1666 K Street, N.W.

Washington, DC 20006
Telephone: (202) 207-9100
Facsimile: (202) 862-8433
www.pcaobus.org

Report on

2012 Inspection of Grant Thornton LLP

(Headquartered in Chicago, Illinois)

Issued by the

Public Company Accounting Oversight Board

November 21, 2013

THIS IS A PUBLIC VERSION OF A PCAOB INSPECTION REPORT

PORTIONS OF THE COMPLETE REPORT ARE OMITTED

FROM 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. 104-2013-242

 PCAOB Release No. 104-2013-242

2012 INSPECTION OF GRANT THORNTON LLP

Preface

In 2012, the Public Company Accounting Oversight Board ("PCAOB" or "the

Board") conducted an inspection of the registered public accounting firm Grant Thornton
LLP ("the Firm") pursuant to the Sarbanes-Oxley Act of 2002 ("the Act").1/

The inspection process is designed, and inspections are performed, to provide a

basis for assessing the degree of compliance by a firm with applicable requirements
related to auditing issuers. The inspection process included reviews of aspects of
selected issuer audits completed by the Firm. The reviews were intended to identify
whether deficiencies existed in those aspects of the audits, and whether such
deficiencies indicated defects in the Firm's system of quality control over audits. In
addition, the inspection included reviews of policies and procedures related to certain
quality control processes of the Firm that could be expected to affect audit quality.

The issuer audits and aspects of those audits inspected were selected based on
a number of risk-related and other factors. Due to the selection process, the deficiencies
included in this report are not necessarily representative of the Firm's issuer audit
practice.

The Board is issuing this report in accordance with the requirements of the Act.2/
The Board is releasing to the public Part I of the report and portions of Appendix C.
Appendix C includes the Firm's comments, if any, on a draft of the report. Any defects
in, or criticisms of, the Firm's quality control system are discussed in the nonpublic
portion of this report and will remain nonpublic unless the Firm fails to address them to
the Board's satisfaction within 12 months of the date of this report.

1/
The Act requires the Board to conduct an annual inspection of each
registered public accounting firm that regularly provides audit reports for more than 100
issuers.
2/
In its Statement Concerning the Issuance of Inspection Reports, PCAOB
Release No. 104-2004-001 (August 26, 2004), the Board described its approach to
making inspection-related information publicly available consistent with legal
restrictions.
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PART I

INSPECTION PROCEDURES AND CERTAIN OBSERVATIONS

Members of the Board's staff ("the inspection team") conducted primary

procedures for the inspection from June 2012 through March 2013. The inspection team
performed field work at the Firm's National Office and at 18 of its approximately 55 U.S.
practice offices.

A. Review of Audit Engagements

The 2012 inspection of the Firm included reviews of aspects of 34 audits

performed by the Firm. The inspection team identified matters that it considered to be
deficiencies in the performance of the work it reviewed. One of the deficiencies relates
to auditing aspects of an issuer's financial statements that the issuer restated after the
primary inspection procedures.3/

The inspection team considered certain of the deficiencies that it observed to be

audit failures. As used in PCAOB inspection reports, the term "audit failure" refers to an
audit in which the inspection team identified one or more deficiencies that were of such
significance that it appeared that the Firm, at the time it issued its audit report, had
failed to obtain sufficient appropriate audit evidence to support its audit opinion on the
financial statements and/or on the effectiveness of internal control over financial
reporting ("ICFR"). The audit deficiencies that reached this level of significance are
described below.4/

3/
The Board's inspection process did not include review of any additional
audit work related to the restatement.
4/
The discussion in this report of any deficiency observed in a particular
audit reflects information reported to the Board by the inspection team and does not
reflect any determination by the Board as to whether the Firm has engaged in any
conduct for which it could be sanctioned through the Board's disciplinary process. In
addition, any references in this report to violations or potential violations of law, rules, or
professional standards are not a result of an adversarial adjudicative process and do
not constitute conclusive findings for purposes of imposing legal liability.
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A.1. Issuer A

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm failed to identify a departure from generally accepted accounting

principles ("GAAP") that it should have identified and addressed before
issuing its audit opinion. Specifically, the issuer accounted for its interest-
rate swap agreements as hedges, and recorded changes in the fair value
of these agreements in accumulated other comprehensive income, without
complying with the hedging provisions of Financial Accounting Standards
Board Accounting Standards Codification Topic 815, Derivatives and
Hedging.

 The Firm's procedures to test controls related to property, plant, and

equipment ("PP&E") were insufficient. Specifically –

o The Firm failed to sufficiently test a review control over the progress
of capital projects, as its procedures were limited to observing
evidence that participants were invited to a meeting where the
review would be performed. The Firm failed to evaluate whether the
control was designed and operated at a level of precision that
would prevent or detect material misstatements related to PP&E.

o The Firm failed to test the accuracy and completeness of the list of
additions to PP&E that it used when testing a control over the
approval of capital projects.

 The Firm failed to perform sufficient substantive procedures to test PP&E,

as it designed its procedures based on a level of reliance on controls that
was excessive due to the deficiencies in the Firm's testing of controls
discussed above. As a result, the sample size the Firm used to test
additions to PP&E was insufficient to obtain the necessary level of
assurance. In addition, the sample the Firm selected for testing included
items that represented project transfers, which were not current-year
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additions to PP&E, but the Firm failed to make alternative selections for
these items.

 The Firm failed to perform sufficient procedures to test revenue related to

a government subsidy program. Specifically, the Firm failed to identify and
test any controls over the issuer's compliance with regulations governing
participation in the subsidy program, and the Firm's substantive
procedures to test this revenue were limited to obtaining written
representations from management that it was not aware of any violations
of the regulations.

A.2. Issuer B

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm failed to identify and test any controls over the development of
the cash flow projections the issuer used in determining the amount and
timing of finance income from acquired accounts receivable and the
valuation of those accounts receivable.

 The Firm's testing of a review control over the quarterly impairment

analysis for acquired accounts receivable was not sufficient. Specifically,
the Firm limited its testing to holding discussions with management and
observing evidence that reviews that were part of the operation of the
control had occurred, without evaluating whether the control operated at a
level of precision that would prevent or detect material misstatements.

