You are the auditor of Little Heaven Ltd (LHL). LHL manufactures childrens cubby houses. You are in the process of finalising the 2022 audit of LHL and are currently reviewing the provision for warranties account balance. This account balance relates to the provision allowed in respect of the 12-month warranty covered by LHL for all cubby houses. Your review of the trial balance indicates that during the 2022 financial year, LHL sold $6,123,987 worth of cubby houses (compared to the previous years sales of $4,079,654). However, the current years provision for warranties balance of $50,000 is the same as for last year. Management has advised you that the cubby houses are built to last in all weather conditions and are of very high-quality. Further, while a $50,000 provision was raised last year, actual warranty payments in respect of that year totalled only $28,200. Therefore, management has advised that they believe that the provision for warranty is adequate. For the 2022 financial year, LHL completely replaced its existing lines of cubby houses with a new product line based on the latest craze overseas. This new product line, a LHL Deluxe, which is a range of cubby houses built in the style of a colonial house, some even having two levels. Only LHL Deluxe cubby houses were available to be sold from the beginning of the 2022 financial year.

a)Provide two (2) reasons why the estimate for the provision for warranty is subject to high inherent risk. (2 marks) b)Design two (2) audit procedures that you would undertake in regard to the provision for warranties, in order to obtain sufficient appropriate audit evidence that the estimate is not materially misstated. (2 marks)