1) Profits are coming under increasing pressure from the appreciation of Renminbi and the increase of labour costs in China. There is pressure from institutional investors for better returns in the form of dividends and the main institutional investors are considering selling a proportion of their shares in the company.

2) All staff and directors of Grace are remunerated (at least in part) on a performance-related basis, some with share options. Staff are generally highly qualified and well paid.

3) Grace has good accounting and internal control systems. Inventory is material to accounts, and there is good set of permanent inventory records.

4) The sales increase in the eight months to 31 August 2021 over the previous year has been achieved by attracting new customers and by offering extended credit. The new credit arrangements allow customer three months credit before their debt becomes overdue, rather than the one month credit period allowed previously. As a result of this change, trade receivable age has increased from 1.6 to 4.1 months.

5) The purchasing manager and warehouse manager were dismissed on 15 August 2021. Replacement purchasing manager and warehouse manager were appointed in early October.

6) Operational compliance issues are important to Grace. Many countries have inflexible quality standards and some projects are being held up because of difficulties in obtaining approval from regulators for new components.

7) A staff of a third party courier was injured seriously due to an accident in Grace's premise in September. The courier staff was confirmed to be handicapped and has submitted his claim for damage to Grace.

Required: Identify and discuss the factors or issues that you would consider when you assess the risk of material misstatement of Grace for the audit of Grace's financial statements for the year ended 31 December 2021.