 The issuer calculated the amortization of finance income using a software

tool and then transferred the relevant amounts to a database within the
issuer's systems. The Firm failed to test any controls over the accuracy
and completeness of the amounts transferred to the database.

 The Firm selected for testing a control over the recording of cash
collections and stated that it tested this control as part of its substantive
procedures. The Firm, however, failed to test, through any of its
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procedures, whether the control operated at a level of precision that would

prevent or detect material misstatements related to cash collections.

 The issuer used cash flow projections, which were based in part on
projections provided by multiple external parties that serviced portions of
the portfolio, to evaluate the majority of acquired accounts receivable for
possible impairment. The Firm failed to evaluate the reasonableness of an
important assumption the issuer used in the cash flow projections, beyond
noting that the external parties used, for this assumption, rates that were
generally consistent with each other. The Firm did not take into account
that the issuer's assumption was not consistent with historical results.

 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 issuer's
assumptions relating to the forecasted level of acquisitions of accounts
receivable portfolios and projected impairments of accounts receivable.

A.3. Issuer C

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm failed to sufficiently test controls over revenue. Specifically, the
Firm limited its procedures in this area to testing controls over whether
cash and credit card receipts were appropriately recorded to the issuer's
cash accounts, but it failed to test any controls over the recording of
revenue.

 The Firm failed to perform sufficient procedures to test controls over the
cost of goods sold in the sales transactions the issuer recorded, as the
control the Firm selected for testing related only to the existence of rental
inventory.
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 The Firm failed to test any controls over the reconciliation of the rental
merchandise subsidiary ledger to the general ledger.

 The issuer's system calculated depreciation expense for rental

merchandise based on rental income projections. The Firm failed to test
any controls over the development of the underlying assumptions or the
reasonableness of the projections.

 The Firm failed to perform sufficient substantive procedures to test

revenue. Specifically –

o The Firm's substantive procedures to test revenue were limited to

testing whether cash and credit card receipts were appropriately
recorded to the issuer's cash accounts, without testing the
recording of revenue.

o The Firm failed to perform procedures to test whether certain

transactions met the criteria to be accounted for using the
installment method of accounting.

 The Firm failed to test the existence of accounts receivable from

installment sales.

 The Firm failed to perform sufficient substantive procedures to test the

valuation of rental merchandise. Specifically –

o The Firm calculated its sample size for price testing based on a
"significant" level of assurance provided by analytical procedures it
performed; however, because of the deficiencies in the analytical
procedures noted below, they provided little to no substantive
assurance. As a result, the Firm's sample size was insufficient.

With respect to the analytical procedures, the Firm established

thresholds for investigating variances; however, the Firm set the
thresholds at a level that would have allowed the Firm not to
identify individual variances that may be potential material
misstatements. Further, the Firm failed to perform procedures to
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obtain corroboration of explanations provided by management for

certain differences in excess of its established thresholds.

o The Firm failed to perform sufficient procedures to test depreciation

expense for rental merchandise, as its procedures were limited to
the analytical procedures noted above.

o The Firm failed to test the accuracy of certain data included in a

report that it used to evaluate the reasonableness of a reserve for
idle rental merchandise.

 The Firm failed to perform sufficient testing of the cost of goods sold in the
sales transactions the issuer recorded during the first nine months of the
year, as its procedures were limited to testing the existence of rental
merchandise inventory and performing the analytical procedures noted
above.

A.4. Issuer D

In this audit, in addition to the deficiencies described in Part I.A.23 related to

testing the fair value measurements of, and disclosures related to, financial instruments
without readily determinable fair values ("hard-to-value financial instruments"), the Firm
failed in the following respects to obtain sufficient appropriate audit evidence to support
its audit opinions on the financial statements and on the effectiveness of ICFR –

 The Firm's procedures to test certain review controls over the identification
and assessment of variable interest entities ("VIEs") and the valuation of
the allowance for loan losses ("ALL"), available-for-sale real estate
securities, and bonds payable were insufficient. Specifically –

o The Firm used the work of the issuer's internal auditors as evidence
regarding the effectiveness of the review control over the
identification and assessment of VIEs. The Firm, however, failed to
perform any testing of its own.

o The procedures to test the review controls over VIEs and the other
areas noted above were limited to observing evidence that reviews
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had occurred, without testing whether the controls operated at a

level of precision that would prevent or detect material
misstatements related to these areas.

 The Firm failed to perform sufficient substantive procedures to test the

identification and assessment of VIEs. Specifically, the Firm failed to test
whether the issuer had identified all investments that required an
assessment to determine whether the investments met the criteria to be
considered VIEs. In addition, as the Firm limited its testing of VIEs to
those investments the issuer had determined were VIEs, it failed to test
the appropriateness of the issuer's conclusions related to those
investments the issuer had determined were not VIEs.

 The Firm failed to perform sufficient substantive procedures to test the

ALL. Specifically –

o For certain collateral-dependent loans, the issuer determined the

ALL based on estimated discounted cash flows from the real estate
that served as collateral for the loans. The Firm failed to sufficiently
evaluate the reasonableness of certain assumptions the issuer
used in its discounted cash-flow analyses, as follows –

 The Firm limited its evaluation of the issuer's discount and

capitalization rate assumptions to comparing those rates to
published industry data. The Firm, however, failed to
determine whether the industry data correlated to the real
estate underlying the loans. In addition, in one instance, the
discount rate the issuer used fell outside the relevant range,
but the Firm performed no additional procedures to address
this inconsistency.

 The Firm's evaluation of cash flow projections for certain of

these loans was limited to noting the expected growth for the
U.S. economy and inquiring of management regarding
differences between historical information and the first-year
projections, and the Firm failed to take into account certain
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current operating results that appeared inconsistent with

some of the assumptions used in the projections.

o The Firm failed to sufficiently test the completeness of the

population of loans the issuer evaluated for possible impairment.
Specifically, the Firm selected for testing loans that the issuer did
not evaluate for possible impairment, but the Firm's assessment of
certain risk factors related to those loans was limited to inquiry of
management.

