report on 2016 inspection of eisneramper llp€¦ · 1666 k street, n.w. washington, dc 20006...

1666 K Street, N.W.Washington, DC 20006

Telephone: (202) 207-9100Facsimile: (202) 862-8433

www.pcaobus.org

Report on

2016 Inspection of EisnerAmper LLP(Headquartered in New York, New York)

Issued by the

Public Company Accounting Oversight Board

May 25, 2017

PCAOB RELEASE NO. 104-2017-116

THIS IS A PUBLIC VERSION OF A PCAOB INSPECTION REPORT

PORTIONS OF THE COMPLETE REPORT ARE OMITTEDFROM THIS DOCUMENT IN ORDER TO COMPLY WITH

SECTIONS 104(g)(2) AND 105(b)(5)(A)OF THE SARBANES-OXLEY ACT OF 2002

PCAOB Release No. 104-2017-116

2016 INSPECTION OF EISNERAMPER LLP

Preface

In 2016, the Public Company Accounting Oversight Board ("PCAOB" or "theBoard") conducted an inspection of the registered public accounting firm EisnerAmperLLP ("the Firm") pursuant to the Sarbanes-Oxley Act of 2002 ("the Act").

Inspections are designed and performed to provide a basis for assessing thedegree of compliance by a firm with applicable requirements related to auditing issuers.For a description of the procedures the Board's inspectors may perform to fulfill thisresponsibility, see Part I.C of this report (which also contains additional informationconcerning PCAOB inspections generally). The inspection included reviews of portionsof selected issuer audits. These reviews were intended to identify whether deficienciesexisted in the reviewed audit work, and whether such deficiencies indicated defects orpotential defects in the Firm's system of quality control over audits. In addition, theinspection included a review of policies and procedures related to certain quality controlprocesses of the Firm that could be expected to affect audit quality.

The Board is issuing this report in accordance with the requirements of the Act.The Board is releasing to the public Part I of the report and portions of Part IV of thereport. Part IV of the report consists of the Firm's comments, if any, on a draft of thereport. If the nonpublic portions of the report discuss criticisms of or potential defects inthe firm's system of quality control, those discussions also could eventually be madepublic, but only to the extent the firm fails to address the criticisms to the Board'ssatisfaction within 12 months of the issuance of the report. Appendix A presents the textof the paragraphs of the auditing standards that are referenced in Part I.A. in relation tothe description of auditing deficiencies there.

Note on this report's citations to auditing standards: On March 31, 2015, thePCAOB adopted a reorganization of its auditing standards using a topical structure anda single, integrated numbering system. See Reorganization of PCAOB AuditingStandards and Related Amendments to PCAOB Standards and Rules, PCAOB ReleaseNo. 2015-002 (Mar. 31, 2015). The reorganization became effective as of December 31,2016. Citations in this report reference the reorganized PCAOB auditing standards.

PCAOB Release No. 104-2017-116Inspection of EisnerAmper LLP

May 25, 2017Page 2

PROFILE OF THE FIRM1

Offices 15 (Los Angeles, Sacramento, andSan Francisco, California; Stamford,Connecticut; Fort Lauderdale andMiami, Florida; Chicago, Illinois;Iselin, New Jersey; New York,Syosset, and White Plains, NewYork; Philadelphia, Pennsylvania;George Town, Cayman Islands; andBangalore and Mumbai, India)

Ownership structure Limited liability partnership

Partners / professional staff2 105 / 1,040

Issuer audit clients 86

Lead partners on issuer audit work3 28

1 The information presented here is as understood by the inspection team,generally as of the outset of the inspection, based on the Firm's self-reporting and theinspection team's review of certain information. Additional information, includingadditional detail on audit reports issued by the Firm, is available in the Firm's filings withthe Board, available at http://pcaobus.org/Registration/rasr/Pages/RASR_Search.aspx.

