Hadi Al-Salman is the manager of the audit of Al-Qahtani Holding Group, a public company that manufactures formed steel subassemblies for other manufacturers. Mr. Hadi is planning the 2022 audit and is considering an appropriate amount for overall financial statement materiality to be

$899,018 (5% of its total assets). As a result, and after considering the inherent risks associated with Al-Qahtanis account receivables, Al-Salman has decided to allocate 60% to the account receivables of Al-Qahtani Holding Group business as a tolerable misstatement rate. A summary of the financial statement information is shown below the case.

Additional relevant planning information is summarized;

1. Al-Qahtani Group has been a client for 4 years, and Mr. Hadi's firm has always had a good relationship with the company. Management and the accounting people have always been cooperative, honest, and positive about the audit and financial reporting. No material statements were found in the prior years audits. AL-Salmans firm has monitored the relationship carefully, because when the audit was obtained, AbdullahAlqahtani, the CEO, had the reputation of being a high-flyer and had been through bankruptcy at an earlier time in his career.
2. Mr. Abdullah is a controlling manager who makes all the decisions himself. He gives his employees responsibility, but he doesn't give them enough authority.
3. The industry in which AlQahtani Holding Group participates has been in a favorable cycle for the past 10 years, and that trend is continuing in the current year. Industry profits are reasonably favorable, and there are no competitive or other apparent threats on the horizon.
4. Internal controls for Al-Qahtani Holding Group are evaluated as reasonably effective for all cycles but not strong. Although the clint supports the idea of control, Mr. Hadi has been disappointed that management has continually rejected his recommendation to improve its internal audit function.
5. Al-Qahtani Holding Group has a contract with its employees that if earnings before taxes, interest expense, and pension cost exceed $7.8 million for the year, an additional contribution must be made to the pension fund equal to 5% of the excess.

Instructions:

You are to play the role of Mr. Hadi Al-Salman in the 31 Dec. 2022 audit of Al-Qahtani Holding Group. Answer the following questions.

1. Based on the provided information above. Calculate the tolerable misstatement to be allocated to the accounts receivable of Al-Qahtani Holding Group and explain the importance of this step in planning your audit.
2. Make an acceptable audit risk decision for the current year as high, medium, or low, and support your answer.
3. Perform analytical procedures that can help you evaluate Group Profitability, Liquidity, and Solvency. Explain how your findings impact this years audit procedures
4. The evidence-planning worksheet to decide tests of detail balances for Al-Qahtani Holdings accounts receivable is shown below. Use the information in the case and your conclusions in parts 1 through 3 to complete the following rows of the evidence planning worksheet: Acceptable audit risk, inherent risk, control risk, and substantive analytical procedures. ( Table provided in the picture ).

