- Inspection year
- 2023
- Report date
- 19-Dec-2024
- PCAOB release
- 104-2025-023
- Audits reviewed
- 10
- Audits w/ Part I.A deficiencies
- 5
- Part I.A deficiency rate
- 50%
- Part I.A deficiencies
- 38
- Part I.B deficiencies
- 4
- Report
- View PDF ↗
Deficiencies (38)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A23 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Revenue | The issuer used an information technology (IT) system at one component to initiate process and record certain revenue transactions. In its testing of controls over this revenue the firm tested various automated and IT-dependent manual controls that used data and reports generated or maintained by this IT system. The accuracy and completeness of these data and reports depended on effective IT general controls (ITGCs). As a result of the following deficiencies in the firm's testing of change management ITGCs the firm's testing of these automated and IT-dependent manual controls was not sufficient. (AS 2201.46) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2201.46 | Significant risk |
| 2 | Revenue | The firm selected for testing two change management controls over this IT system that consisted of the (1) restricting of access to deploy system changes into the production environment to authorized personnel and (2) documentation review testing and approval of system changes prior to their migration into the production environment. The issuer documented the system changes in tickets that were entered into a change ticket tracking system. The following deficiency was identified: · The firm did not perform sufficient procedures to test or test any controls over the completeness of the population of changes from which it made its selections for testing these controls because it limited its procedures to obtaining listings of change tickets from the change ticket tracking system without contemplating potential changes that were not captured in that system. (AS 1105.10) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 1105.10 | Significant risk |
| 3 | Revenue | The firm selected for testing two change management controls over this IT system that consisted of the (1) restricting of access to deploy system changes into the production environment to authorized personnel and (2) documentation review testing and approval of system changes prior to their migration into the production environment. The issuer documented the system changes in tickets that were entered into a change ticket tracking system. The following deficiency was identified: · The firm did not test an aspect of the first control related to the segregation of duties between system change developers and deployers. (AS 2201.42 and .44) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Significant risk |
| 4 | Revenue | The sample sizes the firm used in certain of its substantive procedures to test certain 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. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2301.16; AS 2301.18; AS 2301.37; AS 2315.19; AS 2315.23; AS 2315.23A | Significant risk |
| 5 | Revenue | The issuer used a different IT system at another component which was an outsourced application to initiate process and record revenue transactions. The firm inspected the related service auditor's report for this system and noted that the accuracy and completeness of standard reports generated from this system were addressed through certain ITGCs over the system that were tested by the service auditor. The service auditor's report however did not specifically identify the standard reports that were addressed through these ITGC's. For certain revenue transactions invoices were generated and revenue was recognized once the order fulfillment status in the system indicated that the orders had been fulfilled. The following deficiency was identified: · The firm selected for testing controls over this revenue that consisted of (1) management's review and approval of sales orders created in this IT system and (2) management's review of new prices and changes to existing prices before those prices and changes were uploaded into this IT system. The firm identified deficiencies in the design and operating effectiveness of these controls. The firm identified and tested compensating controls that it believed would mitigate the deficiencies. The firm did not identify that these compensating controls did not address the risks of material misstatement related to inaccurate and unauthorized sales orders and prices related to this revenue. (AS 2201.68) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2201.68 | Significant risk |
| 6 | Revenue | The issuer used a different IT system at another component which was an outsourced application to initiate process and record revenue transactions. The firm inspected the related service auditor's report for this system and noted that the accuracy and completeness of standard reports generated from this system were addressed through certain ITGCs over the system that were tested by the service auditor. The service auditor's report however did not specifically identify the standard reports that were addressed through these ITGC's. For certain revenue transactions invoices were generated and revenue was recognized once the order fulfillment status in the system indicated that the orders had been fulfilled. The following deficiency was identified: · The firm did not identify and test any controls that would address risks associated with improper revenue recognition from certain sales. (AS 2201.39) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2201.39 | Significant risk |