A.5. Issuer E

In this audit, in addition to the deficiencies described in Part I.A.23 related to

testing the fair value measurements of, and disclosures related to, hard-to-value
financial instruments, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm's procedures to test controls over the valuation of investment

securities, the ALL, and goodwill were insufficient. Specifically –

o The Firm selected for testing only one control, a review control,
over the valuation of investment securities. The Firm's procedures
to test this control were limited to observing evidence that the
review had occurred, without evaluating whether the control
operated at a level of precision that would prevent or detect
material misstatements related to the valuation of investment
securities.

o The Firm failed to perform direct testing of certain review controls

over the ALL that it had selected. For one control, consisting of
management's review of the ALL, the Firm stated that its
substantive procedures provided evidence of the operating
effectiveness of the control. For another control, consisting of
management's review of schedules supporting the ALL, the Firm
selected samples of loans and recalculated the aging of the loans
or compared its risk rating of the loans to the issuer's risk rating.
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The Firm's procedures did not constitute direct testing of these

controls.

o The Firm failed to test any controls over the issuer's analysis of the
possible impairment of goodwill.

 The Firm failed to perform sufficient substantive procedures to test the

ALL. Specifically –

o To test the issuer's loan risk-rating process, which the issuer used
to determine important inputs to the ALL calculation, the Firm
selected loans for testing that exceeded a monetary threshold and
also selected the largest loans that met certain risk-related criteria.
The Firm failed to perform any procedures to test the loans
excluded from this test, which represented nearly 90 percent of the
loan balance.

o The Firm failed to evaluate the reasonableness of important

assumptions the issuer used to calculate the general reserve
component of the ALL.

o The Firm failed to perform procedures to determine that all of the

loans that required evaluation for possible impairment were
evaluated.

A.6. Issuer F

In this audit, in addition to the deficiencies described in Part I.A.23 related to

testing the fair value measurements of hard-to-value financial instruments, the Firm
failed in the following respects to obtain sufficient appropriate audit evidence to support
its audit opinions on the financial statements and on the effectiveness of ICFR –

 The Firm selected for testing certain review controls over the valuation of
real estate securities and the ALL; however, the testing of these controls
was insufficient. Specifically –
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o The Firm identified a fraud risk for a significant component of the

ALL. The Firm, however, used the work of internal audit as its
evidence of the operating effectiveness of an important review
control over the ALL without performing any of its own testing of
this review control.

o The testing of the ALL review control and of the other review
controls referenced above was limited to observing evidence of
management's review and approval, without evaluating whether the
controls operated at a level of precision that would prevent or
detect material misstatements related to these areas.

 The Firm failed to perform sufficient substantive procedures to test the

ALL. Specifically, there was no evidence in the audit documentation, and
no persuasive other evidence, that the Firm had –

o Performed sufficient procedures to evaluate the reasonableness of

an assumption related to the timing of future loan losses that the
issuer used in calculating the ALL. Specifically, the Firm limited its
procedures to comparing the current year's assumption to that used
in the prior year noting consistency. The Firm, however, did not
evaluate whether the assumption should have changed.

o Performed procedures to evaluate whether data obtained from an

external source that the Firm used to assess the reasonableness of
the issuer's delinquency assumptions was derived from comparable
loans.

A.7. Issuer G

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm failed to identify and test any controls over gift card liabilities,
and over rent expense and lease account balances and the related
disclosures.
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 The Firm's procedures to test certain review controls over sales and
inventory were insufficient. Specifically, the Firm's procedures were limited
to observing evidence that a review had occurred, and, for some controls,
inquiring of management and/or comparing certain reports used in the
control to other issuer documents, without evaluating whether the controls
operated at a level of precision that would prevent or detect material
misstatements related to these areas. In addition, the Firm failed to test
any controls over the accuracy and completeness of the data and reports
used in the performance of certain of these review controls.

 The Firm failed to perform sufficient substantive procedures to test sales

and inventory. The Firm designed its procedures based on a level of
reliance on controls that was excessive due to the deficiencies in the
Firm's testing of controls that are discussed above. As a result, the
samples the Firm used to test sales and inventory were too small to obtain
the necessary level of assurance. In addition, the Firm failed to test the
accuracy and completeness of certain reports it used in its testing of sales.

A.8. Issuer H

In this audit, in addition to the deficiencies described in Part I.A.23 related to

testing the fair value measurements of hard-to-value financial instruments, the Firm
failed in the following respects to obtain sufficient appropriate audit evidence to support
its audit opinions on the financial statements and on the effectiveness of ICFR –

 The Firm failed to perform sufficient procedures to test certain review

controls over the valuation of investments in securities, investments in real
estate, and the ALL. Specifically, the Firm failed to assess whether the
controls were designed to operate at a level of precision that would
prevent or detect material misstatements.

 The Firm failed to perform sufficient substantive procedures to test the

ALL. Specifically –

o To evaluate the specific reserves, the Firm tested a sample of

impaired loans that it selected by choosing every third loan on a list.
The Firm's testing was insufficient, as the sampling resulted in the
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Firm failing to test, beyond inquiry of management, any of the

multiple impaired loans that had a net recorded value in excess of
the Firm's established level of materiality.

o The Firm failed to perform sufficient procedures to test the specific

reserves for certain of the impaired loans that it had selected for
testing. Specifically, the Firm failed to evaluate the reasonableness
of certain important assumptions, including the capitalization rates,
and the cash flow projections that the issuer used in its
determination of the value of the real estate that served as
collateral for the loans. In addition, the Firm failed to test the
mathematical accuracy of certain aspects of the specific-reserve
calculations, including the cash flow projections.

o The Firm failed to perform sufficient procedures to test the issuer's

loan risk-rating process, which the issuer used to identify impaired
loans and evaluate whether the loans required a specific reserve.
Specifically, there was no evidence in the audit documentation, and
no persuasive other evidence, that the Firm had evaluated the
qualitative factors, including current market conditions related to the
underlying properties, that the issuer used to assign a risk rating to
its loans. In addition, the Firm determined that certain loans, not on
the issuer's watch list, that the Firm tested had an apparent shortfall
between the operating cash flows for the real estate that served as
collateral for the loan and the related debt service obligation;
however, the Firm failed to evaluate the implications of these
apparent shortfalls on the Firm's conclusions about the
effectiveness of the issuer's loan risk-rating process.

