- Inspection year
- 2019
- Report date
- 28-Jul-2021
- PCAOB release
- 104-2021-148
- Audits reviewed
- 1
- Audits w/ Part I.A deficiencies
- 1
- Part I.A deficiency rate
- 100%
- Part I.A deficiencies
- 15
- Part I.B deficiencies
- —
- Report
- View PDF ↗
Deficiencies (15)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A15 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The issuer entered into agreements with counterparties some of whom were related parties to provide services to the issuer's customers. The issuer charged the counterparties a nonrefundable fee which the issuer recorded as revenue at the time of the agreement for facilitating the arrangement between the counterparty and the customer. The firm did not evaluate whether all of the criteria for revenue recognition under FASB ASC Topic 605 Revenue Recognition had been met including whether (1) services had been performed and (2) collectability was reasonably assured. (AS 2301.08; AS 2810.30) Financial statement audit only | AS 2301.8; AS 2810.30 | |
| 2 | Revenue | The issuer entered into agreements with counterparties some of whom were related parties to provide services to the issuer's customers. The issuer charged the counterparties a nonrefundable fee which the issuer recorded as revenue at the time of the agreement for facilitating the arrangement between the counterparty and the customer. With respect to the counterparty agreements with related parties discussed above the firm did not (1) obtain an understanding of the business purpose of the transactions; (2) evaluate whether the issuer had properly identified all related parties and relationships and transactions with related parties; and (3) evaluate whether all related party transactions were disclosed in conformity with FASB ASC Topic 850 Related Party Disclosures. (AS 2410.03 .12 .14 and .17) Financial statement audit only | AS 2410.3; AS 2410.12; AS 2410.14; AS 2410.17 | |
| 3 | Accounts Receivable | The issuer's accounts receivable from related and unrelated parties consisted of nonrefundable fees from agreements discussed above which had payment terms beyond one year. The firm did not evaluate the assumptions the issuer used in estimating the allowance for doubtful accounts. (AS 2501.07) Financial statement audit only | AS 2501.7 | |
| 4 | Accounts Receivable | The issuer's accounts receivable from related and unrelated parties consisted of nonrefundable fees from agreements discussed above which had payment terms beyond one year. The firm did not evaluate whether the issuer's accounts receivable that were not expected to be collected within 12 months should have been classified as non-current assets in conformity with FASB ASC Topic 310 Receivables. (AS 2810.30) Financial statement audit only | AS 2810.30 | |
| 5 | Related Party Transactions | The issuer entered into an agreement with a related party in which the issuer was to receive quarterly fees from the related party. Since the inception of the agreement the quarterly fees were recorded as receivables and deferred revenue in the issuer's balance sheet. The issuer disclosed that its sole officer and director was also the beneficial owner of and controlled the related party. The firm did not: · Obtain an understanding of the business purpose (or lack thereof) of the transaction. (AS 2410.03) Financial statement audit only | AS 2410.3 | |
| 6 | Related Party Transactions | The issuer entered into an agreement with a related party in which the issuer was to receive quarterly fees from the related party. Since the inception of the agreement the quarterly fees were recorded as receivables and deferred revenue in the issuer's balance sheet. The issuer disclosed that its sole officer and director was also the beneficial owner of and controlled the related party. The firm did not: · Take the transaction into account in its identification of significant unusual transactions. (AS 2401.66) Financial statement audit only | AS 2401.66 | |
| 7 | Related Party Transactions | The issuer entered into an agreement with a related party in which the issuer was to receive quarterly fees from the related party. Since the inception of the agreement the quarterly fees were recorded as receivables and deferred revenue in the issuer's balance sheet. The issuer disclosed that its sole officer and director was also the beneficial owner of and controlled the related party. The firm did not: · Evaluate the financial capability of the related party with respect to the outstanding receivable balance. (AS 2410.12) Financial statement audit only | AS 2410.12 | |
| 8 | Related Party Transactions | The issuer entered into an agreement with a related party in which the issuer was to receive quarterly fees from the related party. Since the inception of the agreement the quarterly fees were recorded as receivables and deferred revenue in the issuer's balance sheet. The issuer disclosed that its sole officer and director was also the beneficial owner of and controlled the related party. The firm did not: · Evaluate whether the issuer's accounting for and disclosure of the transaction was appropriate. (AS 2410.17) Financial statement audit only | AS 2410.17 | |
| 9 | Related Party Transactions | During the audit the firm was aware of information concerning possible illegal acts committed by the issuer and an officer. The firm did not obtain an understanding of the nature of the acts the circumstances in which they occurred and sufficient other information to evaluate the effect on the financial statements. (AS 2405.07 and .10) Financial statement audit only | AS 2405.7; AS 2405.10 | |
| 10 | Equity-Related Transactions | The firm did not evaluate (1) the fair value at the grant date of restricted common stock issued to employees and (2) whether stock-based compensation expense for all restricted common stock granted to employees was complete and appropriately recognized in conformity with FASB ASC Topic 718 Compensation — Stock Compensation. (AS 2502.26 and .28 AS 2810.30) Financial statement audit only | AS 2502.26; AS 2502.28; AS 2810.30 | |
| 11 | Equity-Related Transactions | The issuer also recorded a note receivable from a shareholder secured by shares of restricted common stock. The firm did not evaluate whether the transaction should have been accounted for as stock-based compensation expense in conformity with FASB ASC Topic 718. (AS 2810.30) Financial statement audit only | AS 2810.30 | |
| 12 | Equity-Related Transactions | The issuer entered into agreements in which it agreed to issue stock-based instruments to employees. The issuer represented to the firm that no instruments were outstanding under these agreements and no compensation expense had been recorded related to the agreements. The firm did not evaluate whether a grant date had occurred upon which compensation would be measured and recognition of compensation expense would begin in conformity with FASB ASC Topic 718. (AS 2810.30) Financial statement audit only | AS 2810.30 | |
| 13 | Equity-Related Transactions | Under the terms of certain of the agreements with counterparties under which the issuer recorded revenue discussed above the issuer's payment to the counterparties in some cases included stock-based instruments of the issuer or related entities. The firm did not evaluate whether the stock-based instruments issued or promised to be issued to such counterparties were appropriately recognized and disclosed in the financial statements in conformity with FASB ASC Topic 505 Equity. (AS 2810.30) Unrelated and prior to our review the issuer reevaluated its accounting for stock-based compensation and the related effect on income tax and concluded that a material misstatement existed that had not been previously identified. The issuer subsequently corrected this misstatement in a restatement of its financial statements and the firm revised and reissued its report on the financial statements. Financial statement audit only | AS 2810.30 | |
| 14 | Business Combinations | The issuer merged with its previous parent company in a business combination of entities under common control. The firm did not evaluate whether the merger was recognized and measured appropriately in conformity with FASB ASC Topic 805 Business Combinations. (AS 2810.30) Financial statement audit only | AS 2810.30 | |
| 15 | Business Combinations | The issuer merged with its previous parent company in a business combination of entities under common control. The firm did not identify and evaluate the significance of a departure from GAAP related to the issuer's omission of certain disclosures required by FASB ASC Topic 805 including (1) comparative financial statements retrospectively adjusted as though the merger had occurred at the beginning of the prior period and (2) the method of accounting for the transfer of net assets or exchange of equity interests. (AS 2810.30 and.31) Financial statement audit only | AS 2810.30; AS 2810.31 |