Chocolates From Heaven Inc. (CFHI) produces small batch artisanal chocolate. It is a private company owned by two equal shareholders, David Chang and Sharjeel Ahmed. They started CHFI in 1996 and have grown a successful business. They intend to sell the business this year (2021) and already have an interested buyer. Collateral for the loan is inventory and accounts receivable. Audited financial statements are a requirement of the loan agreement. Audit Class LLP has been appointed the new auditor this year. The previous auditor was a small local firm (sole proprietorship) and the owner retired last year. The following are the draft financial statements for the year ended 2021.

REQUIRED

You are the audit manager assigned to CFHI and you are performing the materiality assessment.

1. Assess overall materiality.

a) Who are the users and what economic decision? Conclude on a materiality benchmark.

b) How sensitive are the users? Conclude on a percentage and calculate the planning materiality.

2. Assess performance materiality.

3. Identify any specific user needs. Recommend a specific materiality.

4. Explain how materiality will impact your audit plan.

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Chocolates From Heaven Inc. Extracts from statement of profit and loss For the year ended December 31, 2021 2021 (unaudited) $2 469 974 1 259 687 1 210 287 Sales Cost of sales Gross margin Expenses Operating expenses Loss due to fire Operating income Other expenses (income) Interest expenses Net Income before income taxes Income taxes Net Income after taxes 861 725 53 478 915 203 295 084 8 000 287 084 43 063 $ 244 021 2020 (audited) $1 481 984 711 353 770 631 565 643 565 643 204 988 12 000 192 988 28 948 $ 164 040