Originally founded in 1980 by R.A. McLellan, the Sydney-based company was a manufacturer and retailer of customized basketball shoes. In 1996, Cloud 9, Inc. (a publicly listed United States [US] company) purchased the original company from R.A. (Ron) McLellan and renamed it Cloud 9 Pty Ltd. As part of the sale agreement, R.A. McLellan was appointed to the Cloud 9 Pty Ltd board of directors. The parent company, Cloud 9, Inc., has wholly-owned subsidiaries in the United Kingdom (UK), Germany, Canada, China, and Brazil, and has built a reputation around the fact that its shoes have comfort and durability. The company promotes itself using its now well-known tagline ‘Our shoes are so comfortable; it’s like walking on Cloud 9’. Currently, Cloud 9 Pty Ltd is primarily a wholesaler of athletic shoes to its main customers: David Jones, Myer, Foot Locker, and Rebel Sports. In 2013, it also started a small online channel to supply direct to customers. Cloud 9 Pty Ltd receives the majority of its stock from the China production plant, with the remainder coming from the US. All stock is purchased on free on board (FOB) shipping terms, which means Cloud 9 Pty Ltd takes ownership of the products once the international courier accepts the goods for delivery. The stock is sent to the main warehouse in Botany, Sydney, that is linked to retailers via an electronic inventory system. When retail stock levels get low, the company ensures deliveries are made using their own transport trucks, thus ensuring control throughout the entire process.

1) XYZ Partners has done whatever is necessary to obtain the audit of Cloud 9 Pty Ltd and Cloud 9 Pty Ltd has accepted their tender

2)  Discuss the audit issues that XYZ Partners should consider when planning to complete the 31 December 2016 audit work for Cloud 9 Pty Ltd

Answer rating: 100% (QA)

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