Question 2 Discall Ltd, manufacturers of luxury phones, and has been a client of your firm for two years. You attended the planning meeting with the chief financial officer for the year ended 30 November 2020 and took the following notes from the meeting and financial statement extracts. Discall's management was not pleased with the 2019 results and for the financial year 2020 took some initiatives to improve the trading results. This included the introduction of a generous sales-related bonus scheme for their salesmen and a high-profile advertising campaign. In addition, recognising the impact of the pandemic on their customers, they have extended the credit period given to them. The CFO has calculated a few key ratios for Discall; the gross profit margin has increased from 44.4% to 52.2% and receivables days have increased from 61 days to 71 days. She is happy with the 2020 results and feels that they are a good reflection of the improved trading levels. Financial statement extracts for year ended 30 November: Income Statement Extract Revenue Cost of sales Gross profit Operating expenses Profit before interest and tax Draft 2020 Sm 25.3 (12.1) 13.2 (8.25) 4.95 Actual 2019 Sm 19.8 (11.0) 8.8 (4.4) 4.4 2.31 4.95 Statement of Financial Position Extract Inventory Receivables Cash Trade payables Overdraft 1.76 3.3 2.53 1.32 1.76 0.99 Required a) The level of materiality set by the auditor has a critical impact on key aspects of the audit. What is materiality. (1 mark) b) From the information provided describe THREE audit risks you should consider as you plan the audit of Discall Ltd. (3 marks) c) As the audit senior, explain what the likely response is to each risk in planning the audit of Discall Ltd