The audit report is the final step in the entire audit process. 

a) Distinguish between an unqualified report with emphasis of matter and a qualified report. (3 marks) b) For the following independent situations, assume that you are the audit partner in the engagement: a. During the audit of Ajay. Bhd, you concluded that there is a possibility that debtors is materially overstated. The client refused to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated. 

b. You have audited Shama Sdn. Bhd for the first time. Shama has been in business for several years but has never had an audit before. After the audit is completed, you conclude that the current year statement of financial position is prepared in accordance with approved accounting standards. The client did not authorize you to do test work for any of the previous years. 

c. You were assigned to audit Steel Bhd's financial statements after the close of the corporation's fiscal year. Because you were not engaged until after the statement of financial position date, you were not able to physically observe inventory, which is highly material. On the completion of your audit, you are satisfied that Waja's financial statements are presented fairly, including inventory about which you are able to satisfy yourself by the use of alternative audit procedures. 

d. Four weeks after the year-end date, a major customer of Bangun Bhd had been declared a bankrupt. Since the customer had confirmed the balance due to Bangun at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 20 percent of accounts receivables and 30 percent of net earnings before taxes. 

Required: 

For each situation, do the following: 

i Identify the conditions involved that may cause a modification or a deviation from an unqualified standard report.

ii. State the level of materiality as immaterial, material or pervasively material. If you cannot decide the level of materiality, state the additional information needed to make a decision. 

iii. Given your answers in parts (1) and (ii), state the type of audit report that should be issued. If you have not decided on the level of materiality in part (ii), state the appropriate report for each alternative materiality level.