| 7 | Revenue | The issuer used a different IT system at another component which was an outsourced application to initiate process and record revenue transactions. The firm inspected the related service auditor's report for this system and noted that the accuracy and completeness of standard reports generated from this system were addressed through certain ITGCs over the system that were tested by the service auditor. The service auditor's report however did not specifically identify the standard reports that were addressed through these ITGC's. For certain revenue transactions invoices were generated and revenue was recognized once the order fulfillment status in the system indicated that the orders had been fulfilled. The following deficiency was identified: · The firm did not identify and test any controls over the accuracy of the fulfillment status in this IT system. (AS 2201.39) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2201.39 | Significant risk |
| 8 | Revenue | The issuer used a different IT system at another component which was an outsourced application to initiate process and record revenue transactions. The firm inspected the related service auditor's report for this system and noted that the accuracy and completeness of standard reports generated from this system were addressed through certain ITGCs over the system that were tested by the service auditor. The service auditor's report however did not specifically identify the standard reports that were addressed through these ITGC's. For certain revenue transactions invoices were generated and revenue was recognized once the order fulfillment status in the system indicated that the orders had been fulfilled. The following deficiency was identified: · The firm selected for testing a control that consisted of management's review of a sales discounts/rebates analysis workbook and the related journal entry to record the sales discounts/rebates. The firm did not perform sufficient procedures to test the accuracy and completeness of the revenue report which was used in the operation of this control because it did not perform procedures to verify that it was a standard report within the scope of the service auditor's report beyond inquires of management. (AS 2201.42) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2201.42 | Significant risk |
| 9 | Revenue | The issuer used a different IT system at another component which was an outsourced application to initiate process and record revenue transactions. The firm inspected the related service auditor's report for this system and noted that the accuracy and completeness of standard reports generated from this system were addressed through certain ITGCs over the system that were tested by the service auditor. The service auditor's report however did not specifically identify the standard reports that were addressed through these ITGC's. For certain revenue transactions invoices were generated and revenue was recognized once the order fulfillment status in the system indicated that the orders had been fulfilled. The following deficiency was identified: · The firm did not perform sufficient procedures to evaluate whether certain revenue was recognized in conformity with FASB ASC Topic 606 Revenue from Contracts with Customers ('ASC 606') because at the time revenue was recognized for certain transactions the firm did not obtain any evidence that a legally enforceable contract existed or that the performance obligation was satisfied. (AS 2301.08 and .11) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2301.8; AS 2301.11 | Significant risk |
| 10 | Revenue | The issuer used a different IT system at another component which was an outsourced application to initiate process and record revenue transactions. The firm inspected the related service auditor's report for this system and noted that the accuracy and completeness of standard reports generated from this system were addressed through certain ITGCs over the system that were tested by the service auditor. The service auditor's report however did not specifically identify the standard reports that were addressed through these ITGC's. For certain revenue transactions invoices were generated and revenue was recognized once the order fulfillment status in the system indicated that the orders had been fulfilled. The following deficiency was identified: · The firm did not identify and evaluate a departure from GAAP related to the issuer's recognition of certain revenue. In this instance the issuer's recognition of revenue appears not to have been in conformity with ASC 606. (AS 2810.30) Unrelated to our review the issuer filed a Form 8-K indicating that its previously issued financial statements and the firm's related audit reports should not be relied upon because of certain material misstatements contained in the financial statements. The issuer corrected the misstatements and reported that its ICFR was not effective. The firm also expressed an adverse opinion on the effectiveness of the issuer's ICFR. Both financial statement and ICFR audits | AS 2810.30 | Significant risk |
