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Ernst & Young Hua Ming LLP
China · Ernst & Young Global Limited · Triennially Inspected
- Inspection year
- 2023
- Report date
- 23-May-2024
- PCAOB release
- 104-2024-083
- Audits reviewed
- 4
- Audits w/ Part I.A deficiencies
- 3
- Part I.A deficiency rate
- 75%
- Part I.A deficiencies
- 10
- Part I.B deficiencies
- 1
- Report
- View PDF ↗
Deficiencies (10)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A7 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Goodwill | The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm selected for testing a control that consisted of the issuer's review of the determination of the reporting units. The firm did not test an aspect of this control that addressed the considerations for the aggregation of the two components into one reporting unit including the similarity of the economic characteristics of the components and various qualitative factors as required by FASB ASC Topic 350 Intangibles – Goodwill and Other. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Significant risk |
| 2 | Goodwill | The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm selected for testing another control that consisted of the issuer's review of the reasonableness of significant assumptions used in the quantitative assessment of goodwill. The firm did not evaluate the specific review procedures the control owner performed to evaluate the reasonableness of the projected amounts for revenue growth and certain costs used in this assessment. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Significant risk |
| 3 | Goodwill | The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate whether the issuer identified the reporting units in conformity with FASB ASC Topic 350 because it did not perform any procedures to evaluate the similarities in the economic characteristics of the components and the various qualitative factors considered by the issuer when determining whether the two components should be aggregated into one reporting unit. (AS 2301.08 and .11) Both financial statement and ICFR audits | AS 2301.8; AS 2301.11 | Significant risk |
| 4 | Goodwill | The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm did not evaluate whether the issuer had a reasonable basis for the significant assumptions related to revenue growth rates used in its quantitative assessment of goodwill at the Reporting Unit including consideration of the recent declines in the Reporting Unit's revenue growth rate. (AS 2501.16) Both financial statement and ICFR audits | AS 2501.16 | Significant risk |
| 5 | Goodwill | The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • The firm did not perform sufficient procedures to evaluate the reasonableness of the significant assumptions related to the revenue growth rates and certain costs for the Reporting Unit because it did not take into account beyond reading the issuer's overall business plan the issuer's ability to carry out its intended courses of action. (AS 2501.17) Both financial statement and ICFR audits | AS 2501.17 | Significant risk |
| 6 | Goodwill | The issuer determined that it had certain reporting units including one reporting unit that consisted of two components (“Reporting Unit”). The issuer performed a quantitative assessment to test goodwill for impairment at the Reporting Unit and the firm's approach for substantively testing this assessment was to test the issuer's process. The following deficiency was identified: • For one component within the Reporting Unit the firm did not evaluate whether the significant assumptions the issuer used in its quantitative assessment were consistent with the issuer's historical and recent experience taking into account changes in conditions and events affecting the issuer beyond observing that the assumptions were directionally consistent with the issuer's overall business plan and strategy. (AS 2501.16 and .17) Both financial statement and ICFR audits | AS 2501.16; AS 2501.17 | Significant risk |
| 7 | Variable Interest Entities | The issuer derives revenue through consolidated VIEs and relies on contractual arrangements with the VIEs and their shareholders to control the business operations of the consolidated VIEs. The issuer engaged an external specialist to provide a legal opinion regarding the validity and enforceability of contractual arrangements with the issuer's consolidated VIEs and their shareholders and the firm used the work of the company's specialist as audit evidence. The firm did not sufficiently evaluate the relevance and reliability of the work performed by the company's specialist and whether the specialist's findings support or contradict the issuer's rights and obligations related to the consolidation of the VIEs because it did not evaluate the nature of uncertainties described in the legal opinion prepared by the company's specialist and perform additional procedures to address the risks associated with those uncertainties. (AS 1105.A9 and .A10) Both financial statement and ICFR audits | AS 1105.A10; AS 1105.A9 |
Issuer B2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The firm did not identify and test any controls over the accuracy of information that the issuer used to record certain revenue. (AS 2201.39) ICFR audit only | AS 2201.39 | |
| 2 | Inventory | The firm did not identify and test any controls over the existence of inventory held at customers' warehouses. (AS 2201.39) ICFR audit only | AS 2201.39 |
Issuer C1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Variable Interest Entities | The issuer derives revenue through a consolidated VIE and relies on contractual arrangements with the VIE and its shareholders to control the business operations of the consolidated VIE. The issuer engaged an external specialist to provide a legal opinion regarding the validity and enforceability of contractual arrangements with the issuer's consolidated VIE and its shareholders and the firm used the work of the company's specialist as audit evidence. The firm did not sufficiently evaluate the relevance and reliability of the work performed by the company's specialist and whether the specialist's findings support or contradict the issuer's rights and obligations related to the consolidation of the VIE because it did not evaluate the nature of uncertainties described in the legal opinion prepared by the company's specialist and perform additional procedures to address the risks associated with those uncertainties. (AS 1105.A9 and .A10) Financial statement audit only | AS 1105.A10; AS 1105.A9 |