SecureTrade Ltd is a medium$-$sized trading company that imports and sells consumer electronics. The company operates in a competitive industry where price volatility, frequent product updates, and market risks are common. SecureTrade Ltd recently expanded its business by entering into new markets in neighboring countries, significantly increasing its revenue but also exposing the business to currency risk and international regulations.

During the last financial year, the company implemented a new inventory management system to streamline operations and reduce stock handling errors. However, the initial stages of implementation were problematic, leading to inconsistencies in stock count records. There have also been frequent staff changes in the finance department, and the company introduced a performance$-$based compensation plan for management.

SecureTrade Ltd uses estimates for provisions such as warranty liabilities, bad debt expenses, and environmental contingencies for defective products. The company also adopted a more aggressive revenue recognition policy during the year, which contributed to a significant increase in reported revenue and profit.

The audit firm has been engaged to conduct the audit of SecureTrade Ltd$$s financial statements for the year ended December $31,2023.$ The preliminary risk assessment raised concerns about potential misstatements due to errors in the newly implemented inventory system, increased business risk from international expansion, and potential management bias in revenue recognition policies.

As the lead auditor of SecureTrade Ltd$,$ you are responsible for planning the audit and identifying risks of material misstatement. Using your understanding of audit strategy, planning, materiality, and audit risk, explain how you would,

$1.$ Develop an audit strategy for SecureTrade Ltd$,$ considering the key business risks and internal control issues $(8$ marks$).$

$2.$ Apply analytical procedures at the planning stage to assess potential areas of misstatement, specifically in relation to revenue recognition and inventory valuation $(7$ marks$).$

$3.$ Assess materiality and performance materiality in this audit, using appropriate benchmarks and justify how you would set materiality levels for the financial statements $(5$ marks$).$

$4.$ Identify and evaluate potential audit risks arising from business expansion and changes in accounting estimates, and explain the audit responses that would reduce these risks $(5$ marks$).$