| 11 | Accruals and Other Liabilities | The issuer engaged an external specialist to assist in determining the fair value of a liability. The company's specialist used various inputs and assumptions some of which the engagement team considered to be significant to prepare the various valuation models included in its report ('liability valuation report'). The firm used an auditor-employed specialist to assist it with testing the valuation of this liability. The following deficiency was identified: · The firm selected for testing a control that consisted of management's review of the fair value of the liability as determined by the company's specialist. The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of certain significant assumptions the company's specialist used to determine the fair value of the liability. Further for one quarter tested the firm did not test an aspect of the control related to the control owner's review of the formulas used in the valuation models prepared by the company's specialist. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Significant risk |
| 12 | Accruals and Other Liabilities | The issuer engaged an external specialist to assist in determining the fair value of a liability. The company's specialist used various inputs and assumptions some of which the engagement team considered to be significant to prepare the various valuation models included in its report ('liability valuation report'). The firm used an auditor-employed specialist to assist it with testing the valuation of this liability. The following deficiency was identified: · The firm did not sufficiently evaluate the work of the auditor-employed specialist and identify that the auditor-employed specialist's work did not provide sufficient appropriate audit evidence regarding the valuation of the liability because the auditor-employed specialist did not perform sufficient procedures to evaluate the reasonableness of certain significant assumptions used by the company's specialist to determine the fair value of the liability as described below. (AS 1201.C6 and .C7) Both financial statement and ICFR audits | AS 1201.C6; AS 1201.C7 | Significant risk |
| 13 | Accruals and Other Liabilities | The issuer engaged an external specialist to assist in determining the fair value of a liability. The company's specialist used various inputs and assumptions some of which the engagement team considered to be significant to prepare the various valuation models included in its report ('liability valuation report'). The firm used an auditor-employed specialist to assist it with testing the valuation of this liability. The following deficiency was identified: · The auditor-employed specialist did not perform sufficient procedures to evaluate the reasonableness of a significant assumption developed and used by the company's specialist because it limited its procedures to (1) reading the liability valuation report (2) reading certain analysts' reports (3) inquiries of management and (4) performing a sensitivity analysis without evaluating the appropriateness of certain assumptions used in the analysis. (AS 1105.A8b) Both financial statement and ICFR audits | AS 1105.A8B | Significant risk |
| 14 | Accruals and Other Liabilities | The issuer engaged an external specialist to assist in determining the fair value of a liability. The company's specialist used various inputs and assumptions some of which the engagement team considered to be significant to prepare the various valuation models included in its report ('liability valuation report'). The firm used an auditor-employed specialist to assist it with testing the valuation of this liability. The following deficiency was identified: · The auditor-employed specialist did not perform procedures to evaluate the reasonableness of another significant assumption developed and used by the company's specialist beyond (1) reading the liability valuation report and publicly available information and (2) inquiries of management the company's specialist and the issuer's largest shareholder. (AS 1105.A8b) Both financial statement and ICFR audits | AS 1105.A8B | Significant risk |
| 15 | Other Investments | The issuer engaged an external specialist to assist in determining the fair value of certain other investments. The company's specialist used various inputs and assumptions some of which the engagement team considered to be significant to prepare the various valuation models included in its reports ('investment valuation reports'). The firm used an auditor-employed specialist to assist in testing the valuation of these other investments. The firm's approach to test the valuation of these other investments was to test the issuer's process. For one such investment the auditor-employed specialist also developed an expectation of the fair value of an aspect of the investment. The following deficiency was identified: · The firm selected for testing a control that consisted of management's review of the other investments as presented in a reconciliation schedule including a comparison of the fair value of these investments to the related investment valuation report and/or other supporting documentation. The firm did not test aspects of the control related to (1) the mathematical accuracy of the supporting documentation used in the operation of the control and (2) agreeing an input used in the investment valuation report to the supporting documentation for one of the other investments. Further for certain other investments the firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of certain assumptions used by the company's specialist to determine the fair value of the investments. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 16 | Other Investments | The issuer engaged an external specialist to assist in determining the fair value of certain other investments. The company's specialist used various inputs and assumptions some of which the engagement team considered to be significant to prepare the various valuation models included in its reports ('investment valuation reports'). The firm used an auditor-employed specialist to assist in testing the valuation of these other investments. The firm's approach to test the valuation of these other investments was to test the issuer's process. For one such investment the auditor-employed specialist also developed an expectation of the fair value of an aspect of the investment. The following deficiency was identified: · The firm did not perform any procedures to evaluate the reliability of external historical financial information for the investee it used to evaluate the reasonableness of an assumption used by the auditor-employed specialist to develop an expectation of the fair value of an aspect of one of the other investments. (AS 1105.04 and .06) Both financial statement and ICFR audits | AS 1105.4; AS 1105.6 | |