A.9. Issuer I

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm failed to sufficiently test certain review controls over revenue and
the accounting for business combinations. Specifically, the Firm limited its
procedures to inquiring of management, observing evidence that the
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reviews had occurred, and/or tracing certain data used in the performance
of the controls to source documents. There was no evidence in the audit
documentation, and no persuasive other evidence, that the Firm had
evaluated whether the controls operated at a level of precision that would
prevent or detect material misstatements.

 The Firm failed to perform sufficient substantive procedures to test the

issuer's fixed-price revenue contracts with multiple deliverables, which
consisted primarily of services. Specifically, the Firm failed to sufficiently
evaluate the issuer's assessment of whether the multiple deliverables
represented separate units of accounting. For certain contracts, the Firm
concurred with the issuer's conclusion that the deliverables did not have
value on a stand-alone basis because the issuer did not have a history of
providing such deliverables separately; however, the Firm failed to
consider whether (a) other vendors provided similar deliverables
separately or (b) the customer could separately resell any of the non-
service deliverables.

A.10. Issuer J

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm's procedures to test review controls over the possible impairment
of goodwill and other intangible assets, and over the valuation of the
customer rebate reserve, were insufficient, as its testing of these controls
was limited to inquiring of management or observing evidence of review
and approval. In addition, the Firm stated that its substantive procedures
provided evidence of the effectiveness of the control over the possible
impairment of goodwill and other intangible assets. The Firm, however,
failed to test, through any of its procedures, whether these controls
operated at a level of precision that would prevent or detect material
misstatements related to these areas.

 The Firm failed to sufficiently test controls over the accuracy and
completeness of reports used in the operation of the issuer's review
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control over the determination of inventory reserves. Specifically, the Firm

relied on information technology general controls ("ITGCs") over the
application that generated the reports. The Firm, however, identified an
unremediated deficiency in change management controls over that
application, and there was no evidence in the audit documentation, and no
persuasive other evidence, that the Firm had performed procedures to
evaluate the effect of that deficiency on its ability to rely on ITGCs.

 The Firm failed to perform sufficient substantive procedures to test the

possible impairment of goodwill. The issuer calculated the fair value of its
single reporting unit based on a weighted average of fair value estimates
determined using three different valuation methods, one of which was the
market capitalization method. The issuer assigned a ten percent weight to
the market capitalization method and a 45 percent weight to the other two
methods. The Firm failed to evaluate the reasonableness of the weighting
that the issuer assigned to the values included in this calculation. In
addition, the Firm failed to sufficiently evaluate the reasonableness of an
assumption, which was used in two of the fair value estimates, regarding
the fair value of synergies that would be realized by a likely buyer.
Specifically, the Firm's procedures were limited to inquiring of
management and comparing amounts included in the calculation to the
issuer's accounting records. Further, the Firm failed to assess whether the
fair value estimate determined by projecting cash flows was reasonable in
light of the fact that the fair value estimates determined under the other
two methods the issuer used were lower by a substantial amount, were
lower than the recorded value of the reporting unit, and were similar to
each other.

 The Firm failed to sufficiently evaluate the reasonableness of two

important assumptions the issuer used to estimate the customer rebate
reserve. Specifically, the Firm failed to test one of these assumptions, and
it limited its testing of the second assumption to tracing certain data the
issuer used to derive the assumption to customer reports that the issuer
provided to the Firm.
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A.11. Issuer K

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm failed to sufficiently test review controls that it selected over the
valuation of inventory, the possible impairment of goodwill and other
indefinite-lived intangible assets, and the accounting for business
combinations. Specifically, the Firm's procedures were limited to inquiring
of management, reading memoranda used in certain of the controls,
observing evidence that reviews had occurred, and/or verifying the
mathematical accuracy of reports management used in the performance
of these controls. In addition, the Firm referenced its substantive testing
when addressing its evaluation of the effectiveness of certain of these
controls. The Firm, however, failed to test, through any of its procedures,
whether these controls operated at a level of precision that would prevent
or detect material misstatements related to these areas.

 The issuer records a reserve for excess and obsolete inventory and
makes other adjustments, when necessary, to reduce the value of
inventory to the lower of cost or market. The Firm failed to perform
sufficient substantive procedures to test the valuation of inventory, as
follows –

o For one business unit, the Firm assessed the inherent risk for the
valuation of inventory as high, and the issuer recorded no excess
and obsolete reserves for most of the inventory. The Firm's
procedures to evaluate the reasonableness of this estimate,
however, were limited to inquiring of management, noting that the
majority of inventory items had a change in quantity during the
year, and comparing various inventory ratios at the business unit
level, such as inventory turnover rates and inventory reserves as a
percentage of total inventory, to the same ratios for prior periods. In
addition, the Firm failed to perform procedures to test whether
inventory was recorded at the lower of cost or market.
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o For a second business unit, the Firm limited its procedures to

evaluate the reasonableness of the calculated inventory reserves to
testing the mathematical accuracy of the calculation and
considering inventory write-offs that occurred after the balance
sheet date. In addition, the Firm failed to perform procedures to test
whether inventory was recorded at the lower of cost or market.

o For a third business unit, the Firm's procedures to evaluate the

reasonableness of the calculated inventory reserves consisted of
testing reserves for product lines with inventory balances above an
established threshold. This testing was deficient, as the Firm failed
to –

 Test the accuracy and completeness of certain data it used

to test the reserves.

 Sufficiently evaluate the reasonableness of the issuer not

having recorded reserves for certain of the product lines, as
the Firm's procedures were limited to observing that there
was a certain minimal level of sales of those product lines
subsequent to year end.

 Perform any procedures to test the inventory reserves for the

product lines with inventory balances below the established
threshold; the inventory balances for these product lines
were, in the aggregate, several times the Firm's established
level of materiality.

 Include sales incentives in its determination of the market

value of inventory it selected for testing, when testing
whether inventory was recorded at the lower of cost or
market.

A.12. Issuer L

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –
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 The issuer's investment custodian initiated and processed investment

transactions for the issuer, and the issuer used data from the custodian to
record those transactions. The Firm failed to perform procedures to obtain
evidence about the effectiveness of the controls over the accuracy of the
data used to record those transactions.

