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PricewaterhouseCoopers Zhong Tian LLP
China · PricewaterhouseCoopers International Limited · Triennially Inspected
- Inspection year
- 2023
- Report date
- 22-Aug-2024
- PCAOB release
- 104-2024-133
- Audits reviewed
- 7
- Audits w/ Part I.A deficiencies
- 7
- Part I.A deficiency rate
- 100%
- Part I.A deficiencies
- 42
- Part I.B deficiencies
- 8
- Report
- View PDF ↗
Deficiencies (42)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A19 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Property, Plant, and Equipment | The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not identify and test any controls over the completeness of the assets included in the issuer's components and CGUs. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | Significant risk |
| 2 | Property, Plant, and Equipment | The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not identify and test any controls over the (1) accuracy and completeness of the data produced by the issuer (2) relevance and reliability of information obtained from external sources (3) reasonableness of certain significant assumptions and (4) appropriateness of the methods used by the company's specialists to develop their assumptions. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | Significant risk |
| 3 | Property, Plant, and Equipment | The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm selected for testing a control that included the issuer's review of its components and CGUs for indicators of potential impairment including a review of the composition of the components and CGUs. The firm did not evaluate the specific review procedures that the control owner performed to assess (1) whether the occurrence of certain events represented indicators of potential impairment and (2) the composition of the components and CGUs to determine whether they represented the smallest identifiable group of assets that generated independent cash inflows. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Significant risk |
| 4 | Property, Plant, and Equipment | The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not sufficiently evaluate whether the method the issuer used to perform its impairment analyses was in conformity with the applicable financial reporting framework including the requirements of International Accounting Standard 36 Impairment of Assets because the firm did not evaluate whether the issuer's components and CGUs represented the smallest identifiable group of assets that generated independent cash inflows. (AS 2501.10) Both financial statement and ICFR audits | AS 2501.10 | Significant risk |
| 5 | Property, Plant, and Equipment | The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not evaluate whether certain events that occurred during the year were identified and evaluated by the issuer as indicators of potential impairment. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 | Significant risk |
| 6 | Property, Plant, and Equipment | The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not perform sufficient procedures to evaluate the reasonableness of a significant assumption developed (and used) by the issuer to estimate the VIU of one CGU because it limited its procedures to comparing the assumption to historical results and did not evaluate significant differences between the assumption and historical results. (AS 2501.16) Both financial statement and ICFR audits | AS 2501.16 | Significant risk |
| 7 | Property, Plant, and Equipment | The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not perform sufficient procedures to evaluate the reasonableness of a significant assumption developed (and used) by the issuer to estimate the VIU of another CGU because it did not take into account beyond inquiry of management the issuer's ability to carry out its intended courses of action. (AS 2501.16) Both financial statement and ICFR audits | AS 2501.16 | Significant risk |
| 8 | Property, Plant, and Equipment | The firm's approach for substantively testing the impairment of PP&E was to test the issuer's process. The issuer engaged external specialists to develop certain assumptions that were used by the issuer to estimate the value-in-use (VIU) of cash generating units (CGUs) with impairment indicators. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop their assumptions. The following deficiency was identified: · The firm did not perform procedures to evaluate the reasonableness of an assumption developed by the company's specialists and used by the issuer to estimate the VIUs of certain other CGUs beyond obtaining and reading the reports prepared by the company's specialists. Further the firm did not perform any procedures with respect to its use of the work of the company's specialists as audit evidence. (AS 1105.A1 - .A10; AS 2501.16) Both financial statement and ICFR audits | AS 1105.A1; AS 1105.A10; AS 1105.A2; AS 1105.A3; AS 1105.A4; AS 1105.A5; AS 1105.A6; AS 1105.A7; AS 1105.A8; AS 1105.A9; AS 2501.16 | Significant risk |
| 9 | Depreciation & Amortization | The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. The firm excluded depreciation expense from the scope of its financial statement and ICFR audits for certain of the issuer's components but did not evaluate whether (1) specific risks of material misstatement existed at these components and (2) the risks of material misstatement the firm identified for the components subject to audit procedures also applied to these components such that in combination these risks presented a reasonable possibility of material misstatement. (AS 2101.11 and .12; AS 2201.610) Both financial statement and ICFR audits | AS 2101.11; AS 2101.12; AS 2201.B10 | |
| 10 | Depreciation & Amortization | The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a straight-line basis at in-scope components the following deficiency was identified: · The firm did not identify and test any controls over the reasonableness of significant assumptions the issuer used to determine the useful lives of certain PP&E. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 11 | Depreciation & Amortization | The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a straight-line basis at in-scope components the following deficiency was identified: · The firm did not perform any procedures to evaluate the reasonableness of significant assumptions the issuer used to determine the useful lives of certain PP&E. (AS 2501.16) Both financial statement and ICFR audits | AS 2501.16 | |
