Group Audit Planning and Risk Assessment

SECTION A: STRATEGIC CASE STUDY It is 1 July 202X. You are an audit manager in the audit firm of Cobden & Co. You are assigned to the audit of Verdant Horizon Group (VHG), a listed multinational agricultural technology and commercial farming group, for the year ending 30 September 202X. You have received the following email from the audit engagement partner, Sarah Jenkins: To: Audit Manager From: Sarah Jenkins, Audit Partner Subject: Audit planning for Verdant Horizon Group (VHG) Hello, We are currently planning the audit of VHG for the year ending 30 September 202X. VHG operates large-scale commercial farms across South America and Europe, and recently expanded into agricultural technology. I have provided some background information and financial extracts in the exhibits below. I require you to prepare briefing notes for my review which address the following: (a) Evaluate the principal business risks facing VHG. (10 marks) (b) Evaluate the significant audit risks to be considered in planning the group audit. (18 marks) (c) Design the principal audit procedures to be performed in respect of the valuation of biological assets. (8 marks) (d) VHG's management has requested that Cobden & Co design and implement a new cloud-based inventory and drone-tracking IT system for their newly acquired subsidiary, AeroAgri. Discuss the ethical and professional issues raised by this request, and recommend the actions our firm should take. (10 marks) Note: 4 professional marks will be awarded for the structure, clarity, and professional tone of your briefing notes. EXHIBIT 1: Background Information VHG's core business is the cultivation of high-yield soybeans and wheat. This year, the region in South America where 40% of VHG's farms are located experienced an unprecedented drought, followed by severe unseasonal flooding. Management claims that new genetically modified seeds have mitigated most of the crop loss, but local agricultural reports suggest widespread devastation. On 1 April 202X, VHG acquired 100% of the share capital of AeroAgri, a tech startup specializing in drone-based crop spraying and monitoring. The purchase consideration was $45 million, paid in cash. AeroAgri's net assets at acquisition were valued at $12 million. VHG has recognized $33 million as goodwill. AeroAgri is currently developing a proprietary AI software for yield prediction. VHG has capitalized $8 million of development costs incurred by AeroAgri since the acquisition date. EXHIBIT 2: Financial Extracts (Draft for year ending 30 Sept 202X vs Actual for year ending 30 Sept 202W) Revenue: $410m (202X) / $385m (202W) Operating Profit: $42m (202X) / $55m (202W) Biological Assets (Fair Value): $185m (202X) / $140m (202W) Goodwill: $33m (202X) / $0 (202W) Capitalized Development Costs: $8m (202X) / $0 (202W) Cash and Cash Equivalents: $15m (202X) / $65m (202W) Respond to the partner's email by drafting the requested briefing notes.