 The Firm selected for testing two review controls over the accounting for
business combinations, but it limited its procedures to inquiring of
management, attending meetings that constituted part of the performance
of the controls, and observing evidence of review. The Firm's procedures
did not include testing whether the controls operated at a level of precision
that would prevent or detect material misstatements.

 The Firm failed to sufficiently test the valuation of intangible assets

acquired in a business combination. The issuer engaged an external
specialist to determine the value of the intangible assets acquired, and
provided revenue growth rate projections and historical data to the
specialist for use in the valuation analysis. The Firm failed, beyond inquiry
of management, to (a) evaluate the reasonableness of certain significant
assumptions the issuer used to determine the projected revenue and (b)
test the historical data.

 The Firm failed to identify and test any controls that addressed whether
revenue from product sales was appropriately recognized upon shipment.
In addition, the Firm selected for testing two manual controls related to the
accuracy of sales and shipment data, but it failed to sufficiently test the
operating effectiveness of these controls. Specifically, the manual controls
operated multiple times each day, but the Firm limited its testing to only
one transaction for each of these controls.

 The Firm failed to perform sufficient substantive procedures to test

revenue from product sales, as it designed its procedures based on a level
of reliance on controls that was excessive due to the deficiencies in the
Firm's testing of controls that are discussed above. Specifically, the
sample size the Firm used in its testing was insufficient to obtain the
necessary level of assurance.
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A.13. Issuer M

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm selected for testing certain review controls over the issuer's
accounting for business combinations, but its procedures to test those
controls were not sufficient. Specifically, the Firm limited its procedures to
observing evidence that a review had occurred and inquiring of
management, without testing whether the controls operated at a level of
precision that would prevent or detect material misstatements.

 The Firm's procedures to test certain revenue recorded using the

percentage-of-completion method of accounting were insufficient.
Specifically, the Firm selected certain contracts for testing, but it failed to
evaluate, beyond inquiry of issuer personnel, the reasonableness of the
estimated costs to complete the contracts, which the issuer used to
calculate contract revenue.

 The Firm failed to perform sufficient procedures to test revenue from

certain other contracts. The Firm's procedures to test these contracts were
analytical procedures consisting of a comparison of gross margins
between the third and fourth quarters of the year; however, due to
deficiencies in these procedures, they provided little to no substantive
assurance. Specifically, the Firm failed to establish a plausible relationship
for the use of the third quarter gross margin data as a basis for its
expectation, and it failed to test the accuracy of the data. In addition, the
Firm failed to investigate certain differences that were above its
established thresholds. For other such differences, it limited its procedures
to inquiring of management, without obtaining corroboration of
management's explanations.

 The issuer consummated two significant business combinations during the

year and used external specialists to determine the fair value of assets
acquired in those business combinations. The Firm failed to perform
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sufficient procedures to test the valuation of certain of the acquired assets.

Specifically –

o The Firm failed to sufficiently test the underlying cash flow

projections the issuer provided to a specialist for use in valuing
customer-relationship intangible assets. Specifically, the Firm
limited its procedures to test the projected revenue to observing
that a portion of the projected revenue appeared reasonable when
compared to actual revenue in prior years. In addition, the Firm
failed to perform any procedures to evaluate the reasonableness of
the direct costs and selling, general, and administrative expenses
included in the cash flow projections.

o The Firm failed to perform any procedures to test the significant

adjustments made to the carrying value of the acquired inventory
that the specialist used to determine the fair value of that inventory.

o The Firm failed to test the accuracy and completeness of data that
the issuer provided to the specialists for use in determining the
value of certain acquired assets.

o For one of the business combinations, there was no evidence in the

audit documentation, and no persuasive other evidence, that the
Firm had evaluated the reasonableness of certain assumptions the
issuer's specialist used to estimate the fair value of certain property
and equipment, beyond obtaining the specialist's valuation report
and discussing the assumptions with the specialist.

A.14. Issuer N

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 The Firm selected for testing a review control over the assessment of the
possible impairment of certain long-lived assets. The Firm's procedures to
test this control were limited to observing evidence that a review had
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occurred, without evaluating whether the control operated at a level of

precision that would prevent or detect material misstatements.

 The Firm's procedures to test the possible impairment of two significant

properties held for development were insufficient.

o For one of the properties, the issuer's external valuation specialist

estimated the fair value as it was currently zoned, and as if zoning
changes had occurred that would allow the issuer's planned use of
that property. The Firm used the specialist's value determined as if
the zoning changes had occurred to conclude that the property was
not impaired, but failed to take into account information in the
specialist's report that appeared inconsistent with the assumption
that a change in the zoning for the property was likely to occur. In
addition, the Firm failed to evaluate the reasonableness of the
underlying assumptions the specialist used to determine the fair
values.

o The Firm failed to evaluate the reasonableness of environmental

remediation cost estimates that the issuer provided to an external
specialist for use in estimating the value of the second property.

A.15. Issuer O

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinions on the financial statements and
on the effectiveness of ICFR –

 Within the issuer's largest segment, revenues are primarily generated by

sales to wholesale customers ("commercial revenue") and retail sales
("retail revenue.") The Firm failed to identify and test any controls over the
valuation of retail revenue.

 The Firm failed to perform sufficient procedures to test certain review

controls that it selected over commercial revenue, and over retail accounts
receivable and the related allowance for doubtful accounts. The Firm's
testing of these controls was limited to obtaining evidence of review and
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approval and, for certain controls, comparing data used in the operation of
the control to supporting documentation, or verifying the mathematical
accuracy of management's calculations. There was no evidence in the
audit documentation, and no persuasive other evidence, that the Firm had
evaluated whether the controls operated at a level of precision that would
prevent or detect material misstatements.

 The issuer accumulated in a database electronically generated data

reflecting revenue transactions, and those data were transferred into the
issuer's billing systems to calculate revenue. The Firm failed to test any
controls over the accuracy and completeness of the data transferred into
the commercial billing system.

 The Firm's substantive procedures to test the valuation of retail revenue

were insufficient. Specifically, in the Firm's testing of a sample of
transactions, it failed to test whether the rate used to calculate the revenue
was appropriate.

