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Ernst & Young LLP
United States · Ernst & Young Global Limited · Annually Inspected
- Inspection year
- 2020
- Report date
- 30-Sep-2021
- PCAOB release
- 104-2021-151a
- Audits reviewed
- 52
- Audits w/ Part I.A deficiencies
- 8
- Part I.A deficiency rate
- 15%
- Part I.A deficiencies
- 18
- Part I.B deficiencies
- 2
- Report
- View PDF ↗
Deficiencies (18)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A5 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Leases | In the current year the issuer identified events indicating that its operating lease right-of-use assets may not be recoverable and performed an impairment analysis. The issuer determined that for certain of these assets (the 'valued assets') the fair value of the individual assets would not be impaired by more than a pre-determined percentage of the asset's recorded value (a 'maximum impairment percentage'). The following deficiencies were identified: · The firm selected for testing a control that consisted of the issuer's review of its assessment of these assets for possible impairment. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of the maximum impairment percentage. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Leases | In the current year the issuer identified events indicating that its operating lease right-of-use assets may not be recoverable and performed an impairment analysis. The issuer determined that for certain of these assets (the 'valued assets') the fair value of the individual assets would not be impaired by more than a pre-determined percentage of the asset's recorded value (a 'maximum impairment percentage'). The following deficiencies were identified: · The firm's substantive procedures to evaluate the reasonableness of the maximum impairment percentage consisted of reading the issuer's external valuation report for certain other operating lease right-of-use assets and an external industry report. The firm did not perform procedures to evaluate whether the information in these reports was (1) relevant to the valued assets and (2) precise enough to enable the firm to identify potential material misstatements. Further the firm did not perform any procedures to evaluate whether the issuer's use of the same maximum impairment percentage for all of the valued assets was appropriate. (AS 2502.26 .28 and .31) Both financial statement and ICFR audits | AS 2502.26; AS 2502.28; AS 2502.31 | |
| 3 | Inventory | The issuer used information-technology (IT) systems to initiate process and record transactions related to certain inventory. The firm selected for testing certain automated controls but did not test the configuration or programming of these automated controls or perform other procedures that would have provided sufficient appropriate audit evidence that these automated controls were designed and operating effectively. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 4 | Inventory | The sample size the firm used in certain of its substantive procedures to test this inventory was 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 | |
| 5 | Inventory | In addition in the substantive testing discussed above the firm identified differences in the unit costs of inventory between the issuer's inventory systems but did not perform procedures to evaluate the differences. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 |
Issuer B4 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Accounts Receivable | The issuer used an IT system to initiate process and record transactions related to certain revenue accounts receivable and inventory. The firm selected for testing various automated controls related to this revenue accounts receivable and inventory. The following deficiencies were identified: · The firm's testing of certain automated controls using a sample of only one instance of the control's operation was not sufficient because the firm did not test the configuration or programming of these controls or perform other procedures that would have provided sufficient appropriate audit evidence that these controls were designed and operating effectively. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Accounts Receivable | The issuer used an IT system to initiate process and record transactions related to certain revenue accounts receivable and inventory. The firm selected for testing various automated controls related to this revenue accounts receivable and inventory. The following deficiencies were identified: · The firm's testing of certain other automated controls using a sample of only one instance of the control's operation was not sufficient because the firm did not test whether changes to configurations within these controls were subject to the issuer's change management controls. (AS 2201.44) Both financial statement and ICFR audits | AS 2201.44 | |
| 3 | Accounts Receivable | The issuer used an IT system to initiate process and record transactions related to certain revenue accounts receivable and inventory. The firm selected for testing various automated controls related to this revenue accounts receivable and inventory. The following deficiencies were identified: · The sample sizes the firm used in certain of its substantive procedures to test this revenue accounts receivable 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 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 | |
| 4 | Revenue | The firm's approach for substantively testing certain revenue consisted primarily of performing a software-assisted analysis to test the relationships among revenue accounts receivable and cash receipts. The firm's approach to addressing the reliability of the audit evidence obtained from this type of analysis was dependent upon the firm's testing of certain data underlying the analysis. The firm did not sufficiently test this underlying data because for certain cash selections the firm did not inspect external evidence or perform other procedures to evaluate whether the cash receipts related to this revenue. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 |
