Auditors are required to understand the client?s industry and business but may not be experts in identifying the quantity and value of certain inventory items. For example, with regards to the audit strategy of Lonmin Mines (see Table 14-3, the auditor relied upon the work of a specialist to determine the existence of inventory. Auditing standards provide guidance on whether and how an auditor can rely on a specialist. Refer to CAS 620, Using the Work of an Auditor?s Expert, to answer the following questions.

a. List three examples of inventory items for which an auditor may need to use a specialist for testing existence and valuation, or both. How would an auditor use a specialist in each example?

b. What characteristics should the auditor consider to ensure the specialist is qualified?

c. Does the specialist need to be independent of the client and the auditor?

Table 14-3

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Comparison of Two Audit Strategies Table 14-3 Key (Relevant) Assertion Risk Response Company Risk Assessment • Judgment is required to assess the appropriate provision for • Tested the methodology for calculating the provisions; challenged the appropriateness and consistency of assumptions; and con- sidered the suitability of historic data used in estimating the provisions. Net realizable value (valuation) Burberry Group plc British luxury fashion house known for its items which may ultimately be iconic tartan pattern. sold below cost. It manufactures and • Luxury goods are subject to changing consumer demands and fashion trends, increasing the level of judgment involved in estimating provisions. distributes outerwear, fashion accessories, fragrances, sunglasses, Considered the aging profle of inventory, the process for identifying problem inventory, and historic loss rates to assess reasonable- and cosmetics. ness of provisions. • Physical quantities of metal Lonmin plc Physical quantities of inventory (existence and accuracy) Attended the physical count at year-end. British mining company with operations in South Africa. It refines inventory are determined by sampling, and assays are taken to determine the metal content. Assessed the competence of the client's independent metallurgists and results of their report. and markets platinum group metals. • The accuracy of these samples and assays can vary quite significantly and requires significant estimation and management judgment. Corroborated reasons for unusual move- ments in inventory quantities between the accounting records and the results of the sampling and assays. • Compared results to historical client data and industry.