Your audit partner has just come back from a planning meeting with the Chairman, CEO, CFO and the majority shareholder of FFPL. He called you into his room and passed you a file which contains information from the planning meeting and his tasks for you.

As a newly promoted audit senior, you are highly motivated and determined to do a good job. You opened the file and obtained the following information:

1. FFPL is a profit-oriented manufacturer of curry puffs. The Company was started and owned by Mr. Han Keen Juan (Chairman), Mr. William Lim (CEO) and a passive but substantial shareholder, Ms. Tiffany Tan.

	Number of shares	% of issued shares
Directors:
Han Keen Juan	60,000	12.0
William Lim	40,000	8.0
Substantial shareholder:
Tiffany Tan	400,000	80.0
Total	500,000	100.0

2.The shareholders are expanding the company and planned to eventually list FFPL on the Singapore Stock Exchange.

3.In order to finance the companys expansion, the Chairman verbally represented that they draw-down a $1,000,000 unsecured loan from DBS on 1 January 2022 at fixed interest rate of 1.88% per annum. Interest repayment is due annually whilst the full principal sum are to be repaid at the end of the 25^th year.

4.FFPLs revenue is derived mainly from the sale of curry puff through the chain of retail outlets in Singapore and partly through export to Malaysia.

Revenue	FY2021	FY2022
	$	$
Outlet sales	27,011,850	35,416,770
Export sales	2,033,150	2,437,830
Total	29,045,000	37,854,600

5. The Company opened two new retail outlets at VivoCity and Hougang Point in FY2022. A 20% price increase was also implemented on all its curry puff (from $1 to $1.20) with effect from 1 January 2022.

For export sales, the Company export its frozen curry puffs to 3 customers in Malaysia. The CEO explained that they had also implemented a 20% price increase (from $1 to $1.20) for export sales since 1 January 2022.

Except for export sales which are on credit, outlet sales are conducted on a cash basis.

5.Cost of sales comprised mainly raw materials, such as flour, eggs, potatoes, margarine, chicken meat, spices and vegetables for the preparation of curry puffs. All curry puffs are produced internally at the Companys woodlands production facility. Due to inflation and shortage of raw materials, the Company had experienced on average, a 25% increase in cost from its suppliers for FY2022.

6.The Company had on average 128 employees for FY2022. All employees are Singaporean below the age of 50 years old. As the Company had performed well, all existing employees (except the Chairman and CEO) received a 3% salary increment with effect from 1 January 2022. In addition, these employees received a 2 month bonus paid on 15 December 2022.

7. The other key components of FFPLs income statement are:

a. Employers CPF contribution is at 17% of employees total remuneration[1];

b. Fixed assets are depreciated on a straight-line basis over the estimated useful life of the asset;

c. Utilities expenses had increased mainly due to increased production volume and a 20% increase in electricity prices from Singapore Power;

d. Advertising and promotion costs pertain to the Companys agreement with an out-sourced advertising agency, Ogilvy & Mather. The agreement provide for FFPL to pay 0.5% of total sales to the advertising agency for marketing services received;

e. Administrative expenses relates to other expenses that the company incurs as part of the ordinary course of the business. This amounts to approximately 10%-13% of sales.

f. The Companys previous one year time deposit had matured on 31 March 2022. A new one year time deposit of $5,500,000 was placed with DBS Bank on 1 July 2022 at an interest rate of 1.1146% per annum;

g. Loss on sale of investment is in relation to the Companys once-off loss of 40% on investment as the Company divested its equity investment in a loss-making garment company so as to focus on its core food business; and

h. Effective corporate income tax rate is 17% for FY2022.

Required:

Your audit partner has asked you to focus your attention on two areas of audit planning: (1) determine overall materiality; and (2) indicate which income statement account has a higher likelihood of material misstatements.

In order to complete these tasks, you are required to perform all of the following:

A101: Based on FFPLs financial statements (Exhibit 1), determine FY2022 materiality.

A201: Prepare an income statement preliminary analytical procedure for FY2022. In your analysis, you will need to develop expectations for each income statement account based on your analysis of plausible relationship among financial and/or non-financial data.

A301: Using the preliminary analytical procedures performed in part (A201) above, identify accounts that you believe have a higher likelihood of material misstatements and explain the reasons for your choice.

[1] With the exception of directors annual incentive bonus, all other remuneration received by the employees is subject to CPF contribution.