Audit risk and Auditor’s response

Scenario

The company operates nationwide with 20 branches located across the country and sells goods to members of the public and to retailers. The company has a returns policy which allows a customer to return goods within 28 days of purchase if they are not satisfied with the product. Historically, 5% of customers return goods within the return period. The company also provides a six-month warranty on its products which requires Corley Appliances Co to repair any defects, at its own cost, which arise within the warranty period. It is anticipated that the warranty provision in the draft financial statements will be lower than the prior year as the directors are confident the products sold by the company are built to a very high standard.

My answer
Audit risk
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*Revenue recognition
The company provides a six month warranty. According to ifrs revenue recognition. Revenue associated with Warranty – should be recognized every month not on accrual basis.
IF this is not followed there is a risk that revenue is overstated. Which will affect profit balance it will be overstated.

Auditor’s Response
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*Discuss with management how they recognized revenue for those product associated with warranty.

Review the year end sales and review the treatment of revenue associated with warranty. Are they recognized for that month in the month they occur and not on accrual basis specially for warranty.

i want to know is this correct. As in answer there is not audit risk related to this point revenue recognition.