| 12 | Depreciation & Amortization | The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a units of production basis at in-scope components the following deficiency was identified: · The firm did not identify and test any controls over the (1) accuracy and completeness of the data produced by the issuer (2) relevance and reliability of information obtained from external sources (3) reasonableness of certain assumptions and (4) appropriateness of the methods used by the company's specialists to develop their assumptions. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 13 | Depreciation & Amortization | The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a units of production basis at in-scope components the following deficiency was identified: · The firm did not perform procedures to test depreciation expense computed using the units of production method beyond obtaining and reading the reports prepared by the company's specialists. Further the firm did not perform any procedures with respect to its use of the work of the company's specialist as audit evidence. (AS 1105.A1 - .A10; AS 2501.07) Both financial statement and ICFR audits | AS 1105.A1; AS 1105.A10; AS 1105.A2; AS 1105.A3; AS 1105.A4; AS 1105.A5; AS 1105.A6; AS 1105.A7; AS 1105.A8; AS 1105.A9; AS 2501.7 | |
| 14 | Depreciation & Amortization | The issuer depreciated PP&E using either a straight-line method based on the estimated useful lives of the assets or a units of production method using certain assumptions developed by company-employed and externally engaged specialists to estimate the expected use or output of the PP&E. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to develop the assumptions. For depreciation expense computed on a units of production basis at in-scope components the following deficiency was identified: · The firm did not perform procedures to test depreciation expense computed using the units of production method beyond obtaining and reading the reports prepared by the company's specialists. The firm did not perform procedures to test or (as discussed above) test any controls over the accuracy and completeness of the data produced by the issuer that was used to compute this depreciation expense. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | |
| 15 | Accruals and Other Liabilities | For certain accruals and other liabilities the following deficiency was identified: · The firm did not identify and test any controls over the completeness or valuation of certain accruals and other liabilities. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 16 | Accruals and Other Liabilities | For certain accruals and other liabilities the following deficiency was identified: · The firm did not perform any substantive procedures to test the valuation of certain other liabilities. (AS 2501.07) Both financial statement and ICFR audits | AS 2501.7 | |
| 17 | Accruals and Other Liabilities | For a certain other liability the issuer engaged external specialists to prepare reports that were used by the issuer to estimate this liability. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to prepare their reports. The following deficiency was identified: · The firm selected for testing two controls that consisted of the issuer's (1) review of this other liability and (2) comparison of the recorded liability to the reports prepared by the company's specialists. The firm did not evaluate the review procedures that the control owner 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; AS 2301.8; AS 2501.7 | |
| 18 | Accruals and Other Liabilities | For a certain other liability the issuer engaged external specialists to prepare reports that were used by the issuer to estimate this liability. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to prepare their reports. The following deficiency was identified: · The firm did not identify and test any controls over the (1) data produced by the issuer (2) relevance and reliability of information obtained from external sources (3) reasonableness of certain assumptions used by the company's specialists to prepare their reports that were used to estimate the other liability and (4) appropriateness of the methods used by the company's specialists. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 19 | Accruals and Other Liabilities | For a certain other liability the issuer engaged external specialists to prepare reports that were used by the issuer to estimate this liability. The company's specialists used financial and non-financial data produced by the issuer assumptions developed by the issuer and information from external sources to prepare their reports. The following deficiency was identified: · The firm did not perform any procedures with respect to its use of the work of the company's specialists as audit evidence. (AS 1105.A1 - .A10) Both financial statement and ICFR audits | AS 1105.A1; AS 1105.A10; AS 1105.A2; AS 1105.A3; AS 1105.A4; AS 1105.A5; AS 1105.A6; AS 1105.A7; AS 1105.A8; AS 1105.A9 |
Issuer B7 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Deferred Revenue | The issuer used multiple information-technology (IT) systems to initiate process and record transactions related to certain revenue and deferred revenue. The following deficiency was identified: · The firm selected for testing certain automated controls over this revenue and deferred revenue that consisted of the configuration of the IT systems to automatically perform certain functions based on pre-established parameters and the firm used a 'test of one' approach to test these controls. The firm's testing of these automated controls using a sample of only one instance of each processing alternative 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 2201.46) Both financial statement and ICFR audits | AS 2201.46 | |