2 The number of partners and professional staff is provided here as anindication of the size of the Firm, and does not necessarily represent the number of theFirm's professionals who participate in audits of issuers. The number of partners citedabove represents the number of individuals with an ownership interest in the Firm.

3 The number of lead partners on issuer audit work represents the totalnumber of Firm personnel (not necessarily limited to personnel with an ownershipinterest) who had primary responsibility for an issuer audit (as defined in AS 1201,Supervision of the Audit Engagement) during the twelve-month period preceding theoutset of the inspection.


May 25, 2017Page 3

PART I

INSPECTION PROCEDURES AND CERTAIN OBSERVATIONS

Members of the Board's inspection staff ("the inspection team") conductedprimary procedures for the inspection from August 8, 2016 to August 26, 2016.4

A. Review of Audit Engagements

The inspection procedures included review of portions of ten issuer auditsperformed by the Firm. The inspection team identified matters that it considered to bedeficiencies in the performance of the work it reviewed.

The descriptions of the deficiencies in Part I.A of this report include, at the end ofthe description of each deficiency, references to specific paragraphs of the auditingstandards that relate to those deficiencies. The text of those paragraphs is set forth inAppendix A to this report. The references in this sub-Part include only standards thatprimarily relate to the deficiencies; they do not present a comprehensive list of everyauditing standard that applies to the deficiencies. Further, certain broadly applicableaspects of the auditing standards that may be relevant to a deficiency, such asprovisions requiring due professional care, including the exercise of professionalskepticism; the accumulation of sufficient appropriate audit evidence; and theperformance of procedures that address risks, are not included in any references to theauditing standards in this sub-Part, unless the lack of compliance with these standardsis the primary reason for the deficiency. These broadly applicable provisions aredescribed in Part I.B of this report.

Certain deficiencies identified were of such significance that it appeared to theinspection team that the Firm, at the time it issued its audit report, had not obtainedsufficient appropriate audit evidence to support its opinion that the financial statementswere presented fairly, in all material respects, in accordance with the applicable

4 For this purpose, "primary procedures" include field work, other review ofaudit work papers, and the evaluation of the Firm's quality control policies andprocedures through review of documentation and interviews of Firm personnel. Primaryprocedures do not include (1) inspection planning, which is performed prior to primaryprocedures, and (2) inspection follow-up procedures, wrap-up, analysis of results, andthe preparation of the inspection report, which extend beyond the primary procedures.


May 25, 2017Page 4

financial reporting framework and/or its opinion about whether the issuer hadmaintained, in all material respects, effective internal control over financial reporting("ICFR"). In other words, in these audits, the auditor issued an opinion without satisfyingits fundamental obligation to obtain reasonable assurance about whether the financialstatements were free of material misstatement and/or the issuer maintained effectiveICFR.

The fact that one or more deficiencies in an audit reach this level of significancedoes not necessarily indicate that the financial statements are materially misstated orthat there are undisclosed material weaknesses in ICFR. It is often not possible for theinspection team, based only on the information available from the auditor, to reach aconclusion on those points.

Whether or not associated with a disclosed financial reporting misstatement, anauditor's failure to obtain the reasonable assurance that the auditor is required to obtainis a serious matter. It is a failure to accomplish the essential purpose of the audit, and itmeans that, based on the audit work performed, the audit opinion should not have beenissued.5

The audit deficiencies that reached this level of significance are describedbelow–

A.1. Issuer A

(1) the failure, in an audit of ICFR, to perform sufficient procedures totest the design and operating effectiveness of controls over the

5 Inclusion in an inspection report does not mean that the deficiencyremained unaddressed after the inspection team brought it to the Firm's attention.Depending upon the circumstances, compliance with PCAOB standards may requirethe Firm to perform additional audit procedures, or to inform a client of the need forchanges to its financial statements or reporting on internal control, or to take steps toprevent reliance on its previously expressed audit opinions. The Board expects thatfirms will comply with these standards, and an inspection may include a review of theadequacy of a firm's compliance with these requirements, either with respect topreviously identified deficiencies or deficiencies identified during that inspection. Failureby a firm to take appropriate actions, or a firm's misrepresentations in responding to aninspection report, about whether it has taken such actions, could be a basis for Boarddisciplinary sanctions.