| 17 | Other Investments | The issuer engaged an external specialist to assist in determining the fair value of certain other investments. The company's specialist used various inputs and assumptions some of which the engagement team considered to be significant to prepare the various valuation models included in its reports ('investment valuation reports'). The firm used an auditor-employed specialist to assist in testing the valuation of these other investments. The firm's approach to test the valuation of these other investments was to test the issuer's process. For one such investment the auditor-employed specialist also developed an expectation of the fair value of an aspect of the investment. The following deficiency was identified: · When testing the issuer's process the firm did not perform procedures to evaluate the reasonableness of a significant assumption used by the company's specialist to determine the fair value of an aspect of one of the other investments at the inception date. (AS 2501.16) Both financial statement and ICFR audits | AS 2501.16 | |
| 18 | Other Investments | The issuer engaged an external specialist to assist in determining the fair value of certain other investments. The company's specialist used various inputs and assumptions some of which the engagement team considered to be significant to prepare the various valuation models included in its reports ('investment valuation reports'). The firm used an auditor-employed specialist to assist in testing the valuation of these other investments. The firm's approach to test the valuation of these other investments was to test the issuer's process. For one such investment the auditor-employed specialist also developed an expectation of the fair value of an aspect of the investment. The following deficiency was identified: · When testing the issuer's process the firm did not sufficiently evaluate the work of the auditor- employed specialist and identify that the auditor-employed specialist's work did not provide sufficient appropriate audit evidence regarding the reasonableness of a significant assumption developed and used by the company's specialist to determine the fair value of certain other investments. (AS 1105.A8b; AS 1201.C6 and .C7) Both financial statement and ICFR audits | AS 1105.A8B; AS 1201.C6; AS 1201.C7 | |
| 19 | Goodwill | The issuer reported goodwill at several reporting units and evaluated certain reporting units for impairment using a discounted cash flow model ('DCF model') which relied on various assumptions. The firm's approach to substantively test the issuer's goodwill impairment analysis for one reporting unit was to test the issuer's process. The firm also developed an independent expectation of the issuer's annual revenue growth rates for this reporting unit and compared those expectations to the annual revenue growth rate assumptions used by the issuer in the DCF model. The following deficiency was identified: · The firm selected for testing a control that consisted of management's review of the goodwill impairment analysis for each reporting unit. The firm did not evaluate the specific review procedures that the control owners performed to assess the reasonableness of certain assumptions used in the goodwill impairment analysis for certain reporting units. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 20 | Goodwill | The issuer reported goodwill at several reporting units and evaluated certain reporting units for impairment using a discounted cash flow model ('DCF model') which relied on various assumptions. The firm's approach to substantively test the issuer's goodwill impairment analysis for one reporting unit was to test the issuer's process. The firm also developed an independent expectation of the issuer's annual revenue growth rates for this reporting unit and compared those expectations to the annual revenue growth rate assumptions used by the issuer in the DCF model. The following deficiency was identified: · For the one reporting unit referred to above the firm did not perform sufficient procedures to evaluate the reasonableness of the annual revenue growth assumptions which the firm considered to be significant assumptions used by the issuer in its goodwill impairment analysis because the firm did not demonstrate that it had a reasonable basis for (1) selecting the comparable companies it used to develop its independent expectation of the average annual revenue growth rate over a six-year period and (2) assuming that the ratio of advertising expenses to revenue ('advertising ratio') generated would be predictive of the revenue growth rate for 2023. Further the firm did not perform procedures to evaluate differences between the (1) annual revenue growth rate assumptions used by the issuer and the compound annual revenue growth rates for the industry beyond determining the market share the issuer would need to capture to achieve its revenue growth rate for 2023 and (2) industry advertising ratio and the advertising ratio used by the issuer. (AS 2501.16) Both financial statement and ICFR audits | AS 2501.16 | |