| 2 | Deferred Revenue | The issuer used multiple information-technology (IT) systems to initiate process and record transactions related to certain revenue and deferred revenue. The following deficiency was identified: · As a result of the deficiencies in the firm's testing of the automated controls described above the firm's testing of certain IT-dependent manual controls was not sufficient because those manual controls relied on the effectiveness of these automated controls. (AS 2201.46) Both financial statement and ICFR audits | AS 2201.46 | |
| 3 | Deferred Revenue | The issuer used multiple information-technology (IT) systems to initiate process and record transactions related to certain revenue and deferred revenue. The following deficiency was identified: · The sample sizes the firm used in certain of its substantive procedures to test revenue and deferred 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 the 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 | Deferred Revenue | The issuer used multiple information-technology (IT) systems to initiate process and record transactions related to certain revenue and deferred revenue. The following deficiency was identified: · The firm did not perform procedures to evaluate the appropriateness of the method used by the issuer to recognize certain revenue. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 | |
| 5 | 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 issuer's consolidated VIEs including the validity and enforceability of contractual arrangements with the VIEs and their shareholders and the firm used the work of the company's specialist as audit evidence. The following deficiency was identified: · The firm selected for testing controls that consisted of management's review of the (1) validity and enforceability of new contractual arrangements with VIEs and their shareholders and (2) legal opinion prepared by the company's specialist which described uncertainties regarding the interpretation and application of current laws regulations and rules related to the structure of the VIEs. The firm did not evaluate the specific review procedures that the control owner performed to evaluate the effect of the uncertainties described in the legal opinion prepared by the company's specialist on the issuer's ability to consolidate the VIEs. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 6 | 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 issuer's consolidated VIEs including the validity and enforceability of contractual arrangements with the VIEs and their shareholders and the firm used the work of the company's specialist as audit evidence. The following deficiency was identified: · 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 (1) evaluate the nature of the uncertainties described in the legal opinion prepared by the company's specialist and (2) 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 | |
| 7 | Related Party Transactions | The firm selected for testing a control that included the issuer's review and approval of the pricing used in related party transactions. The firm did not perform procedures to test or test any controls over the completeness of a system-generated report from which it made its selections to test this control. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 |
Issuer C5 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Deferred Revenue | The issuer used multiple IT systems to initiate process and/or record transactions related to certain revenue receivables deferred revenue and inventory. In its testing of controls over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by certain of these IT systems. As a result of the following deficiency in the firm's testing of IT general controls (ITGCs) 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 | |
| 2 | Deferred Revenue | The issuer used multiple IT systems to initiate process and/or record transactions related to certain revenue receivables deferred revenue and inventory. In its testing of controls over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by certain of these IT systems. The firm selected for testing various change management controls over certain IT systems that consisted of the documentation review testing and approval of changes prior to their migration into production. The issuer used certain other IT systems in the performance of these change management controls ('change management systems') and the firm made its selections for testing the change management controls from reports that were generated from the change management systems subsequent to year end. The firm did not perform sufficient procedures to test the completeness of the system-generated reports from which it made its selections for testing because the firm's use of the change management systems as the source of the population of changes relied on the automated functionality of those systems and the firm did not evaluate whether changes were made to the change management systems during the period from year end to the date of testing. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | |
| 3 | Deferred Revenue | The issuer used multiple IT systems to initiate process and/or record transactions related to certain revenue receivables deferred revenue and inventory. In its testing of controls over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by certain of these IT systems. As a result of the firm's ITGC testing deficiencies the firm did not perform sufficient substantive procedures as follows: · The firm used certain system-generated data to substantively test revenue receivables deferred revenue and inventory but did not test or (as discussed above) sufficiently test controls over the accuracy and completeness of this data. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | |
| 4 | Deferred Revenue | The issuer used multiple IT systems to initiate process and/or record transactions related to certain revenue receivables deferred revenue and inventory. In its testing of controls over these accounts the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by certain of these IT systems. As a result of the firm's ITGC testing deficiencies the firm did not perform sufficient substantive procedures as follows: · The sample size the firm used in certain of its substantive procedures to test 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 the 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 | |