Issuer C2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Goodwill | The firm selected for testing a control that consisted of the review of forecasts used in the issuer's analyses of goodwill for possible impairment. For one of the issuer's reporting units the firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of the forecasted revenue growth rates and gross margin percentages the issuer used in these forecasts. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Goodwill | The forecasts the issuer used in its analyses to assess goodwill for possible impairment for this one reporting unit assumed significant revenue growth for certain years and improved gross margin percentages. The firm concluded that the forecasted revenue growth rates were reasonable without performing any substantive procedures to evaluate the issuer's ability to carry out certain of its planned strategies to achieve the forecasts beyond inquiring of management. The firm's procedures to test the forecasted gross margin percentages were not sufficient because they were limited to inquiring of management about the issuer's planned strategies and comparing the forecasted gross margin percentages to the actual gross margin percentages of another reporting unit. (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 D3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Accounts Receivable | The issuer used various IT systems to initiate process and record transactions related to certain revenue and accounts receivable. The following deficiencies were identified: · The firm selected for testing a control over change management for these IT systems but did not perform sufficient procedures to test the completeness of the population of changes from which it made its selections for testing because it limited its procedures to testing the completeness of only one type of change. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | |
| 2 | Accounts Receivable | The issuer used various IT systems to initiate process and record transactions related to certain revenue and accounts receivable. 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 deficiency in the firm's testing of IT general controls 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 | |
| 3 | Accounts Receivable | The issuer used various IT systems to initiate process and record transactions related to certain revenue and accounts receivable. The following deficiencies were identified: · The sample sizes the firm used in certain of its substantive procedures to test this 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 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 E1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm's approach for substantively testing certain revenue consisted primarily of performing a software-assisted analysis to test the relationships among revenue accounts receivable and cash receipts. The firm's approach to addressing the reliability of the audit evidence obtained from this type of analysis was dependent upon the firm's testing of certain controls over the data underlying the analysis and the firm's tests of details of the underlying data. The firm did not perform sufficient procedures to test and test controls over this underlying data. Specifically for one control the firm did not test (1) an aspect of the control that addressed whether the cash receipts were related to this revenue and (2) whether the control addressed all cash receipts used in this analysis. Further when performing its tests of details the firm did not select its sample from the data that was used in this analysis. (AS 1105.10) Financial statement audit only | AS 1105.10 |
Issuer F1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm's approach for substantively testing certain revenue consisted primarily of performing a software-assisted analysis to test the relationships among revenue accounts receivable and cash receipts. The firm's approach to addressing the reliability of the audit evidence obtained from this type of analysis was dependent upon the firm's testing of certain data underlying the analysis. The firm did not sufficiently test this underlying data because it did not select its sample from the data that was used in this analysis. (AS 1105.10) Financial statement audit only | AS 1105.10 |
Issuer G1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm's approach for substantively testing certain revenue consisted primarily of performing a software-assisted analysis to test the relationships among revenue accounts receivable and cash receipts. The firm's approach to addressing the reliability of the audit evidence obtained from this type of analysis was dependent upon the firm's testing of certain data underlying the analysis. The firm did not sufficiently test this underlying data because it tested a sample that was smaller than the one the firm determined necessary for these procedures. (AS 1105.10) Financial statement audit only | AS 1105.10 |
Issuer H1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Research and development Expenses | In performing its substantive testing of research and development expenses the firm planned to send positive confirmation requests to an external party that performed certain services for the issuer. The firm did not maintain control over the confirmation requests because the issuer sent the requests. Further the responses were returned by email but the firm did not consider performing procedures to verify the source of these responses. (AS 2310.28 and .29) Financial statement audit only | AS 2310.28; AS 2310.29 |