W&S Partners will need the assistance of auditors in China and the United States and may need derivatives experts to complete the Cloud 9 audit.

The other auditors will be asked to provide evidence about the inventory shipped to Canada from the production plants in these countries. Although the inventory is shipped FOB (free on board) shipping point, there have been several occasions where the shipping agent was unable to place the inventory on a ship. In these cases, the inventory is stored in the shipping agent’s warehouse until a vessel is made available.

Suzie has some concerns about the quality of the warehouses, because if the goods are damaged they could become worthless and the value of “goods in transit” will be overstated.

Answer the following questions based on the information presented for Cloud 9 in Appendix A at the end of this book and the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters.

Required

a. Explain the procedures for engaging component auditors to perform the work on the inventory in China and the United States.

b. It has been determined that Suzie does not need to engage a derivatives expert. However, Weijing Fei, who is studying to be a CPA, asks Suzie a number of questions about when an expert is used in an audit.

Suzie asks you to answer the following questions regarding the qualities the expert should possess.

What procedures with respect to an expert must be performed by an auditor? What should the expert be told about the engagement? What must the expert give to the auditor so that she can be sure she has sufficient appropriate evidence with respect to the subject matter? Can the expert do all the work on the account or transactions, or must the auditor perform any other procedures?

c. Assume you are engaging the component auditors. Create a memo to the working paper file for this task.