Annabella

Annabella Co has been an audit client of your firm for 13 years. It is a business which manufactures soft furnishings. It also has a shop, from which it sells its own soft furnishings, and other manufacturers' soft furnishings and small items of furniture.

On the first day of the year ending 30 June 20X8, Annabella Co undertook a major reconstruction of its operations. It set up two subsidiary companies. Anna Co and Bella Co. It then transferred its trade to those companies. Anna Co took the manufacturing trade and Bella Co took the retail trade. On the same day, Annabella Co entered into a joint venture with its former chief designer. The joint venture, Annabella Designs Co, will provide designs for the soft furnishings manufactured by Anna Co and will also operate an interior design service, which will be advertised strongly by Bella Co.

Annabella Co is 100% owned by James Dancer, Annabella Co will charge Anna Co, Bella Co and Annabella Designs Co management charges.
The former chief designer, now a 50% shareholder in Annabella Designs Co is Annabel Dancer, James' only daughter. They make decisions about Annabella Designs jointly, and have agreed that the audit of Annabella Designs Co shall be carried out by David Turner and Co. David Turner is a friend of Annabel.

Required

(a) Identify and explain the audit planning issues in the above scenario.

(b) Describe the principal audit procedures on a consolidation.