Zachman Industries is a manufacturer of outdoor space heater. There are two lines: a solar powered heater and a propane fuled heater. Each heater is sold with one year warrenty on parts and labour. During 2019, the company's engineering group performed a review of its warrenty claims history and costs. The costs would be accrued based on 3% of annual sales for the solar powered heaters, and 2% of annual sales for the propane heathers.

You are on the audit team for Zachman's 2021 year end. Your auditfirm has audited Zachman for thr last two years. Last year , this analysis was used by your audit firm to evaluate the provision for estimated warranty costs at year-end.

Zachman decided in 2021 to be more competitive by extending the warranty to two years, claiming their quality is higher than the competition. In 2020, Zachman saw significant competition from online retailers that were able to sell a similar product for 40% lower than them.

Additional data about Zachman during 2021:

• The responsibilities for procurement (purchasing) have changed due to turnover in the organization. A new enterprise resource system was installed which consolidated the data from the previous separate databases for supplier management, HR system, and accounting system. Access to the new enterprise system is based on each employees role.
• To save costs, there was a change in suppliers for some of the materials used; however, there were no changes to the production methods.
• Sales people are compensated with a base salary plus commission of 1% of gross sales. This is the first year Salespeople are paid using a combination of salary and commission. In prior years, it was only salary.
• A new plant manager started on August 1,2021. They come from a different industry and are trying to streamline production processes, beginning with a goal of reduced overtime by managing production schedules.
• There is no intention by Zachman Industries to change their warranty provision approach.
• One of Zachmans major customers, a national restaurant chain that has the heaters in all locations, had decided to begin purchasing their products from a competitor.

1. Has the audit risk model changed compared to prior year audits? Why no why not? Respond buy concluding and explaining each element of the audit risk model as it applies to the case and the impact it would have on the audit.
2. Sally performed the testing of the warranty provision. she tested a sample of total warranty claims for valley. Each claim sampled was testing for the date, amount, and traced through to the warranty expense account. The total population (book value) is $31,000.