May 25, 2017Page 5

occurrence and valuation of certain revenue, and, in the financialstatement audit, as a result of the unsupported level of reliance oncontrols, the failure to perform sufficient procedures to test the occurrenceand valuation of this revenue (AS 2201.39, .42, and .44; AS 2301.16, .18,and .37; AS 2315.19 and .23-.23A);

(2) the failure, in an audit of ICFR, to perform sufficient procedures toidentify and test the design and operating effectiveness of controls overthe valuation of certain inventories (AS 2201.39); and

(3) the failure to perform sufficient procedures to test the valuation ofinventories (AS 2501.11).

A.2. Issuer B

the failure, in an audit of ICFR, to perform sufficient procedures to test thedesign and operating effectiveness of controls over the occurrence andvaluation of certain revenue, and in the financial statement audit, as aresult of the unsupported level of reliance on controls, the failure toperform sufficient procedures to test the occurrence and valuation of thisrevenue (AS 2201.42, .44, and .B9; AS 2301.16, .18, and .37; AS2315.19, and .23-.23A).

A.3. Issuer C

the failure, in an audit of ICFR, to perform sufficient procedures to test thedesign and operating effectiveness of controls over the existence andvaluation of inventories due to the use of the work of others without havingperformed sufficient procedures to support the use of the work (AS2605.10).

A.4. Issuer D

the failure, in an audit of ICFR, to perform any procedures to identify andtest the design and operating effectiveness of controls over the allowanceand related provision for chargebacks (AS 2201.39).


May 25, 2017Page 6

A.5. Issuer E

the failure to perform sufficient procedures to test the occurrence andallocation of the provision for chargebacks (AS 2301.08 and .13).

B. Auditing Standards

Each deficiency described above could relate to several applicable provisions ofthe standards that govern the conduct of audits. The paragraphs of the standards thatare cited for each deficiency are those that most directly relate to the deficiency. Thedeficiencies also relate, however, to other paragraphs of those standards and to otherauditing standards, including those concerning due professional care, responses to riskassessments, and audit evidence.

Many audit deficiencies involve a lack of due professional care. Paragraphs .02,.05, and .06 of AS 1015, Due Professional Care in the Performance of Work, requiresthe independent auditor to plan and perform his or her work with due professional careand sets forth aspects of that requirement. AS 1015.07-.09, and paragraph .07 of AS2301, The Auditor's Responses to the Risks of Material Misstatement, specify that dueprofessional care requires the exercise of professional skepticism. These standardsstate that professional skepticism is an attitude that includes a questioning mind and acritical assessment of the appropriateness and sufficiency of audit evidence.

AS 2301.03, .05, and .08, requires the auditor to design and implement auditresponses that address the risks of material misstatement, and paragraph .04 of AS1105, Audit Evidence, requires the auditor to plan and perform audit procedures toobtain sufficient appropriate audit evidence to provide a reasonable basis for the auditopinion. Sufficiency is the measure of the quantity of audit evidence, and the quantityneeded is affected by the risk of material misstatement (in the audit of financialstatements) or the risk associated with the control (in the audit of ICFR) and the qualityof the audit evidence obtained. The appropriateness of evidence is measured by itsquality; to be appropriate, evidence must be both relevant and reliable in providingsupport for the related conclusions.

The paragraphs of the standards that are described immediately above are notcited in Part I.A, unless those paragraphs are the most directly related to the relevantdeficiency.


May 25, 2017Page 7

B.1. List of Specific Auditing Standards Referenced in Part I.A.

The table below lists the specific auditing standards that are referenced in PartI.A of this report, cross-referenced to the issuer audits for which each standard is cited.

