You are the Audit Manager at a CPA audit firm with a growing audit practice. You have accepted the audit of Starcourt Malls Inc. ("Starcourt"), one of 6 separate Canadian divisions of a large multinational corporation. Each division operates as a separate entity. The manager of each division receives a salary, plus a bonus based on the net profit of that division. In each division, the manager has the authority over all other employees for buying materials, production issues, accounting, and personnel matters. Steve Harrington has reached the level of manager of Starcourt by working very hard and demanding high production levels of his staff. Steve has advised you that he wants to see all questions you have about accounting issues and he assures you that he will personally make sure that they are taken care of, without any more effort on your behalf. Steve explained that he has managed 3 other divisions in the past for this company, and each one received a "clean audit report," which helped his career. He wants to ensure that Starcourt also gets a "clean" audit report, and to keep the auditor's work at a minimum. Starcourt has had revenues of nearly $10,000,000 during each of the prior three fiscal years and the company projects that revenues will continue to grow at a slow but steady pace. The unaudited financial statements for this fiscal year show total assets at fiscal year-end of $15,000,000, revenues of $10,500,000, and income before taxes of $840,000. Your firm uses the following to calculate planning materiality: 0.5-1% of total assets 1-2% of revenues or expenses 10-15% of income before taxes Required a. Determine whether you would set the overall audit risk for this engagement as high, medium, or low for your audit of Starcourt. [1 mark] Support the audit risk you have selected with three (3) reasons. [2 marks each] [7 total marks] b. Propose planning materiality for your audit of Starcourt. Support the materiality base you have chosen [2 marks]. Calculate planning materiality (show your calculation) and support the percentage you have selected. [3 marks] [5 marks total]