Richie Smith, an auditor, has a client who manufactures teddy bears, CareBears Ltd. The client company has a year-end of 31 July 2020. In December 2019, CareBears Ltd. changed its manufacturing process to improve the quality of the stitching to ensure its durability. Because of this increase in quality, the company decided to increase the warranty on its products from 2 years to 4 years in relation to all sales of bears made from 1 January 2020. From managements review of warranty claims relating to the new products, it was noted that claims were down by about 25% compared with the old product. Management made an estimate of the provision for warranty of $402,000 for 31 July 2020, up from $307,000 for the previous year.

(a) Discuss any special risks in auditing provisions for warranty.(maximum of 120 words)

(b) Discuss the risks Richie Smith needs to consider when auditing CareBears Ltd.s provision for warranty. (Short answer with a maximum of 120 words)