Income Statement \begin{tabular}{|l|c|c|} \hline & \begin{tabular}{c} Preliminary \\ 31 Dec. 2022 \end{tabular} & \begin{tabular}{c} Audited \\ 31 Dec. 2021 \end{tabular} \\ \hline Sales & $43,994,931 & $32,258,015 \\ \hline Cost of goods sold & 24,197,212 & 19,032,229 \\ \hline \multicolumn{1}{|c|}{ Gross profit } & 19,797,719 & 13,225,786 \\ \hline Operating Expenses: & \multicolumn{2}{|c|}{} \\ \hline Selling, general, and administrative expenses & 10,592,221 & 8,900,432 \\ \hline Pension cost & 1,117,845 & 865,030 \\ \hline Interest expense & 83,376 & 104,220 \\ \hline \multicolumn{1}{|c|}{ Total operating expenses } & 11,793,442 & 9,869,682 \\ \hline Income before taxes & 8,004,277 & 3,356,104 \\ \hline Income tax expense & 1,800,000 & 1,141,000 \\ \hline \multicolumn{1}{|c|}{ Net income } & $6,204,277 & $2,215,104 \\ \hline \end{tabular} Balance Sheet \begin{tabular}{|c|c|c|} \hline & \begin{tabular}{l} Preliminary \\ 31 Dec. 2022 \end{tabular} & \begin{tabular}{c} Audited \\ 31 Dec. 2021 \end{tabular} \\ \hline Cash & $443,689 & $334,981 \\ \hline Trade accounts receivable & 3,144,709 & 2,624,713 \\ \hline Allowance for uncollectible accounts & (120,000) & (215,000) \\ \hline Inventories & 4,120,380 & 3,588,400 \\ \hline Prepaid expenses & 29,500 & 24,700 \\ \hline Total current assets & $7,618,278 & $6,357,749 \\ \hline \multicolumn{3}{|l|}{ Property, plant, and equipment: } \\ \hline At cost & 14,095,077 & 10,271,787 \\ \hline Less accumulated depreciation & (4,382,990) & (3,775,911) \\ \hline Total non-current assets & $9,712,087 & $6,495,876 \\ \hline Goodwill & 1,200,000 & 345,000 \\ \hline Total assets & $18,530,365 & $13,198,625 \\ \hline Accounts payable & 2,441,552 & 2,926,789 \\ \hline Bank loan payable & 150,000 & - \\ \hline Accrued liabilities & 723,600 & 598,020 \\ \hline Federal income taxes payable & 1,200,000 & 1,759,000 \\ \hline Current portion of long-term debt & 240,000 & 240,000 \\ \hline Total Current Liabilities & $4,755,152 & $5,523,809 \\ \hline Long-term debt & 960,000 & 1,200,000 \\ \hline Total liabilities & $5,715,152 & $6,723,809 \\ \hline \multicolumn{3}{|l|}{ Stockholders' equity: } \\ \hline Common stock & 1,500,000 & 1,250,000 \\ \hline Additional paid-in capital & 2,469,921 & 1,333,801 \\ \hline Retained earnings & 8,845,292 & 3,891,015 \\ \hline Total stockholders' equity & $12,815,213 & $6,474,816 \\ \hline \begin{tabular}{l} Total Liabilities and Stockholders' \\ Equity \end{tabular} & $18,530,365 & $13,198,625 \\ \hline \end{tabular} Retained Earnings Statement \begin{tabular}{|l|c|c|} \hline & \begin{tabular}{c} Preliminary \\ 31 Dec. 2022 \end{tabular} & \begin{tabular}{c} Audited \\ B1 Dec. 2021 \end{tabular} \\ \hline Beginning retained earnings & $3,891,015 & $2,675,911 \\ \hline Net income & 6,204,277 & 2,215,104 \\ \hline Dividends declared & (1,500,000) & (1,250,000) \\ \hline Ending retained earnings & $8,595,292 & $3,641,015 \\ \hline \end{tabular} Al-Qahtani Holding Group Evidence Planning Worksheet to Decide Tests of Details of Balances for Accounts Receivable \begin{tabular}{|c|c|c|c|c|c|c|c|c|} \hline & Detail tie-in & Existence & Completeness & Accuracy & Classification & Cut-off & Realizable Value & Rights \\ \hline Acceptable Audit Risk & & & & & & & & \\ \hline Inherent Risk & & & & & & & & \\ \hline \begin{tabular}{l} Control Risk - \\ Sales \end{tabular} & & & & & & & & \\ \hline \begin{tabular}{l} Control Risk - \\ Cash Receipts \end{tabular} & & & & & & & & \\ \hline \begin{tabular}{l} Control Risk - \\ Additional Controls \end{tabular} & & & & & & & & \\ \hline \begin{tabular}{l} Substantive Tests of \\ Transactions - Sales \end{tabular} & & & & & & & & \\ \hline \begin{tabular}{l} Substantive Tests of \\ Transactions - \\ Cash Receipts \end{tabular} & & & & & & & & \\ \hline \begin{tabular}{l} Substantive Analytical \\ Procedures \end{tabular} & & & & & & & & \\ \hline \begin{tabular}{l} Planned Detection Risks \\ for Test of Details of \\ Balances \end{tabular} & & & & & & & & \\ \hline \begin{tabular}{l} Planned Audit Evidence \\ for Test of Details of \\ Balances \end{tabular} & & & & & & & & \\ \hline \end{tabular}