PCAOB Auditing Standards Issuers

AS 2201, An Audit of Internal Control OverFinancial Reporting That is Integrated with AnAudit of Financial Statements

A, B, and D

AS 2301, The Auditor's Responses to the Risks ofMaterial Misstatement

A, B, and E

AS 2315, Audit Sampling A and B

AS 2501, Auditing Accounting Estimates A

AS 2605, The Auditor's Consideration of theInternal Audit Function in an Audit of FinancialStatements

C

C. Information Concerning PCAOB Inspections that is Generally Applicable toTriennially Inspected Firms

A Board inspection includes a review of certain portions of selected audit workperformed by the inspected firm and a review of certain aspects of the firm's qualitycontrol system. The inspections are designed to identify deficiencies in audit work anddefects or potential defects in the firm's system of quality control related to the firm'saudits. The focus on deficiencies, defects, and potential defects necessarily carriesthrough to reports on inspections and, accordingly, Board inspection reports are notintended to serve as balanced report cards or overall rating tools. Further, the inclusionin an inspection report of certain deficiencies, defects, and potential defects should notbe construed as an indication that the Board has made any determination about otheraspects of the inspected firm's systems, policies, procedures, practices, or conduct notincluded within the report.


May 25, 2017Page 8

C.1. Reviews of Audit Work

Inspections include reviews of portions of selected audits of financial statementsand, where applicable, audits of ICFR. For these audits, the inspection team selectscertain portions of the audits for inspection, and it reviews the engagement team's workpapers and interviews engagement personnel regarding those portions. If the inspectionteam identifies a potential issue that it is unable to resolve through discussion with thefirm and any review of additional work papers or other documentation, the inspectionteam ordinarily provides the firm with a written comment form on the matter and the firmis allowed the opportunity to provide a written response to the comment form. If theresponse does not resolve the inspection team's concerns, the matter is considered adeficiency and is evaluated for inclusion in the inspection report.

The inspection team selects the audits, and the specific portions of those audits,that it will review, and the inspected firm is not allowed an opportunity to limit orinfluence the selections. Audit deficiencies that the inspection team may identify includea firm's failure to identify, or to address appropriately, financial statementmisstatements, including failures to comply with disclosure requirements,6 as well as afirm's failure to perform, or to perform sufficiently, certain necessary audit procedures.An inspection may not involve the review of all of the firm's audits, nor is it designed toidentify every deficiency in the reviewed audits. Accordingly, a Board inspection reportshould not be understood to provide any assurance that a firm's audit work, or therelevant issuers' financial statements or reporting on ICFR, are free of any deficienciesnot specifically described in an inspection report.

In some cases, the conclusion that a firm did not perform a procedure may bebased on the absence of documentation and the absence of persuasive other evidence,

6 When it comes to the Board's attention that an issuer's financialstatements appear not to present fairly, in a material respect, the financial position,results of operations, or cash flows of the issuer in conformity with the applicablefinancial reporting framework, the Board's practice is to report that information to theSecurities and Exchange Commission ("SEC" or "the Commission"), which hasjurisdiction to determine proper accounting in issuers' financial statements. Anydescription in this report of financial statement misstatements or failures to comply withSEC disclosure requirements should not be understood as an indication that the SEChas considered or made any determination regarding these issues unless otherwiseexpressly stated.


May 25, 2017Page 9

even if the firm claimed to have performed the procedure. AS 1215, AuditDocumentation, provides that, in various circumstances including PCAOB inspections, afirm that has not adequately documented that it performed a procedure, obtainedevidence, or reached an appropriate conclusion must demonstrate with persuasiveother evidence that it did so, and that oral assertions and explanations alone do notconstitute persuasive other evidence. In reaching its conclusions, an inspection teamconsiders whether audit documentation or other evidence that a firm might provide tothe inspection team supports the firm's contention that it performed a procedure,obtained evidence, or reached an appropriate conclusion. In the case of every mattercited in the public portion of a final inspection report, the inspection team has carefullyconsidered any contention by the firm that it did so but just did not document its work,and the inspection team has concluded that the available evidence does not support thecontention that the firm sufficiently performed the necessary work.