| 21 | Debt | The issuer engaged an external specialist to assist in determining the fair value of certain of the issuer's debt. The company's specialist prepared a valuation model using inputs determined by the specialist and the issuer used the information provided by the specialist to estimate the changes to the fair value of the debt. The firm selected for testing a control that consisted of management's review of the inputs used by the company's specialist in the valuation model for reasonableness. The following deficiency was identified: · The firm did not test aspects of the control related to management's review of (1) one of the inputs used in the valuation model and (2) the mathematical accuracy of the changes to the fair value of the debt. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 22 | Debt | The issuer engaged an external specialist to assist in determining the fair value of certain of the issuer's debt. The company's specialist prepared a valuation model using inputs determined by the specialist and the issuer used the information provided by the specialist to estimate the changes to the fair value of the debt. The firm selected for testing a control that consisted of management's review of the inputs used by the company's specialist in the valuation model for reasonableness. The following deficiency was identified: · The firm did not evaluate the specific review procedures that the control owner performed to assess the reasonableness of certain other inputs used in the valuation model. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 23 | Debt | The issuer engaged an external specialist to assist in determining the fair value of certain of the issuer's debt. The company's specialist prepared a valuation model using inputs determined by the specialist and the issuer used the information provided by the specialist to estimate the changes to the fair value of the debt. The firm selected for testing a control that consisted of management's review of the inputs used by the company's specialist in the valuation model for reasonableness. The following deficiency was identified: · For one of the quarters tested the firm did not (1) agree the inputs used in the valuation model to the inputs provided by the company's specialist and (2) evaluate the specific review procedures that the control owner performed to assess the reasonableness of one such input. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 |
Issuer B5 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Accruals and Other Liabilities | The issuer identified an indicator of potential impairment for certain long-lived assets and performed an impairment analysis to evaluate the assets for impairment. As part of its impairment analysis the issuer estimated the recoverable amount of the cash-generating unit using a DCF model which included cash flows from another model ('budget model') that were derived from the issuer's financial budget and adjusted using certain other information. The issuer used a post-tax discount rate to estimate the present value of the future cash flows in the DCF model. The issuer also used the financial budget to estimate the valuation of certain other liabilities. The following deficiency was identified: · The firm selected for testing a control that included management's review of (1) the cost assumptions used in the financial budget and (2) adjustments made to the financial budget to derive the budget model. The firm did not (1) evaluate the criteria that the control owners used to identify matters for follow-up when evaluating the reasonableness of certain cost assumptions used in the financial budget and (2) test an aspect of the control related to the adjustments made to the financial budget when deriving the budget model. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | |
| 2 | Accruals and Other Liabilities | The issuer identified an indicator of potential impairment for certain long-lived assets and performed an impairment analysis to evaluate the assets for impairment. As part of its impairment analysis the issuer estimated the recoverable amount of the cash-generating unit using a DCF model which included cash flows from another model ('budget model') that were derived from the issuer's financial budget and adjusted using certain other information. The issuer used a post-tax discount rate to estimate the present value of the future cash flows in the DCF model. The issuer also used the financial budget to estimate the valuation of certain other liabilities. The following deficiency was identified: · The firm selected for testing a control that consisted of management's review of certain inputs used in the DCF model. 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) Both financial statement and ICFR audits | AS 2201.39 | |
| 3 | Accruals and Other Liabilities | The issuer identified an indicator of potential impairment for certain long-lived assets and performed an impairment analysis to evaluate the assets for impairment. As part of its impairment analysis the issuer estimated the recoverable amount of the cash-generating unit using a DCF model which included cash flows from another model ('budget model') that were derived from the issuer's financial budget and adjusted using certain other information. The issuer used a post-tax discount rate to estimate the present value of the future cash flows in the DCF model. The issuer also used the financial budget to estimate the valuation of certain other liabilities. The following deficiency was identified: · The firm did not assess the effect of the issuer not evaluating certain risk factors applied to the inputs on the control's ability to effectively prevent or detect a material misstatement. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 | |
