Section A $$ This ONE question is compulsory and MUST be attempted. It is $1$ July $2015.$ You are a manager in Barnes & Barnett Co$,$ a firm of Certified Public Accountants $($CPA$)$ responsible for auditing the Browns Group, a listed entity, for the year ended $31$ May $2015.$

The Group operates in the textile industry, buying silk, cotton, along with other raw materials needed to manufacture a wide range of goods including soft furnishings, linen, and clothing. Goods are sold under the Browns brand name, which was acquired by the Group many years ago. Barnes and Barnett Co were appointed as auditor in January $2015.$ The following information have been provided in the exhibits:

$1.$ An email which you have received from Cavone Brown, the audit engagement partner

$.2.$ Information about the Browns Group$$s general background and activities.

$3.$ Extracts from the draft Group financial statements for the year ended $31$ May $2015.$

$4.$ Notes from a meeting held between Cavone Brown and the Group$$s finance director and representatives from its audit committee. Required:

Respond to the instructions in the email from the audit engagement partner. $(56$ marks$)$ Note: The split of the mark allocation is shown in the partner$$s email $($Exhibit $1).$

Professional marks will be awarded for the presentation and logical flow of the briefing notes and the clarity of the explanations provided. $(4$ marks$)$

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From: Cavone Brown Subject: Browns Group Audit Planning Date: $1$ July $2015$ Hello I need you to begin planning the audit of the Browns Group $($the Group$)$ for the year ended $31$ May $215.$ It would have been brought to your attention that we have been appointed to audit the Group financial statements, and we have also been appointed to audit the financial statements of the parent company and all subsidiaries of the Group except for a foreign subsidiary, Pennington Co$,$ which is audited by a local firm, Davis & Co$.$ All components of the Group have the same year end of $31$ May, reported under IFRS$$ Standards and in the same currency. Using the information, you have been provided with, you are required to prepare briefing notes for my use, in which you are expected to:

$($a$)$ Evaluate the audit risks to be considered in planning the audit of the Group. Your evaluation should incorporate analytical procedures aimed at identifying relevant audit risks. $(20$ marks$)$

$($b$)$ Explain the matters to be considered, and the procedures to be performed, in respect of planning to use the work of Davis & Co$.(8$ marks$)$

$($c$)$ Design the principal audit procedures to be performed in respect of the following balances recognised as non$$current assets in the Group statement of financial position:

$($i$)$ $$12$ million recognised as investment in associate, and $(5$ marks$)$

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$($ii$)$ $$8$ million recognised as a brand name. $(5$ marks$)$

$($d$)$ Using the information provided in the meeting notes in Exhibit $4,$ identify and evaluate any ethical threats and other professional issues which arise from the requests made by the Group audit committee. $(8$ marks$)$

$($e$)$ provide a conclusion which summarized the work done by the auditor, highlighting any major issues identified, providing recommendations that can assist the company establishing and maintaining good internal control and corporate governance over its daily operations. $(10$ marks$)$

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Exhibit $2$ Background and structure of the Browns Group The Group structure and information about each of the components of the Group is shown below: Ross Co$,$ Lynott Co and Beard Co are all wholly owned, acquired subsidiaries which manufacture different textiles. Browns Co also owns $25\%$ of Stewart Co$,$ a company which is classified as an associate in the Group statement of financial position at a value of $$12$ million at $31$ May $2015.$ The shares in Stewart Co were acquired in January $2015$ for a consideration of $$115$ million. Other than this recent investment in Stewart Co$,$ the Group structure has remained unchanged for many years. Information relevant to each of the group companies Browns Co is the parent company in the group and its main activities relate to holding the investments in its subsidiaries and also the brand name which was purchased many years ago. Browns Co imposes an annual management charge of $$800,000$ on each of its subsidiaries, with the charge for each financial year payable in the subsequent August. Ross Co manufactures luxury silk clothing, with almost all of its output sold through approximately $200$ department stores. Ross Co$$s draft statement of financial position recognizes assets of $$215$ million at $31$ May $2015.$ Any silk clothing which has not been sold within $12$ months is transferred to Lynott Co$,$ where the silk material is recycled in its manufacturing process. Lynott Co is in Farland, where it can benefit from low$-$cost labour in its factories. I