- Inspection year
- 2019
- Report date
- 09-Sep-2021
- PCAOB release
- 104-2021-166
- Audits reviewed
- 6
- Audits w/ Part I.A deficiencies
- 3
- Part I.A deficiency rate
- 50%
- Part I.A deficiencies
- 6
- Part I.B deficiencies
- —
- Report
- View PDF ↗
Deficiencies (6)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired certain businesses and used an external specialist to determine the fair value of acquired intangible assets. The firm selected for testing three controls that consisted of reviews over (1) management's assumptions used by the external specialist (2) the valuation reports prepared by the external specialist and (3) acquisition accounting memoranda. 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 | |
| 2 | Business Combinations | The firm's approach for testing the fair value of acquired intangible assets was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of certain significant assumptions and issuer-developed projected revenue provided to the external specialist and used in the valuation of the acquired intangible assets because its procedures were limited to inquiry of management reading the issuer-prepared acquisition accounting memoranda and comparing projected revenue to current year results without performing procedures to evaluate whether the issuer's current year results would be representative of the issuer's projected revenue. (AS 1210.12; AS 2502.26 .28 and .31) Both financial statement and ICFR audits | AS 1210.12; AS 2502.26; AS 2502.28; AS 2502.31 |
Issuer B3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | The issuer recorded a reserve for excess and obsolete inventory. The firm did not evaluate the reasonableness of the reserve percentages and product lives used in the issuer's determination of the portion of the reserve for excess inventory. Further the firm did not evaluate the appropriateness of fully reserving for certain items at the end of their assumed product lives when those items continued to be sold during the year. (AS 2501.11; AS 2810.03) Financial statement audit only | AS 2501.11; AS 2810.3 | |
| 2 | Inventory | With respect to the portion of the reserve for obsolete inventory the firm did not evaluate the reasonableness of the issuer's policy to fully reserve for items with no sales in the past 24 months. Further the firm did not evaluate the effect of fully reserved items that were sold during the year on that policy. (AS 2501.11; AS 2810.03) Financial statement audit only | AS 2501.11; AS 2810.3 | |
| 3 | Business Combinations | During the year the issuer acquired a business and used an external specialist to determine the fair value of acquired intangible assets. The firm's approach for testing the fair values was to review and test management's process. The firm did not sufficiently evaluate the reasonableness of the issuer-developed projected revenue provided to the external specialist and used in the valuation of the acquired intangible assets because it limited its procedures to comparing the projected revenue to (1) the issuer's sales for two products and (2) revenue growth for a competitor without performing procedures to evaluate whether these results would be representative of the issuer's projected revenue. (AS 1210.12) Financial statement audit only | AS 1210.12 |
Issuer C1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | The firm selected for testing controls over inventory that consisted of (1) the performance of at least a certain number of counts per year for inventory at one location (2) annual testing of inventory at a second location at a point in time during the year and (3) inventory cycle counting that requires 100 percent coverage for inventory at the second location that began after the annual testing was completed. The firm did not test whether these controls were appropriately designed to ensure that the procedures over inventory quantities were sufficiently reliable to produce results substantially the same as those which would be obtained by a count of all items each year. (AS 2201.42 and .44) ICFR audit only | AS 2201.42; AS 2201.44 |