You are the audit senior of Ryan & Co, and you are planning the audit of Techno Computer Systems Ltd (Techno), for the year ended 31 March 2022. Techno specialises in building bespoke complex computer systems and provides a 3-year warranty to its customers. Your audit manager has held a meeting with the finance director and has given you the following notes of the meeting and financial statement extracts:

Techno has had a difficult year; selling prices have remained constant whilst the cost of electronic components has increased significantly and as a result, profit has declined.

To try to improve profits, Techno changed its main component supplier to a cheaper alternative. This has resulted in some customers claiming on their warranties for extensive repairs.

To help with operating cashflow, the directors borrowed 0.5 million from the bank during the year. This is due for repayment at the end of March 2023.

Some customers have experienced problems in a difficult economic situation post Brexit and Covid-19, and management has offered significantly extended credit terms to their customers.

During the year, whilst calculating depreciation, the directors extended the useful life of specialist machinery from 3 years to 5 years. This reduced the annual depreciation charge.

The directors need to meet a target profit before interest and taxation of 0.3 million in order to be paid their annual bonus.

The directors are considering going for a stock exchange listing in the near future

Financial statement extracts for year ended 31 March:

Draft

2022 m	2021m
Revenue 6.3	7.5
Cost of sales (3.5)	(4.0)
Gross profit 2.8	3.5
Operating expenses (2.5)	(2.6)
Profit before interest & tax 0.3	0.9
Inventory 1.1	0.7
Receivables 1.6	1.0
Cash 0.4	0.9
Trade payables 0.8	0.6
Loan 0.5	-

Required:

i) Calculate FIVE ratios for BOTH years, which would assist the audit senior in planning the audit

ii) Using the information provided and the ratios calculated, identify SIX audit risks, and design the auditors response to each risk in planning the audit of Techno Computer Systems Ltd.

Prepare your answer using two columns headed Audit Risk and Auditors Response