Identified deficiencies in the audit work that exceed a significance threshold(which is described in Part I.A of the inspection report) are summarized in the publicportion of the inspection report.7

The Board cautions against extrapolating from the results presented in the publicportion of a report to broader conclusions about the frequency of deficienciesthroughout the firm's practice. Individual audits and areas of inspection focus are mostoften selected on a risk-weighted basis and not randomly. Areas of focus vary amongselected audits, but often involve audit work on the most difficult or inherently uncertainareas of financial statements. Thus, the audit work is generally selected for inspectionbased on factors that, in the inspection team's view, heighten the possibility that auditingdeficiencies are present, rather than through a process intended to identify arepresentative sample.

7 The discussion in this report of any deficiency observed in a particularaudit reflects information reported to the Board by the inspection team and does notreflect any determination by the Board as to whether the Firm has engaged in anyconduct for which it could be sanctioned through the Board's disciplinary process. Inaddition, any references in this report to violations or potential violations of law, rules, orprofessional standards are not a result of an adversarial adjudicative process and donot constitute conclusive findings for purposes of imposing legal liability.


May 25, 2017Page 10

C.2. Review of a Firm's Quality Control System

QC 20, System of Quality Control for a CPA Firm's Accounting and AuditingPractice, provides that an auditing firm has a responsibility to ensure that its personnelcomply with the applicable professional standards. This standard specifies that a firm'ssystem of quality control should encompass the following elements: (1) independence,integrity, and objectivity; (2) personnel management; (3) acceptance and continuance ofissuer audit engagements; (4) engagement performance; and (5) monitoring.

The inspection team's assessment of a firm's quality control system is derivedboth from the results of its procedures specifically focused on the firm's quality controlpolicies and procedures, and also from inferences that can be drawn from deficienciesin the performance of individual audits. Audit deficiencies, whether alone or whenaggregated, may indicate areas where a firm's system has failed to provide reasonableassurance of quality in the performance of audits. Even deficiencies that do not result inan insufficiently supported audit opinion may indicate a defect or potential defect in afirm's quality control system.8 If identified deficiencies, when accumulated andevaluated, indicate defects or potential defects in the firm's system of quality control, thenonpublic portion of this report would include a discussion of those issues. Whenevaluating whether identified deficiencies in individual audits indicate a defect orpotential defect in a firm's system of quality control, the inspection team considers thenature, significance, and frequency of deficiencies;9 related firm methodology, guidance,and practices; and possible root causes.

Inspections also include a review of certain of the firm's practices, policies, andprocesses related to audit quality, which constitute a part of the firm's quality controlsystem. This review addresses practices, policies, and procedures concerning audit

8 Not every audit deficiency suggests a defect or potential defect in a firm'squality control system, and this report may not discuss every audit deficiency theinspection team identified.

9 An evaluation of the frequency of a type of deficiency may includeconsideration of how often the inspection team reviewed audit work that presented theopportunity for similar deficiencies to occur. In some cases, even a type of deficiencythat is observed infrequently in a particular inspection may, because of somecombination of its nature, its significance, and the frequency with which it has beenobserved in previous inspections of the firm, be cause for concern about a qualitycontrol defect or potential defect.


May 25, 2017Page 11

performance, training, compliance with independence standards, client acceptance andretention, and the establishment of policies and procedures.

