QUESTION $5.$

Michelle Black has been appointed as the audit supervisor of Raymars Ltd and are currently planning the audit of an existing client, Mall Ltd$.$ whose year$-$end was $30$ April $2023.$ Mall Ltd is a tile manufacturer, which manufactures and supplies a wide range of tiles. The draft financial statements show revenue of $$35\mathrm{.}6$ million and profit before tax of $$5\mathrm{.}9$ million.

Mall Ltd $\text{'}$s previous finance director left the company in December $2022$ after it was discovered that he had been claiming fraudulent expenses from the company for a significant period of time. A new finance director was appointed in January $2023$ who was previously a financial controller of a bank, and she has expressed surprise that Raymars Ltd had not uncovered the fraud during last year's audit.

During the year Mall Ltd has spent $$1\mathrm{.}8$ million on developing several new products. These projects are at different stages of development and the draft financial statements show the full amount of $$18$ million within intangible assets. In order to fund this development, $$20$ million was borrowed from the bank and is due for repayment over a ten$-$year period. The bank has attached minimum profit targets as part of the loan covenants. The new finance director has informed the audit partner that since the year end there has been an increased number of sales returns and that in the month of May over $$1\mathrm{.}5$ million of goods sold in April were returned.

Raymar Ltd attended the year$-$end inventory count at Sycamore's warehouse. The auditor present raised concerns that during the count there were movements of goods in and out the warehouse and this process did not seem well controlled.

During the year, a review of plant and equipment in the factory was undertaken and surplus plant was sold, resulting in a profit on disposal of $$520,000.$

Required

$($a$)$ State Raymars Ltd responsibilities in relation to the prevention and detection of fraud and error.

$($b$)$ Describe SIX audit risks, and explain the auditor's response to each risk, in planning the audit of Mall Ltd