1. FoodBots produces robotic parts for the food manufacturing industry. It is a private company owned by two equal shareholders: Imaan and Sofia. They started the company in 2015 and were initially quite successful. The robotics parts are challenging to develop and, if manufactured improperly, due to the nature of the use (food manufacturing), could result in significant liability. For example, if the parts manufactured by the company are found to be the cause of food contamination, it would place FoodBots at risk of a lawsuit. In fact, one of their major customers is currently investigating the cause of contamination in one of their food production facilities. Imaan feels it is unlikely; however, it is yet unknown whether there will be liability related to FoodBots as a result of the investigation.

   In recent years, the business has had its struggles. There is more competition, and they are finding it more difficult to retain key staff due to a competitive employment market for finance and IT professionals in the area. Imaan and Sofia are finding themselves more involved in the business over the 18 months. They are now directly performing key accounting and finance functions as most of the turnover has been within the accounting team.

   They have made the difficult decision to sell the business this year and have an interested buyer. Audited financial statements are a requirement of the loan agreement for the buyer.

   Your audit firm has been appointed the new auditor this year. Robotics is a specialized field, and your firm is excited to work with a new type of company despite not having any IT or engineering specialists in the firm. The previous auditor was a small local firm, and the owner retired last year after a disciplinary hearing regarding inappropriate professional behaviour unsuitable for CPAs.

1. Review the client's financial statement information in Appendix A: Financial Statement Information.
2. Review the client's list of IT General Controls in Appendix B: IT General Control Listing.
3. Recommendation for materiality:
   1. Indicate the base (benchmark) of materiality would you use and why. (Be sure to consider both quantitative and qualitative factors).
4. Calculation of materiality
    
    

Appendix A: Financial Statement Information The following are the figures from the client's financial statements for the current and previous year. Condensed Income Statement Sales Cost of sales Gross Margin Operating Expenses Net Income Partial Balance Sheet Current Year Previous Year $1,481,984 $ 2,469,974 711,353 1,259,687 770,631 1,210,287 565,643 915,203 204,988 295,084 Current Year Previous Year Cash $ 207 $ 145,768 Receivables 123,499 411,662 Inventories 47,424 104,974 Prepaid Expenses 2,500 55,678 Property Plant and Equipment 1,111,739 1,445,260 Total Assets $1,285,369 $2,163,342