It is $1$ July $2015.$ You are a manager in Barnes & Barnett Co$,$ a firm of Certified Public

Accountants $($CPA$)$ responsible for auditing of 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 was appointed as auditor in January $2015.$

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

recognises 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 located in Farland, where it can benefit from low$-$cost labour in its factories. It

produces low price fashion clothing for the mass market. A new inventory system was

introduced in March $2015$ in order to introduce stronger controls over the movement of

inventory between factories and stores. Lynott Co is audited by Clapton & Co$,$ and its auditor$$s

reports in all previous years have been unmodified. Clapton & Co is a small accounting and

audit firm but is a member of an international network of firms. Lynott Co$$s draft statement of

financial position recognises assets of $$24$ million at $31$ May $2015.$

Beard Co manufactures soft furnishings which it sells through an extensive network of

retailers. The company is cash$$rich$,$ and surplus cash is invested in a large portfolio of

investment properties, which generate rental income. The Group$$s accounting policy is to

measure investment properties at fair value. Beard Co$$s draft statement of financial position

recognises assets of $$28$ million at $31$ May $2015,$ of which investment properties represent $$10$

million.

To: Audit manager

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, report 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.