END OF PART I


May 25, 2017Page 12

PARTS II AND III OF THIS REPORT ARE NONPUBLICAND ARE OMITTED FROM THIS PUBLIC DOCUMENT


May 25, 2017Page 13

PART IV

RESPONSE OF THE FIRM TO DRAFT INSPECTION REPORT

Pursuant to section 104(f) of the Act, 15 U.S.C. § 7214(f), and PCAOB Rule4007(a), the Firm provided a written response to a draft of this report. Pursuant tosection 104(f) of the Act and PCAOB Rule 4007(b), the Firm's response, minus anyportion granted confidential treatment, is attached hereto and made part of this finalinspection report.10

10 The Board does not make public any of a firm's comments that address anonpublic portion of the report unless a firm specifically requests otherwise. In somecases, the result may be that none of a firm's response is made publicly available. Inaddition, pursuant to section 104(f) of the Act, 15 U.S.C. § 7214(f), and PCAOB Rule4007(b), if a firm requests, and the Board grants, confidential treatment for any of thefirm's comments on a draft report, the Board does not include those comments in thefinal report at all. The Board routinely grants confidential treatment, if requested, for anyportion of a firm's response that addresses any point in the draft that the Board omitsfrom, or any inaccurate statement in the draft that the Board corrects in, the final report.


May 25, 2017Page A-1

APPENDIX A

AUDITING STANDARDS REFERENCED IN PART I.A

This appendix provides the text of the auditing standard paragraphs that arereferenced in Part I.A of this report. Footnotes that are included in this appendix, andany other Notes, are from the original auditing standards that are referenced. While thisappendix contains the specific portions of the relevant standards cited with respect tothe deficiencies in Part I.A of this report, other portions of the standards (including thosedescribed in Part I.B of this report) may provide additional context, descriptions, relatedrequirements, or explanations; the complete standards are available on the PCAOB'swebsite at http://pcaobus.org/STANDARDS/Pages/default.aspx.

AS 2201, An Audit of Internal Control Over Financial Reporting That Is Integratedwith An Audit of Financial Statements

USING A TOP-DOWNAPPROACH

Selecting Controls to Test

AS 2201.39 The auditor should test those controls that areimportant to the auditor's conclusion about whether thecompany's controls sufficiently address the assessed riskof misstatement to each relevant assertion.

Issuers A and D

TESTING CONTROLS

Testing DesignEffectiveness

AS 2201.42 The auditor should test the design effectiveness ofcontrols by determining whether the company's controls, ifthey are operated as prescribed by persons possessing thenecessary authority and competence to perform the controleffectively, satisfy the company's control objectives andcan effectively prevent or detect errors or fraud that couldresult in material misstatements in the financial statements.

Note: A smaller, less complex company mightachieve its control objectives in a different mannerfrom a larger, more complex organization. Forexample, a smaller, less complex company mighthave fewer employees in the accounting function,limiting opportunities to segregate duties andleading the company to implement alternative

Issuers A and B



AS 2201, An Audit of Internal Control Over Financial Reporting That Is Integratedwith An Audit of Financial Statements

controls to achieve its control objectives. In suchcircumstances, the auditor should evaluatewhether those alternative controls are effective.

Testing OperatingEffectiveness

AS 2201.44 The auditor should test the operating effectivenessof a control by determining whether the control is operatingas designed and whether the person performing the controlpossesses the necessary authority and competence toperform the control effectively.

Note: In some situations, particularly in smallercompanies, a company might use a third party toprovide assistance with certain financial reportingfunctions. When assessing the competence ofpersonnel responsible for a company's financialreporting and associated controls, the auditor maytake into account the combined competence ofcompany personnel and other parties that assistwith functions related to financial reporting.

Issuers A and B

APPENDIX B - SpecialTopics

INTEGRATION OF AUDITS

AS 2201.B9 To obtain evidence about whether a selectedcontrol is effective, the control must be tested directly; theeffectiveness of a control cannot be inferred from theabsence of misstatements detected by substantiveprocedures. The absence of misstatements detected bysubstantive procedures, however, should inform theauditor's risk assessments in determining the testingnecessary to conclude on the effectiveness of a control.

Issuer B



AS 2301, The Auditor's Responses to the Risks of Material Misstatement

RESPONSES INVOLVINGTHE NATURE, TIMING,AND EXTENT OF AUDITPROCEDURES

AS 2301.08 The auditor should design and perform auditprocedures in a manner that addresses the assessedrisks of material misstatement for each relevant assertionof each significant account and disclosure.

