Page 223 of your textbooks contains excerpts from PCAOB annual inspection reports issued from 2011 through 2017. Each excerpt describes an audit deficiency related to evidence that is a failure by the firm to perform, or to perform sufficiently certain necessary audit procedures, and to obtain sufficient appropriate audit evidence. Read the excerpts and answer the following questions:

• Do you think there could be valid disagreements between the PCAOB and audit firms on what constitutes sufficient appropriate evidence?

Evidence-Related Findings in PCAOB Inspection Reports

Following are excerpts from PCAOB annual inspection reports issued from 2011 through 2017. Each excerpt describes an audit deficiency related to evidence that is a failure by the firm to perform, or to perform sufficiently, certain necessary audit procedures and to obtain sufficient appropriate audit evidence.

PCAOB Release No. 104-2017-030

For one significant transaction, the Firm failed to identify and appropriately address what appeared to the inspection team to be an instance in which the financial statements were not presented fairly, in all material respects, in conformity with GAAP. Specifically, the Firm failed to identify that the issuer had incorrectly applied Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605, Revenue Recognition, as the issuer recognized revenue for this transaction even though there was no persuasive evidence of an arrangement and collectibility was not reasonably assured.

PCAOB Release No. 104-2016-175

The Firm failed to sufficiently test the fair value of the acquired technology and vendor-relationship intangible assets for certain acquisitions. The Firm compared certain significant inputs and assumptions to financial information from another business combination the issuer consummated during the year or information disclosed by other companies. The Firms procedures did not include evaluating the reasonableness of these inputs and assumptions underlying the valuation of these assets beyond such comparisons. In addition, the Firm failed to test the accuracy and completeness of certain data used in the valuation of these intangible assets.

PCAOB Release No. 104-2015-188

The Firm failed to perform sufficient substantive procedures to test the existence of loans. The Firm assessed control risk below the maximum for the existence of loans. Specifically, the Firm designed its substantive procedures to test the existence of loansincluding its sample sizesbased on a level of control reliance that was not supported due to the deficiency in the Firms testing of controls that is discussed below. As a result, the sample sizes that the Firm used to test the existence of loans were too small to provide sufficient evidence.

PCAOB Release No. 104-2014-196

The Firm vouched a sample of sales invoices issued during the first seven months of the year under audit to supporting evidence to substantiate the occurrence and valuation of revenue. In addition, the Firm confirmed with customers a sample of unpaid invoices at year end and tested revenue cut-off at year end by vouching a sample of sales invoices issued during the last 20 days of the year under audit to shipping documentation. The Firm failed to perform sufficient substantive procedures to test revenue during the last five months of the year under audit as the transactions encompassed by its procedures to test unpaid invoices and revenue cut-off at year end were not representative of the population of revenue transactions and only addressed a small portion of revenue during this period.

PCAOB Release No. 104-2013-242

The Firm failed to sufficiently evaluate the reasonableness of certain assumptions the issuer used in projecting future taxable income for the purposes of its analysis of the valuation of deferred tax assets. Specifically, there was no evidence in the audit documentation, and no persuasive other evidence, that the Firm had taken into account certain available information that appeared inconsistent with the issuers assumptions relating to the forecasted level of acquisitions of accounts receivable portfolios and projected impairments of accounts receivable.

PCAOB Release No. 104-2012-095

The Firm failed to sufficiently test inventory. Specifically, the Firm failed to test the existence of a significant portion of inventory and failed to test the completeness and accuracy of the system-generated reports that it used in its substantive procedures related to the valuation of inventory. Further, the Firm failed to test the completeness of inventory.

PCAOB Release No. 104-2011-288

In this audit, the Firm failed to obtain sufficient appropriate audit evidence to support its opinion on the effectiveness of ICFR [internal control over financial reporting].