used employee and contractor hours derived from the issuer's time recording system in its substantive testing of these capitalized labor costs. The firm did not test or (as discussed above) test or sufficiently test controls over the accuracy of the employee or contractor hours. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 |
Issuer D2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The issuer entered into arrangements with multiple elements that consisted of software and professional services. The issuer determined that professional services represented separate performance obligations and recognized revenue related to these services separately from the software revenue. The firm selected for testing controls that consisted of the issuer's reviews of contracts for appropriate revenue recognition. The firm did not evaluate the specific review procedures that the control owners performed to determine that professional services represented separate performance obligations. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Revenue | The firm did not perform any substantive procedures to evaluate whether the issuer's treatment of professional services as separate performance obligations was in conformity with FASB ASC Topic 606 Revenue from Contracts with Customers. (AS 2810.30) Both financial statement and ICFR audits | AS 2810.30 |
Issuer E1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Long-Lived Assets | The issuer identified indicators of potential impairment related to certain CGUs performed an impairment analysis over those CGUs and recorded an impairment charge. The firm selected for testing a control that included the issuer's review of the assumptions used in the impairment analysis. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of these assumptions. (AS 2201.42 and .44) ICFR audit only | AS 2201.42; AS 2201.44 |