Issuer E

Responses to Fraud Risks

AS 2301.13 Addressing Fraud Risks in the Audit of FinancialStatements. In the audit of financial statements, theauditor should perform substantive procedures, includingtests of details, that are specifically responsive to theassessed fraud risks. If the auditor selects certain controlsintended to address the assessed fraud risks for testing inaccordance with paragraphs 16-17 of this standard, theauditor should perform tests of those controls.

Issuer E

TESTING CONTROLS

Testing controls in anAudit of FinancialStatements

AS 2301.16 Controls to be Tested. If the auditor plans toassess control risk at less than the maximum by relying oncontrols,12 and the nature, timing, and extent of plannedsubstantive procedures are based on that lowerassessment, the auditor must obtain evidence that thecontrols selected for testing are designed effectively andoperated effectively during the entire period of reliance.13

However, the auditor is not required to assess control riskat less than the maximum for all relevant assertions and,for a variety of reasons, the auditor may choose not to doso.

Issuers A and B

Footnotes to AS 2301.16

12 Reliance on controls that is supported by sufficient and appropriate audit evidence allows theauditor to assess control risk at less than the maximum, which results in a lower assessed risk of materialmisstatement. In turn, this allows the auditor to modify the nature, timing, and extent of planned substantiveprocedures.



AS 2301, The Auditor's Responses to the Risks of Material Misstatement13 Terms defined in Appendix A, Definitions, are set in boldface type the first time they appear.

AS 2301.18 Evidence about the Effectiveness of Controls inthe Audit of Financial Statements. In designing andperforming tests of controls for the audit of financialstatements, the evidence necessary to support theauditor's control risk assessment depends on the degreeof reliance the auditor plans to place on the effectivenessof a control. The auditor should obtain more persuasiveaudit evidence from tests of controls the greater thereliance the auditor places on the effectiveness of acontrol. The auditor also should obtain more persuasiveevidence about the effectiveness of controls for eachrelevant assertion for which the audit approach consistsprimarily of tests of controls, including situations in whichsubstantive procedures alone cannot provide sufficientappropriate audit evidence.

Issuers A and B

SUBSTANTIVEPROCEDURES

AS 2301.37 As the assessed risk of material misstatementincreases, the evidence from substantive procedures thatthe auditor should obtain also increases. The evidenceprovided by the auditor's substantive procedures dependsupon the mix of the nature, timing, and extent of thoseprocedures. Further, for an individual assertion, differentcombinations of the nature, timing, and extent of testingmight provide sufficient appropriate evidence to respondto the assessed risk of material misstatement.

Issuers A and B

AS 2315, Audit Sampling

SAMPLING INSUBSTANTIVE TESTS OFDETAILS

Planning Samples

AS 2315.19 The second standard of field work states, "Asufficient understanding of the internal control structure isto be obtained to plan the audit and to determine thenature, timing, and extent of tests to be performed." Afterassessing and considering the levels of inherent and

Issuers A and B



AS 2315, Audit Samplingcontrol risks, the auditor performs substantive tests torestrict detection risk to an acceptable level. As theassessed levels of inherent risk, control risk, anddetection risk for other substantive procedures directedtoward the same specific audit objective decreases, theauditor's allowable risk of incorrect acceptance for thesubstantive tests of details increases and, thus, thesmaller the required sample size for the substantive testsof details. For example, if inherent and control risks areassessed at the maximum, and no other substantive testsdirected toward the same specific audit objectives areperformed, the auditor should allow for a low risk ofincorrect acceptance for the substantive tests of details.3

Thus, the auditor would select a larger sample size for thetests of details than if he allowed a higher risk of incorrectacceptance.

Footnote to AS 2315.19

3 Some auditors prefer to think of risk levels in quantitative terms. For example, in thecircumstances described, an auditor might think in terms of a 5 percent risk of incorrect acceptance for thesubstantive test of details. Risk levels used in sampling applications in other fields are not necessarily relevantin determining appropriate levels for applications in auditing because an audit includes many interrelated testsand sources of evidence.