| 5 | Journal Entries | The firm identified fraud criteria for journal entries and obtained system-generated reports from which it made its selections for testing. The system-generated reports provided by the issuer omitted key information necessary for the firm to make its selections based on certain of the identified fraud criteria. The firm did not perform procedures to evaluate the impact of the omitted information on its ability to identify and select journal entries for testing that met certain of the identified fraud criteria. (AS 2401.61) Both financial statement and ICFR audits | AS 2401.61 |
Issuer D5 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The issuer used multiple IT systems to calculate and record certain revenue based on the related order information. The following deficiency was identified: · The firm selected for testing certain automated controls that consisted of the configuration of various IT systems to automatically process and record certain revenue. The firm did not identify and test any controls over the accuracy of the order information included in the source systems that were used in the operation of these controls. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 2 | Revenue | The issuer used multiple IT systems to calculate and record certain revenue based on the related order information. The following deficiency was identified: · The firm did not identify and test any controls over the accuracy of the order information used to calculate and record certain other revenue. (AS 2201.39). Both financial statement and ICFR audits | AS 2201.39 | |
| 3 | Revenue | The issuer used multiple IT systems to calculate and record certain revenue based on the related order information. The following deficiency was identified: · The firm did not perform procedures to test or (as discussed above) sufficiently test controls over the accuracy of the order information used in its substantive testing of certain revenue. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 | |
| 4 | Revenue | The issuer used multiple IT systems to calculate and record certain revenue based on the related order information. The following deficiency was identified: · The firm did not perform sufficient substantive procedures to test the allocation of certain other revenue because it did not perform any procedures to test the accuracy of the order information used to calculate and record the revenue. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 | |
| 5 | Revenue | The issuer used multiple IT systems to calculate and record certain revenue based on the related order information. The following deficiency was identified: · The sample sizes the firm used in certain of its substantive procedures to test 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 certain of the 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 E3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Inventory | The issuer used multiple IT systems to initiate process and record transactions related to inventory. The following deficiency was identified: · The firm selected for testing certain automated controls over inventory that consisted of the configuration of the IT systems to automatically process and record inventory-related transactions and the firm used a 'test of one' approach to test these controls. The firm's testing of these automated controls using a sample of only one instance of the controls' operation was not sufficient because the firm did not test the 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 2201.46) Both financial statement and ICFR audits | AS 2201.46 | |
| 2 | Inventory | The issuer used multiple IT systems to initiate process and record transactions related to inventory. The following deficiency was identified: · The firm selected for testing certain manual controls over inventory that consisted of the issuer's (1) approval of purchase orders and (2) review and confirmation of vendor balances. The firm did not identify and test any controls over the completeness of certain system-generated reports used in the operation of these controls. (AS 2201.39) Both financial statement and ICFR audits | AS 2201.39 | |
| 3 | Inventory | The issuer used multiple IT systems to initiate process and record transactions related to inventory. The following deficiency was identified: · The sample sizes the firm used in certain of its substantive procedures to test 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 the 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 F2 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Accruals and Other Liabilities | The principal auditor instructed the firm to test the design and operating effectiveness of certain controls related to accruals and other liabilities. The following deficiency was identified: · The firm was instructed to use the work of the issuer's internal auditors as evidence regarding the operating effectiveness of a control that consisted of the issuer's review and approval of purchase orders. The firm did not identify that the internal auditors had not sufficiently tested the completeness of the system-generated reports from which they made their selections to test this control and the firm did not perform procedures to test or test any controls over the completeness of those reports. (AS 1105.10) ICFR audit only | AS 1105.10 | |
| 2 | Accruals and Other Liabilities | The principal auditor instructed the firm to test the design and operating effectiveness of certain controls related to accruals and other liabilities. The following deficiency was identified: · The firm was instructed to independently test another control that consisted of the issuer's review and approval of journal entries for the accrual of open purchase orders. The firm did not identify and test any controls over the accuracy and completeness of certain data used in the operation of this control. (AS 2201.39) ICFR audit only | AS 2201.39 |
Issuer G1 deficiency
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | 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 issuer's consolidated VIEs including the validity and enforceability of contractual arrangements with the 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 (1) evaluate the nature of uncertainties described in the legal opinion prepared by the company's specialist and (2) 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 |