 The Firm failed to perform sufficient substantive procedures to test the

occurrence and completeness of commercial revenue. Specifically, the
Firm's procedures were limited to testing two sales transactions,
confirming accounts receivable at year end, and scanning the sales
journal near year end for significant or unusual transactions.

 The Firm failed to perform sufficient procedures to test the existence of

accounts receivable for the issuer's largest segment. The Firm's primary
substantive test in this area was to confirm accounts receivable. The Firm
selected customer accounts for testing that each exceeded a monetary
threshold, but it limited its testing to only one invoice from each of those
customer accounts. In addition, the Firm's other procedures to test the
existence of the remaining accounts receivable balance did not reduce the
risk related to that population to an appropriately low level, as the Firm's
procedures consisted of testing only eight additional invoices
(representing less than two percent of the remaining accounts receivable
balance) through its performance of other substantive procedures, and
these additional invoices were not selected in a manner designed to
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produce a sample that was representative of the remaining accounts

receivable.

A.16. Issuer P

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinion on the effectiveness of ICFR –

 The Firm's testing of certain review controls over the valuation of inventory
was insufficient, as its procedures were limited to inquiring of management
and observing evidence that a review had occurred, without evaluating
whether the controls operated at a level of precision that would prevent or
detect material misstatements.

 The Firm failed to sufficiently test controls over the completeness of the
issuer's pension liability. Specifically, there was no evidence in the audit
documentation, and no persuasive other evidence, that the Firm had
performed procedures to obtain evidence about the effectiveness of any
controls over certain data that constituted important inputs into the issuer's
determination of its pension liability.

A.17. Issuer Q

In this audit, the Firm failed to perform sufficient procedures to test the ALL. The
issuer used appraisals to determine the fair value of real estate that served as collateral
for certain loans. There was no evidence in the audit documentation, and no persuasive
other evidence, that the Firm had evaluated the reasonableness of the assumptions that
the appraisers used to value the underlying real estate, beyond reading the appraisal
reports. In addition, the Firm failed to perform sufficient procedures to evaluate the
competence and objectivity of the appraisers, as it limited its procedures to determining
whether the appraisers were licensed and whether the appraisers were approved for
use by the issuer's board of directors.

A.18. Issuer R

In this audit, the Firm failed to obtain sufficient appropriate audit evidence to
support its audit opinion on the effectiveness of ICFR. The Firm's procedures to test two
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review controls, one over the selection of the revenue recognition method for sales
contracts and one over the valuation of unbilled accounts receivable, were insufficient.
Specifically, there was no evidence in the audit documentation, and no persuasive other
evidence, that the Firm had performed procedures to test the effectiveness of these
controls, beyond observing evidence of management's review and approval. In addition,
the Firm stated that its substantive testing provided evidence of the effectiveness of one
of these controls. The Firm, however, failed to test, through any of its procedures,
whether the controls operated at a level of precision that would prevent or detect
material misstatements related to these areas.

A.19. Issuer S

In this audit, the Firm failed in the following respects to obtain sufficient
appropriate audit evidence to support its audit opinion on the effectiveness of ICFR –

 The Firm's testing of certain review controls over the accounting for
business combinations and the possible impairment of goodwill and other
intangible assets was insufficient. Specifically, the Firm limited its
procedures to inquiring of management or observing evidence of reviewer
sign-off or approval and, for certain controls, comparing certain amounts
to supporting documents or verifying the mathematical accuracy of
calculations. In addition, the Firm stated that certain of its substantive
procedures provided evidence of the effectiveness of these controls. The
Firm, however, failed to test, through any of its procedures, whether the
controls operated at a level of precision that would prevent or detect
material misstatements related to these processes.

 Many of the issuer's business units had a significant amount of goodwill

and other intangible assets, and the issuer had a history of recording
impairment charges at the annual impairment assessment date and at
interim dates. The Firm failed to identify and test any controls over the
monitoring, between the issuer's annual impairment assessment dates, of
indicators of possible impairment of goodwill and other intangible assets.
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A.20. Issuer T

In this audit, the Firm failed to obtain sufficient appropriate audit evidence to
support its audit opinion on the effectiveness of ICFR. Specifically, the Firm selected for
testing certain review controls over the assessment of the possible impairment of
property and equipment, but it limited its procedures to testing the mathematical
accuracy of the issuer's quarterly impairment analyses and inquiring of issuer
personnel. The Firm's procedures did not include evaluating whether the controls
operated at a level of precision that would prevent or detect material misstatements
related to the possible impairment of property and equipment.

A.21. Issuer U

In this audit, the Firm failed in the following respects to perform sufficient
procedures to test revenue and deferred revenue –

 To test revenue and deferred revenue for one significant product line, the
Firm used an attribute sampling approach and determined its sample size
based on an expectation that there would be no testing exceptions within
its sample. The issuer's revenue recognition policy provided that, for
transactions with customer-acceptance terms, revenue would not be
recognized until customer acceptance had been received. For two of the
items within the Firm's sample, the issuer did not obtain customer
acceptance, even though the invoices indicated that customer acceptance
was required. There was no evidence in the audit documentation, and no
persuasive other evidence, that the Firm had performed procedures to
support its conclusion that the recognition of revenue from these
transactions was appropriate without the issuer having obtained customer
acceptance. As a result, the Firm did not obtain sufficient evidence that
there were no testing exceptions, which, given its testing strategy, was
necessary to support its conclusion that revenue recognition for this
product line was appropriate.

 The Firm failed to perform sufficient revenue cut-off testing, as it excluded

certain types of invoices from the population from which it selected its
sample for testing.
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A.22. Issuer V

The majority of the issuer's revenue was calculated based on the number of
electronically initiated transactions that occurred during the year. The Firm's procedures
to test the accuracy and completeness of the transactional data used to calculate
revenue were insufficient. Specifically, the Firm's approach for testing the applications
generating and storing these data consisted of a "test of one;" this approach assumed
effective ITGCs. The Firm failed to sufficiently test the operating effectiveness of ITGCs,
however, as its tests of the majority of these controls were limited to inquiry of issuer
personnel.

