Reference no: EM132921010

Question - You have just been appointed audit senior for the initial audit for the year ended December 31, 2019 of Quick and Quicker Ltd. (QQL), a firm that specializes in transferring toxic chemicals to areas for safe storage. QQL is a private a company whose financial statements were audited in prior years by another auditing firm. Competition is intense amongst the four major competitors in this industry. The economic downturn continues to reduce margins as companies struggle to maintain market share. QQL has reported very small profits for each of the past three years. QQL will likely require some debt financing in the near future to finance its aging fleet. Before tax profits for the year ended December 31, 2017 are $6,000 after restructuring costs of $90,000. Sales for the year ended December 31, 2017 were $1.2 million and the company had a gross profit of $300,000 for that year and total assets of $1.5 million at December 31, 2019.

This industry is heavily regulated. Regulators are interested in ensuring that strict rules for transferring these chemicals are followed. Numerous complaints have been filed from local residents against this firm with allegations of chemical spill in nearby homes.

Required -

i) Recommend a planning materiality level for the audit of QQL for the year ended December 31, 2019, and justify your recommendation.

ii) Recommend a suitable performance materiality. Justify your reason.