AS 2315.23 To determine the number of items to be selected in asample for a particular substantive test of details, the auditorshould take into account tolerable misstatement for thepopulation; the allowable risk of incorrect acceptance (basedon the assessments of inherent risk, control risk, and thedetection risk related to the substantive analytical proceduresor other relevant substantive tests); and the characteristics ofthe population, including the expected size and frequency ofmisstatements.

Issuers A andB

AS 2315.23A Table 1 of the Appendix describes the effects of thefactors discussed in the preceding paragraph on samplesizes in a statistical or nonstatistical sampling approach.When circumstances are similar, the effect on sample size ofthose factors should be similar regardless of whether astatistical or nonstatistical approach is used. Thus, when anonstatistical sampling approach is applied properly, theresulting sample size ordinarily will be comparable to, orlarger than, the sample size resulting from an efficient and

Issuers A andB



AS 2315, Audit Samplingeffectively designed statistical sample.

AS 2501, Auditing Accounting Estimates

EVALUATINGACCOUNTING ESTIMATES

EvaluatingReasonableness

AS 2501.11 Review and test management's process. In manysituations, the auditor assesses the reasonableness of anaccounting estimate by performing procedures to test theprocess used by management to make the estimate. Thefollowing are procedures the auditor may consider performingwhen using this approach:

a. Identify whether there are controls over thepreparation of accounting estimates andsupporting data that may be useful in theevaluation.

b. Identify the sources of data and factors thatmanagement used in forming the assumptions,and consider whether such data and factors arerelevant, reliable, and sufficient for the purposebased on information gathered in other audittests.

c. Consider whether there are additional keyfactors or alternative assumptions about thefactors.

d. Evaluate whether the assumptions areconsistent with each other, the supporting data,relevant historical data, and industry data.

e. Analyze historical data used in developing theassumptions to assess whether the data iscomparable and consistent with data of theperiod under audit, and consider whether suchdata is sufficiently reliable for the purpose.

f. Consider whether changes in the business orindustry may cause other factors to becomesignificant to the assumptions.

g. Review available documentation of theassumptions used in developing the accounting

Issuer A



AS 2501, Auditing Accounting Estimatesestimates and inquire about any other plans,goals, and objectives of the entity, as well asconsider their relationship to the assumptions.

h. Consider using the work of a specialist regardingcertain assumptions (AS 1210, Using the Workof a Specialist).

i. Test the calculations used by management totranslate the assumptions and key factors intothe accounting estimate.

AS 2605, The Auditor's Consideration of the Internal Audit Function in an Audit ofFinancial Statements

ASSESSING THECOMPETENCE ANDOBJECTIVITY OF THEINTERNAL AUDITORS

Objectivity of the InternalAuditors

AS 2605.10 When assessing the internal auditors' objectivity,the auditor should obtain or update information from prioryears about such factors as—

The organizational status of the internal auditorresponsible for the internal audit function,including—

o Whether the internal auditor reports to anofficer of sufficient status to ensure broad auditcoverage and adequate consideration of, andaction on, the findings and recommendationsof the internal auditors.

o Whether the internal auditor has direct accessand reports regularly to the board of directors,the audit committee, or the owner-manager.

o Whether the board of directors, the auditcommittee, or the owner-manager overseesemployment decisions related to the internalauditor.

Policies to maintain internal auditors' objectivityabout the areas audited, including—

o Policies prohibiting internal auditors from

Issuer C



AS 2605, The Auditor's Consideration of the Internal Audit Function in an Audit ofFinancial Statements

auditing areas where relatives are employed inimportant or audit-sensitive positions.

o Policies prohibiting internal auditors fromauditing areas where they were recentlyassigned or are scheduled to be assigned oncompletion of responsibilities in the internalaudit function.

report on 2016 inspection of eisneramper llp€¦ · 1666 k street, n.w. washington, dc 20006...

Documents