For the following independent situations, assume that you are the audit partner on the engagement: i. During your audit of Danga.com Berhad, you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated. ii. You were engaged to audit Waja Steel Bhd.s financial statements after the close of the corporations fiscal year. Because you were not engaged until after the balance sheet date, you were not able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Wajas financial statements are fairly, including inventory which you were able to satisfy yourself by the use of alternative audit procedures.

You are required to: (a) Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable. (b) State the level of materiality as immaterial, material or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. (c) Given your answers in (a) and (b), state the type of audit report that should be issued. If you have not decided on one level materiality in (b), state the appropriate report for each alternative materiality level.