1. "The auditor can guarantee that a material misstatement does not exist in the financial statements audited by him/her. "

Is the above statement correct? Discuss the truthfulness of the statement by elaborating the concept of audit risk borne by the auditor.

2.Consider the following situations independently. As an audit partner for each audit clients above, indicate the type of audit opinion you believe should be expressed in each situation and provide justifications for your answer.

i) Best Engineering Bhd. is a manufacturer of advanced electronic equipments. During the year, Covid-19 pandemic has resulted in a significant decrease in the demand of their products, which are now being sold significantly below cost. Management refuses to write-off the products or to increase the reserve for obsolescence as much as the amount suggested by the auditors, with the excuse that the pandemic will recover in few months-time. The amount of inventory that should be reduced is material but not pervasive.

ii) Pay-Greet-Answer Bhd has prepared its financial statements but has decided to include the value-added statement. Management explains that they believe that its shareholders find the statement to be very useful since the statement depicts wealth created by the company and how is that wealth distributed among various stakeholders. However, the auditor disagrees and refuses to audit the statement because it will increase their audit job scope.

iii) In the last 3 months of the current year, TwoMinutes Bhd. decided to change and venture into the online trading of goods, due to Covid 19 pandemic. Management recognizes that this business is not risky, and has significant potential rewards but they are not sure its success rate. During the short period of operation in the new operation, the company has managed to only achieve 50% of the targeted sales. The facts are not adequately disclosed in footnotes because the management thinks that the poor economy due to Covid-19 pandemic is a global issue that everybody already knows.

iv) The auditor was unable to obtain audit evidence for transactions related to related parties in Why-Es Bhd. The management refuses to allow the auditor from accessing minutes of their board meetings with the excuse that the information is a big secret of the government.

v) The client, IKG Bhd restricted the auditor from getting customers' addresses for external confirmation of trade receivables with the reason that this information is highly confidential. Trade receivables balance is a material item. The auditor could not get audit evidence on this and believes that the uncertainty of trade receivables' values would affect the valuation of other items in the financial statements.

v) R-Squared Bhd has been sued in court for polluting the river. The company's legal counsel informs that the company is liable and that the amount of the liability can be reasonably estimated. However, the company is reluctant to disclose this fact in the financial statements as it may give bad impression on shareholders of the company's future prospects in business.

1. For each explanation of audit procedures below, indicate the type of audit procedures and the related assertions to which it pertains.