A.23. Deficiencies in Testing the Fair Value Measurements and Disclosures of

Financial Instruments Without Readily Determinable Fair Values

In four audits,5/ due to deficiencies in testing related to hard-to-value financial

instruments, including commercial mortgage-backed securities, collateralized mortgage
and debt obligations, other real estate investments, and trust preferred securities, the
Firm failed to obtain sufficient appropriate audit evidence to support its audit opinions on
the financial statements. The deficiencies are as follows –

 In each of these audits, the Firm failed to obtain an understanding of the

specific methods and assumptions underlying fair value measurements
that were obtained from pricing services or other external parties and used
in the Firm's testing of certain hard-to-value financial instruments.

 In two of these audits,6/ the Firm tested the issuer's process for developing
fair value measurements for certain hard-to-value financial instruments.
The Firm, however, failed to evaluate the appropriateness of the valuation
methods and the reasonableness of the important assumptions underlying
the fair value measurements.

5/
Issuers D, E, F, and H
6/
Issuers D and F
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 In two of these audits,7/ the Firm developed an independent estimate of

fair value to test the fair value measurement of certain hard-to-value
financial instruments. In one audit, the Firm used historical data to develop
its assumptions,8/ and in the other audit, the Firm used historical
knowledge about the issuer to develop expected price ranges.9/ In both
audits, the Firm failed to evaluate whether the historical information
reflected market conditions as of the valuation date and resulted in
assumptions that were not inconsistent with assumptions market
participants would use to value the financial instruments.

 In one of these audits,10/ to test the valuation of certain hard-to-value

financial instruments, the Firm obtained estimates of fair value from two
external parties. The Firm compared those values to the issuer's recorded
values and established a threshold for investigating differences. The
procedures the Firm performed were insufficient, as –

o Many of the instruments had differences in excess of the Firm's

established threshold; however, the Firm performed additional
testing for only certain of these financial instruments.

o When establishing thresholds for investigation of significant

differences, the Firm failed to consider the possibility that a
combination of differences could aggregate to an unacceptable
amount. As a result, the Firm failed to investigate differences that,
in combination, exceeded the Firm's established materiality level by
a significant amount.

7/
Issuers F and H
8/
Issuer F
9/
Issuer H
10/
Issuer D
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 In two of the audits,11/ the Firm failed to adequately test the issuers'
disclosures of certain hard-to-value financial instruments as level 2 or level
3 because it failed to obtain an understanding of whether significant inputs
used to value the financial instruments were observable or unobservable.

B. Auditing Standards

Each of the deficiencies described in Part I.A of this report represents

circumstances in which the Firm failed to comply with the requirement to obtain
sufficient appropriate evidence to support its opinion that the financial statements were
presented fairly, in all material respects, in accordance with applicable accounting
principles, and/or for its opinion concerning whether the issuer maintained, in all
material respects, effective internal control over financial reporting. Each deficiency
relates to several applicable standards that govern the conduct of audits.

AU 230, Due Professional Care in the Performance of Work ("AU 230") requires
the independent auditor to plan and perform his or her work with due professional care.
AU 230 and Auditing Standard ("AS") No. 13, The Auditor's Responses to the Risks of
Material Misstatement ("AS No. 13") specify that due professional care includes the
exercise of professional skepticism. This is an attitude that includes a questioning mind
and a critical assessment of the appropriateness and sufficiency of audit evidence.

AS No. 13 requires the auditor to design and implement audit responses that
address the identified risks of material misstatement, and AS No. 15, Audit Evidence
("AS No. 15") requires the auditor to plan and perform audit procedures to obtain
sufficient appropriate audit evidence to provide a reasonable basis for the audit opinion.
Sufficiency is the measure of the quantity of audit evidence, and the quantity needed is
affected by the risk of material misstatement and the quality of the audit evidence
obtained. The appropriateness of evidence is measured by its quality; to be appropriate,
evidence must be both relevant and reliable in support of the related conclusions.

AS No. 5, An Audit of Internal Control Over Financial Reporting That Is

Integrated with An Audit of Financial Statements ("AS No. 5") and AS No. 13 establish
requirements regarding testing and evaluating internal control over financial reporting. In
an audit of internal control over financial reporting in an integrated audit, AS No. 5
requires the auditor to plan and perform the audit to obtain appropriate evidence that is
11/
Issuers E and H
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sufficient to support the auditor's opinion on internal control over financial reporting as of
the date of that opinion. AS No. 13 requires that, if the auditor plans to assess control
risk at less than the maximum and to base the nature, timing, and extent of substantive
audit procedures on that lower assessment, the auditor must obtain evidence that the
controls tested were designed and operating effectively during the entire period for
which the auditor plans to rely on controls to modify the substantive procedures.

The deficiencies described in Part I.A of this report relate to one or more of the
provisions referenced above, and in many cases also relate to the failure to perform, or
to perform sufficiently, certain specific audit procedures that are required by other
applicable auditing standards. The table below lists the specific auditing standards that
are primarily implicated by the deficiencies identified in Part I.A of this report. The
broadly applicable aspects of AS No. 5, AS No. 13, AS No. 15, and AU 230 discussed
above are not repeated in the table below.12/

PCAOB Auditing Standards Issuers

AS No. 5, An Audit of Internal Control Over A, B, C, D, E, F, G, H, I, J, K, L,
Financial Reporting That is Integrated with An Audit M, N, O, P, R, S, and T
of Financial Statements
AS No. 13, The Auditor's Responses to the Risks A, C, D, G, I, K, L, M, U, and V
of Material Misstatement
AS No. 14, Evaluating Audit Results A
AS No. 15, Audit Evidence C, G, H, N, and V
AU 322, The Auditor's Consideration of the Internal D and F
Audit Function in an Audit of Financial Statements
AU Section 326, Evidential Matter B and O
AU Section 328, Auditing Fair Value D, E, F, H, J, L, M, N, and Q
Measurements and Disclosures
AU Section 329, Substantive Analytical Procedures C and M
AU Section 332, Auditing Derivative Instruments, A
Hedging Activities, and Investments in Securities
AU Section 333, Management Representations A
AU Section 336, Using the Work of a Specialist L and Q
AU Section 342, Auditing Accounting Estimates B, D, E, F, H, J, and K

12/
This table does not necessarily include reference to every auditing
standard that may have been implicated by the deficiencies included in Part I.A.
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PCAOB Auditing Standards Issuers

AU Section 350, Audit Sampling A, H, O, and U

C. General Information Concerning PCAOB Inspections

Board inspections are designed to identify whether weaknesses and deficiencies

exist related to how a firm conducts audits and to address any such weaknesses and
deficiencies. To achieve that goal, inspections include reviews of certain aspects of
selected audit work performed by the Firm and reviews of certain aspects of the Firm's
quality control system. The focus on weaknesses and deficiencies necessarily carries
through to reports on inspections and, accordingly, Board inspection reports are not
intended to serve as balanced report cards or overall rating tools. Further, the inclusion
in an inspection report of certain deficiencies and potential deficiencies should not be
construed as an indication that the Board has made any determination about other
aspects of the firm's systems, policies, procedures, practices, or conduct not included
within the report.

