As parents we're quite frustrated with the sound quality from devices by VTech, Fisher Price etc so we wanted Yoto to sound way better. Our aspiration is that Yoto will sound better than almost anything in the kids market.
We haven't finalised the audio spec but that Yoto is powered by a Raspberry Pi Zero W and we're using a dedicated DAC + amplifier chip on our custom PCB to power the speaker.
On codecs, we're mostly using AAC/M4A in development but we may use to OGG. We will support MP3 but generally try to avoid. Bitrates will depend on the content - spoken word vs. music.