| 4 | Accruals and Other Liabilities | The issuer identified an indicator of potential impairment for certain long-lived assets and performed an impairment analysis to evaluate the assets for impairment. As part of its impairment analysis the issuer estimated the recoverable amount of the cash-generating unit using a DCF model which included cash flows from another model ('budget model') that were derived from the issuer's financial budget and adjusted using certain other information. The issuer used a post-tax discount rate to estimate the present value of the future cash flows in the DCF model. The issuer also used the financial budget to estimate the valuation of certain other liabilities. The following deficiency was identified: · The firm did not identify and evaluate a departure from IFRS related to the issuer incorrectly disclosing that it used a pre-tax discount rate to estimate the present value of the future cash flows in the DCF model. (AS 2810.30 and .31) Both financial statement and ICFR audits | AS 2810.30; AS 2810.31 | |
| 5 | Accruals and Other Liabilities | The issuer identified an indicator of potential impairment for certain long-lived assets and performed an impairment analysis to evaluate the assets for impairment. As part of its impairment analysis the issuer estimated the recoverable amount of the cash-generating unit using a DCF model which included cash flows from another model ('budget model') that were derived from the issuer's financial budget and adjusted using certain other information. The issuer used a post-tax discount rate to estimate the present value of the future cash flows in the DCF model. The issuer also used the financial budget to estimate the valuation of certain other liabilities. The following deficiency was identified: · The firm used the financial budget to substantively test certain other liabilities but did not test or (as discussed above) sufficiently test controls over the accuracy and completeness of the financial budget. (AS 1105.10) Both financial statement and ICFR audits | AS 1105.10 |
Issuer C4 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | The issuer engaged an external specialist to assist in determining the fair value of certain intangible assets acquired in a business combination. The following deficiency was identified: · The firm selected for testing controls that consisted of management's review of certain information prepared by the issuer and other data inputs all of which were used by the company's specialist to determine the fair value of certain intangible assets acquired in the business combination. The firm did not test an aspect of the controls related to the accuracy of certain data that the issuer provided to the company's specialist. Further with respect to certain assumptions in the information used by the company's specialist the firm did not (1) evaluate whether the thresholds used by the control owners to evaluate the reasonableness of certain assumptions were sufficiently precise to detect misstatements that could be material (2) evaluate the specific review procedures that the control owners performed to assess the reasonableness of those assumptions and (3) evaluate the criteria that the control owners used to identify matters for follow-up when evaluating the reasonableness of another assumption. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Significant risk |
| 2 | Business Combinations | The issuer engaged an external specialist to assist in determining the fair value of certain intangible assets acquired in a business combination. The following deficiency was identified: · The firm did not perform any procedures to test or test any controls over the accuracy of certain data that the issuer provided to the company's specialist and used by the specialist to develop an assumption that was then used by the specialist to determine the fair value of certain intangible assets acquired in the business combination. (AS 1105.A8a) Both financial statement and ICFR audits | AS 1105.A8a | Significant risk |
| 3 | Business Combinations | The issuer engaged an external specialist to assist in determining the fair value of certain intangible assets acquired in a business combination. The following deficiency was identified: · The firm did not perform procedures beyond documenting that certain disclosures were not material to evaluate whether the issuer made all required disclosures related to the business combination in conformity with FASB ASC Topic 805 Business Combinations. (AS 2301.08) Both financial statement and ICFR audits | AS 2301.8 | Significant risk |
| 4 | Cash Flows | The firm selected for testing a control that consisted of management's review of the statement of cash flows. The firm did not assess the effect of the issuer not evaluating the accuracy and completeness of certain data used in the operation of the control on the control's ability to effectively prevent or detect a material misstatement. (AS 2201.42) Both financial statement and ICFR audits | AS 2201.42 |
