- Inspection year
- 2021
- Report date
- 07-Nov-2022
- PCAOB release
- 104-2023-008
- Audits reviewed
- 11
- Audits w/ Part I.A deficiencies
- 5
- Part I.A deficiency rate
- 45%
- Part I.A deficiencies
- 20
- Part I.B deficiencies
- 7
- Report
- View PDF ↗
Deficiencies (20)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A10 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | The issuer reported a reserve for inventory. The firm did not identify and test any controls over the appropriateness of the method and certain assumptions used to determine the reserve. (AS 2201.39) In connection with our review the issuer reevaluated its accounting for the reserve for inventory 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. The issuer also reevaluated its controls over the reserve for inventory and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report. Both financial statement and ICFR audits | AS 2201.39 | Incorrect opinion |
| 2 | Inventory | The issuer reported a reserve for inventory. The firm selected for testing a control that included a review of certain assumptions used to determine the reserve for individual inventory items. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the reasonableness of the assumptions. (AS 2201.42 and .44) In connection with our review the issuer reevaluated its accounting for the reserve for inventory 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. The issuer also reevaluated its controls over the reserve for inventory and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report. Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Incorrect opinion |
| 3 | Inventory | With respect to Inventory the firm's approach for substantively testing the reserve was to test the issuer's process. The firm did not perform any procedures to evaluate whether the method used to develop the reserve was appropriate. (AS 2501.10) In connection with our review the issuer reevaluated its accounting for the reserve for inventory 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. The issuer also reevaluated its controls over the reserve for inventory and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report. Both financial statement and ICFR audits | AS 2501.10 | Incorrect opinion |
| 4 | Inventory | With respect to Inventory the firm's approach for substantively testing the reserve was to test the issuer's process. The firm did not perform procedures to evaluate the reasonableness of certain significant assumptions beyond inquiry and performing a retrospective analysis. (AS 2501.16) In connection with our review the issuer reevaluated its accounting for the reserve for inventory 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. The issuer also reevaluated its controls over the reserve for inventory and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report. Both financial statement and ICFR audits | AS 2501.16 | Incorrect opinion |
| 5 | Revenue | The issuer reported revenue from the sale of products. The following deficiencies were identified: - The firm selected for testing a control that included reviews of product pricing. The firm did not evaluate the review procedures that certain of the control owners performed including the criteria that the control owners used to identify items for follow up and whether those items were appropriately resolved. Further the firm did not test the design and operating effectiveness of another aspect of this control. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Incorrect opinion |
| 6 | Revenue | The issuer reported revenue from the sale of products. The following deficiencies were identified: - The firm selected for testing a control that included the review of price overrides. The firm did not test the specific review procedures that the control owner performed to evaluate the appropriateness of price changes. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Incorrect opinion |
| 7 | Revenue | The issuer reported revenue from the sale of products. The following deficiencies were identified: - The firm did not identify and test any controls over the accuracy and completeness of information used in the operation of one of the above controls and another control over the review of journal entries related to revenue. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | Incorrect opinion |
| 8 | Revenue | The sample size the firm used in its substantive procedures to test product revenue 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 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 | Incorrect opinion |
| 9 | Revenue | The issuer also reported revenue from the performance of services. The firm did not identify and test any controls over the satisfaction of performance obligations for this revenue. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | Incorrect opinion |
| 10 | Revenue | The sample size the firm used in its substantive procedures to test service revenue 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 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 | Incorrect opinion |
Issuer B5 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | The issuer reported certain loans for which the borrowers were provided temporary payment relief under the law. The issuer identified that one borrower did not make any subsequent payments on a loan for which it had previously been provided payment relief. As a result the issuer determined that the value of this loan was dependent on the underlying collateral. The issuer estimated the fair value of the loan's collateral and recorded a specific provision within the ALLL. The following deficiencies were identified: - The firm did not identify and test any controls that addressed the valuation of loans for which the borrowers had received temporary payment relief under the law. (AS 2201.39) Unrelated to our review the issuer received additional information concerning the value of the collateral for the above loan 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. The issuer also reevaluated its controls over the valuation of similar loans and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report to include this material weakness. Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Allowance for Credit/Loan Losses | The issuer reported certain loans for which the borrowers were provided temporary payment relief under the law. The issuer identified that one borrower did not make any subsequent payments on a loan for which it had previously been provided payment relief. As a result the issuer determined that the value of this loan was dependent on the underlying collateral. The issuer estimated the fair value of the loan's collateral and recorded a specific provision within the ALLL. The following deficiencies were identified: - The firm did not perform procedures beyond obtaining the issuer's analysis to test the reasonableness of this specific provision. (AS 2501.07) Unrelated to our review the issuer received additional information concerning the value of the collateral for the above loan 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. The issuer also reevaluated its controls over the valuation of similar loans and concluded that a material weakness existed that had not been previously identified. The issuer subsequently reflected this material weakness in a revision to its report on ICFR and the firm revised its opinion on the effectiveness of the issuer's ICFR to express an adverse opinion and reissued its report to include this material weakness. [This citation refers to AS 2501 Auditing Accounting Estimates which was in effect for this audit. This standard was replaced by AS 2501 Auditing Accounting Estimates Including Fair Value Measurements which became effective for audits of financial statements ending on or after December 15 2020.] Both financial statement and ICFR audits | AS 2501.7 | |
| 3 | Allowance for Credit/Loan Losses | The issuer's ALLL included a reserve for loans collectively evaluated for impairment. This reserve included a component that was determined by using certain qualitative factors. The following deficiencies were identified: - The firm selected for testing controls that consisted of the issuer's reviews of the ALLL. The firm did not identify and test any controls over the accuracy and completeness of certain data and/or reports used in the operation of these controls. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 4 | Allowance for Credit/Loan Losses | The issuer's ALLL included a reserve for loans collectively evaluated for impairment. This reserve included a component that was determined by using certain qualitative factors. The following deficiencies were identified: - The firm selected for testing controls that consisted of the issuer's review of the qualitative component of the ALLL. The firm did not evaluate the specific review procedures that the control owners performed to evaluate the reasonableness of the basis point adjustments for the qualitative factors. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 5 | Allowance for Credit/Loan Losses | The issuer's ALLL included a reserve for loans collectively evaluated for impairment. This reserve included a component that was determined by using certain qualitative factors. The following deficiencies were identified: - The firm's approach for substantively testing the reserve was to review and test management's process. The firm did not perform procedures to evaluate the reasonableness of certain basis points that were applied to determine the qualitative component beyond comparing these basis points to the basis points that were applied in prior years and concluding on their overall reasonableness. (AS 2501.09 .10 and .11) [This citation refers to AS 2501 Auditing Accounting Estimates which was in effect for this audit. This standard was replaced by AS 2501 Auditing Accounting Estimates Including Fair Value Measurements which became effective for audits of financial statements ending on or after December 15 2020.] Both financial statement and ICFR audits | AS 2501.9; AS 2501.10; AS 2501.11 |
Issuer C2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | The issuer's general reserve component of the ALL included a qualitative reserve. For each of the qualitative factors evaluated in determining the reserve the issuer assigned a risk level and then assigned basis point adjustments based on the risk level. The firm selected for testing several controls over the review of the ALL. The firm did not evaluate the specific review procedures the control owners performed to evaluate the reasonableness of the risk levels and related basis point adjustments. (AS 2201.42 and .44) ICFR audit only | AS 2201.42; AS 2201.44 | |
| 2 | Goodwill | With respect to the Goodwill the issuer performed a qualitative assessment to determine whether or not a triggering event had occurred. The firm selected for testing a control that included a review of this assessment. The firm did not evaluate the specific review procedures that the control owner performed to evaluate the occurrence of the triggering events. (AS 2201.42 and .44) ICFR audit only | AS 2201.42; AS 2201.44 |
Issuer D2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm did not perform sufficient procedures to test the reliability of reports obtained from the issuer's franchisees that it used in its substantive procedures because it limited its procedures to performing a walkthrough of the issuer's process to access the reports and vouching certain transactions. (AS 1105.04 and .06) Financial statement audit only | AS 1105.4; AS 1105.6 | |
| 2 | Revenue | The firm selected for confirmation a sample of revenue transactions. The firm emailed the franchisees the confirmation request and received electronic responses. The firm did not consider performing procedures to address the risk associated with electronic responses beyond verifying the correspondent's name was consistent with the authorized respondent's name. (AS 2310.29) Financial statement audit only | AS 2310.29 |
Issuer E1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | During the year the issuer acquired a business including an intangible asset. The issuer developed assumptions to determine the fair value of the acquired intangible asset. The firm did not perform procedures beyond inquiry of management to evaluate the reasonableness of a significant assumption. (AS 2501.16) Financial statement audit only | AS 2501.16 |