Top Promotions (TP) is a marketing company that offers a variety of offerings to its customers. Specifically:

• TP will create a TV commercial for $1,000,000, build an app for $500,000, and build an Instagram account for $250,000. These amounts represent TPs charges for these items when TP sells them separately to customers. The TV commercial, the app, and the Instagram account are not interrelated; that is, each functions independently of the other offerings.
• If a customer purchases all aforementioned items together, the total cost is $1,500,000.
• Payment terms are 50% consideration due at contract signing, with the remaining 50% due over the rest of the development period (25% at mid-point, 25% at completion). If the three items are purchased together, the development period is equal to the time it takes for the longest item to be completed.
• If the app is downloaded at least 500,000 times in the first month that it is live, there is a one-time bonus of $100,000 payable to TP.

Fountain, a customer, approaches TP about building a marketing campaign to reach a younger customer base. Fountain has a verbal agreement with TP that is based on TPs unsigned quote to Fountain on November 30, 2020, for one TV commercial, one app, and an Instagram account. The agreement creates enforceable rights and obligations pursuant to TPs customary business practices, which includes payment for performance completed to date if Fountain cancels the contract for any reason other than TPs failure to perform under the contract as promised. None of these items can be redirected by TP to another customer. TP performed a credit check on Fountain and has determined that Fountain has the intention and ability to pay TP for fulfilling its portion of the contract.

Fountain makes a payment on November 30, 2020, in the amount of $750,000 pursuant to the agreement. From the date of the quote, it takes TP six months to develop and produce the TV commercial, three months to complete a fully functioning app, and two weeks to complete the Instagram account. At the fiscal year end, TP is on target with this production schedule. TP does not think that the app will be downloaded 500,000 times in the first month because Fountains customer base does not quickly accept newly developed technology.

For the contract between TP and Fountain, what are some risks of material misstatement (RMMs) that we may identify as part of our audit? On the Activity 2 tab of the Excel spreadsheet, columns A and B contain a RMMs matrix. In column C, identify if the RMM is a relevant RMM for the contract between TP and Fountain by entering yes or no. If you answer yes, describe why the RMM is relevant in column D. If you answer no, describe why the RMM is not relevant in column D.

Relevant RMMs are identified in the Risk Assessment Phase of the audit. During this phase, you are not determining whether the client has recorded the transaction correctly. Instead, you are determining whether these common RMMs are relevant for your client.