Help With audit Risk question

Good day Sir,

I am really struggling to identify and explain audit risk and auditor’s response to identified risk.

Here is a scenario. ” The company has invested significantly in the cola and fizzy drinks production process at the factory.This resulted in an expenditure of $5m on updating, repairing and replacing a significant amount of machinery used in the production process”

My suggested answer:

Risk:

There is a valuation risk. Assets and profits have been overstated. milla has capitalised the whole amount of $5 million . No split has been made between capital expenditure and revenue expenditure.

Audit Response:

Obtain an analysis of this expenditure, verify to see split between capital expenditure and revenue expenditure. Trace revenue expenditure to see it expended in profit & loss account; trace capital expenditure to verify capitalized in assets for completeness.

Sir kindly look at my response to see if am on the right track.

thanks.