W&S Partners will need the assistance of auditors in China and the United States and 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), 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.
In addition, Suzie has asked Jo Wadley for help in choosing an expert to help with valuation aspects of the audit of the derivatives. Jo has provided her with three names of experts in the field, but she has had no personal experience with any of them. Suzie must make a choice and engage the expert soon in order to be sure that the expert opinion will be received in time to complete the audit.
Answer the following questions based on the information presented for Cloud 9 in the appendix 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) Advise Suzie on engaging the derivatives expert. Discuss the qualities the expert must possess. What procedures must Suzie perform? What should she tell the expert about the engagement? What must the expert give to Suzie so that she can be sure she has sufficient appropriate evidence about the derivatives? Can the expert do all the work on derivatives, or must Suzie perform any other procedures?
(c) Assume you are engaging the component auditors and the derivatives expert. Create a working paper for each task.