You are the audit manager for HM Inc. Your firm has been the entitys auditor for 15 years. Your firm normally uses a range of 3% to 5% of income before taxes to calculate overall materiality and 5075% of overall materiality to calculate tolerable misstatement. HM Inc. has reported the following financial statement data (in millions) for the last four years:

	2020	2019	2018	2017
Income before tax	205*	600	500	400
Total Assets	30,000	25,000	20,000	15,000
Total Revenues	45,000	60,000	45,000	40,000

*Note that the significant decline in income before taxes in 2020 is due to a large non-recurring charge.

Required:

1. If you planned on using income before taxes as the benchmark to compute overall materiality and tolerable misstatement, how would you compute those amounts for 2021? Prepare and justify your calculations.
2. Determine overall materiality and tolerable misstatement using either total assets or total revenues as the benchmark. Make the calculations by utilizing both .25% and 2%, the endpoints of the range that your firms guidance provides.
3. Assume that during the course of the 2020 audit you discovered misstatements totaling $50 million (approximately 50% of the 2020 income before taxes of $205 million). Discuss whether this amount of misstatement is material given your benchmark calculations from parts a. and b. above.