Issuer D3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Allowance for Credit/Loan Losses | For certain loans the issuer estimated the allowance for credit losses ('ACL') by comparing the respective loan's outstanding balance to the output of a DCF model which included various assumptions. One of the significant assumptions used in the DCF model was dependent on another significant assumption which was the value of the underlying collateral for the respective loans as determined by various external specialists engaged by the issuer. The firm's approach to test the ACL for these loans was to test the issuer's process. The following deficiency was identified: · The firm selected for testing a control that consisted of management's review of the appropriateness of the ACL for certain loans. The firm did not evaluate the specific review procedures that the control owner performed to assess the (1) appropriateness of the method(s) used by the company's specialists to determine the value of the collateral (2) reasonableness of the assumptions used by the company's specialists to determine the value of the collateral and (3) reasonableness of the collateral adjustment percentage used in the DCF model. (AS 2201.42 and .44) Both financial statement and ICFR audits | AS 2201.42; AS 2201.44 | Significant risk |
| 2 | Allowance for Credit/Loan Losses | For certain loans the issuer estimated the allowance for credit losses ('ACL') by comparing the respective loan's outstanding balance to the output of a DCF model which included various assumptions. One of the significant assumptions used in the DCF model was dependent on another significant assumption which was the value of the underlying collateral for the respective loans as determined by various external specialists engaged by the issuer. The firm's approach to test the ACL for these loans was to test the issuer's process. The following deficiency was identified: · The firm did not perform procedures to evaluate the reasonableness of the value of the collateral as determined by the company's specialists beyond reading the valuation reports prepared by the company's specialists and assessing the knowledge skills and ability of the specialists. (AS 1105.A4 - .A10; AS 2501.16) Both financial statement and ICFR audits | AS 1105.A10; AS 1105.A4; AS 1105.A5; AS 1105.A6; AS 1105.A7; AS 1105.A8; AS 1105.A9; AS 2501.16 | Significant risk |
| 3 | Allowance for Credit/Loan Losses | For certain loans the issuer estimated the allowance for credit losses ('ACL') by comparing the respective loan's outstanding balance to the output of a DCF model which included various assumptions. One of the significant assumptions used in the DCF model was dependent on another significant assumption which was the value of the underlying collateral for the respective loans as determined by various external specialists engaged by the issuer. The firm's approach to test the ACL for these loans was to test the issuer's process. The following deficiency was identified: · The firm did not perform procedures to evaluate the reasonableness of the collateral adjustment percentage which the firm considered to be a significant assumption used in the DCF model beyond comparing the collateral adjustment percentage to the issuer's policy of acceptable collateral ranges. (AS 2501.16) Both financial statement and ICFR audits | AS 2501.16 | Significant risk |
Issuer E3 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Business Combinations | The issuer engaged an external specialist to assist in determining the fair value of an intangible asset acquired in a business combination and the firm used an auditor-employed specialist to assist it with testing the valuation of this intangible asset. The following deficiency was identified: · The firm did not sufficiently evaluate the work of the auditor-employed specialist as it did not identify that the auditor-employed specialist's work did not provide sufficient appropriate audit evidence regarding the valuation of the intangible asset because the auditor-employed specialist did not perform sufficient procedures to evaluate the work of the company's specialist as described below. (AS 1201.C6 and .C7) Financial statement audit only | AS 1201.C6; AS 1201.C7 | Significant risk |
| 2 | Business Combinations | The issuer engaged an external specialist to assist in determining the fair value of an intangible asset acquired in a business combination and the firm used an auditor-employed specialist to assist it with testing the valuation of this intangible asset. The following deficiency was identified: · The auditor-employed specialist did not perform procedures to evaluate the relevance and reliability of data from external sources that the company's specialist used to develop an assumption that was then used to determine the fair value of the intangible asset. (AS 1105.A8a) Financial statement audit only | AS 1105.A8a | Significant risk |
| 3 | Business Combinations | The issuer engaged an external specialist to assist in determining the fair value of an intangible asset acquired in a business combination and the firm used an auditor-employed specialist to assist it with testing the valuation of this intangible asset. The following deficiency was identified: · The auditor-employed specialist did not perform procedures to evaluate the reasonableness of a significant assumption developed and used by the company's specialist to determine the fair value of the intangible asset beyond reading the valuation report prepared by the company's specialist and identifying qualitative factors that could result in a significant difference between the assumption and the range for that assumption identified by the company's specialist. (AS 1105.A8b) Financial statement audit only | AS 1105.A8b | Significant risk |