You have recently been promoted to Audit Senior and will be the Audit Senior on the audit of Pixel Shoes Ltd ("Pixel") for the February 2023 financial year. This will be the first year that Pink audits Pixel. The previous audit firm requested to resign at the end of the 2022 financial year-end due to issues in relation to an adverse audit opinion. This was a result of disagreements regarding the correct application of IFRS by Pixel. Background Information Pixel is listed on the Johannesburg Securities Exchange ("JSE") and specialises in the manufacturing of shoes. The manufacturing plant is situated in the Eastern Cape. Their warehouses for storage and distribution are located in various areas across South Africa and their Head Office is situated in Johannesburg. Pixel employs an average of 550 staff members. During the 2023 financial year, Pixel had to extend its bank overdraft. For the first time in years, they also reported an operating loss. Additionally, they are struggling to pay their current liabilities. Pixel is busy with plans such as expanding its business into Africa to improve their current circumstances. Change in Salary During the audit of salaries and wages, the audit team noted the following error: Some of the call centre staff had access to the salary masterfile to make changes to their own salaries. After the audit team investigated this matter, it was confirmed that, in fact, three staff members had access to the masterfile and that their salary on the masterfile was substantially higher than the salary documents in their employee contracts. You asked the First Year Clerk in charge of the salary and wages for his conclusion based on the above. The First Years Clerk's response was as follows: "I don't believe the above incident can be classified as fraud. The change in salaries and wages was committed by an ordinary employee and not by the management of Pixel and was only an isolated incident. "The First Year Clerk also believed that it is not a significant risk in internal controls. He saw that the prior financial year's audit file, working papers, and payrollrelated access controls were duly tested in detail. He also did not believe it necessary to test salaries and wages again for the current financial year. Inventory Pixel imports certain raw materials from various suppliers in Europe. The material to manufacture the shoes are purchased free on board, using the spot rate at the time of the transactions. The company receives discounts for early payment to the suppliers. Pixel also incurs transport, insurance, and, import duty costs in respect of the purchases. Forward Exchange Contracts ("FECs") are entered into for the purchasing of materials to manufacture shoes from Europe. The company discards obsolete inventory that has been damaged. Most damaged inventory results from negligence in the warehouse. During the current financial year, 2022 has changed inventory purchasing systems for strategic reasons. It was also noted that the number of customer complaints regarding damaged inventory received during the current financial year has increased. Inventory is accounted for net of VAT (i.e. 15\%) for all items concerned. REQUIRED: 3.1 Discuss, with reasons, if you agree with the response you received from the First Year regarding the change in the salary and wages incident. Also, provide the significant risk pertaining to this incident. (10 marks) 3.2 Describe the risks of material misstatement at the overall financial statement level of Pixel Ltd for the financial year ended 28 February 2023. Once you have identified a risk, also describe the most appropriate audit response to appropriately address the risk. Answer in tabular form as shown below: 3.3 Identify and explain any risks at the assertion level relating to the existence and valuation of inventory for Pixel Ltd