The inspection team selects the audits and aspects to review, and the Firm is not
allowed an opportunity to limit or influence the selections. In the course of reviewing
aspects of selected audits, the inspection team may identify matters that it considers to
be deficiencies in the performance of the work it reviews. Those deficiencies may
include failures by the Firm to identify, or to address appropriately, financial statement
misstatements, including failures to comply with disclosure requirements,13/ as well as
failures by the Firm to perform, or to perform sufficiently, certain necessary audit
procedures. It is not the purpose of an inspection, however, to review all of a firm's
audits or to identify every respect in which a reviewed audit is deficient. Accordingly, a

13/
When it comes to the Board's attention that an issuer's financial
statements appear not to present fairly, in a material respect, the financial position,
results of operations, or cash flows of the issuer in conformity with applicable
accounting principles, the Board's practice is to report that information to the Securities
and Exchange Commission ("SEC" or "the Commission"), which has jurisdiction to
determine proper accounting in issuers' financial statements. Any description in this
report of financial statement misstatements or failures to comply with SEC disclosure
requirements should not be understood as an indication that the SEC has considered or
made any determination regarding these issues unless otherwise expressly stated.
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Board inspection report should not be understood to provide any assurance that the
firm's audit work, or the relevant issuers' financial statements or reporting on internal
control, are free of any deficiencies not specifically described in an inspection report.

If the Board inspection team identifies deficiencies that exceed a certain

significance threshold in the audit work it reviews, those deficiencies are summarized in
the public portion of the Board's inspection report. The Board cautions, however,
against extrapolating from the results presented in the public portion of the report to
broader conclusions about the frequency of deficiencies throughout the Firm's practice.
Audit work is selected for inspection largely on the basis of an analysis of factors that, in
the inspection team's view, heighten the possibility that auditing deficiencies are
present, rather than through a process intended to identify a representative sample.

In some cases, the conclusion that a firm failed to perform a procedure may be
based on the absence of documentation and the absence of persuasive other evidence,
even if the firm claimed to have performed the procedure. AS No. 3, Audit
Documentation ("AS No. 3") provides that, in various circumstances including PCAOB
inspections, a firm that has not adequately documented that it performed a procedure,
obtained evidence, or reached an appropriate conclusion must demonstrate with
persuasive other evidence that it did so, and that oral assertions and explanations alone
do not constitute persuasive other evidence.

Inclusion of a deficiency in an inspection report does not mean that the deficiency
remained unaddressed after the inspection team brought it to the firm's attention. When
audit deficiencies are identified after the date of the audit report, PCAOB standards
require a firm to take appropriate actions to assess the importance of the deficiencies to
the firm's present ability to support its previously expressed audit opinions. Depending
upon the circumstances, compliance with these standards may require the firm to
perform additional audit procedures, or to inform a client of the need for changes to its
financial statements or reporting on internal control, or to take steps to prevent reliance
on previously expressed audit opinions.14/

14/
The inspection team may review, either in the same inspection or in
subsequent inspections, the adequacy of the firm's compliance with these requirements.
Failure by a firm to take appropriate actions, or a firm's misrepresentations in
responding to an inspection report, about whether it has taken such actions, could be a
basis for Board disciplinary sanctions.
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In addition to evaluating the quality of the audit work performed on specific

audits, the inspection included review of certain of the Firm's practices, policies, and
processes related to audit quality. This review addressed practices, policies, and
procedures concerning audit performance and the following five areas (1) management
structure and processes, including the tone at the top; (2) practices for partner
management, including allocation of partner resources and partner evaluation,
compensation, admission, and disciplinary actions; (3) policies and procedures for
considering and addressing the risks involved in accepting and retaining clients,
including the application of the Firm's risk-rating system; (4) processes related to the
Firm's use of audit work that the Firm's foreign affiliates perform on the foreign
operations of the Firm's U.S. issuer audit clients; and (5) the Firm's processes for
monitoring audit performance, including processes for identifying and assessing
indicators of deficiencies in audit performance, independence policies and procedures,
and processes for responding to weaknesses in quality control.

END OF PART I
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PART II, PART III, APPENDIX A, AND APPENDIX B OF THIS REPORT ARE
NONPUBLIC AND ARE OMITTED FROM THIS PUBLIC DOCUMENT
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APPENDIX C

RESPONSE OF THE FIRM TO DRAFT INSPECTION REPORT

Pursuant to section 104(f) of the Act, 15 U.S.C. § 7214(f), and PCAOB Rule
4007(a), the Firm provided a written response to a draft of this report. Pursuant to
section 104(f) of the Act and PCAOB Rule 4007(b), the Firm's response, minus any
portion granted confidential treatment, is attached hereto and made part of this final
inspection report.1/

1/
The Board does not make public any of a firm's comments that address a
nonpublic portion of the report. In some cases, the result may be that none of a firm's
response is made publicly available. In addition, pursuant to section 104(f) of the Act, 15
U.S.C. § 7214(f), and PCAOB Rule 4007(b), if a firm requests, and the Board grants,
confidential treatment for any of the firm's comments on a draft report, the Board does
not include those comments in the final report at all. The Board routinely grants
confidential treatment, if requested, for any portion of a firm's response that addresses
any point in the draft that the Board omits from, or any inaccurate statement in the draft
that the Board corrects in, the final report.