Question 5 10 Marks Sparkle Limited manufactures soft drinks and its year end is 30 June 2018. You are the audit manager of Sparkle Limited and are currently planning the current year's audit. Sparkle Limited is forecasting an increase in revenue from sales of $45 million, which is a 15% increase from the previous year. The company has just invested $4 million in the production line, updating, repairing and replacing a significant amount of equipment used in the production process. As the levels of production and sales have increased, the company has expanded the number of warehouses used to store inventory. It now utilises 12 warehouses, some of which are owned by Sparkle Limited and some of which are rented from third parties. There will be an inventory count conducted at all 12 warehouses at the year end. Required: (a) Describe audit risk and it various components. (4 marks) Question 5 continued (b) List and explain three audit risks faced in the audit of Sparkle Limited. (3 marks) (c) How would the auditor respond to each of the three audit risks noted in (b) above during the audit of Sparkle Limited? (3 marks) Question 3 12 Marks (a) If the auditor sets a high audit risk, what impact would this have on the type and amount of evidence the auditor would need to gather? (3 marks) (b) If the auditor concludes that internal controls are weak, what impact would this have on the overall audit strategy? (3 marks) Explain which components within the audit risk model make up the risk of material misstatement? (4 marks)