Question 1 a) Discuss how materiality affects audit reporting decisions. (5 marks) The final audit of ABC Limited is near completion. The engagement team is satisfied that legal claims received to date have been documented in the current working paper and reflected in the financial statement where necessary. However, ABC Limited's lawyer has advised you, the audit manager, that it is possible that significant additional legal claims may be made by employees in the future in respect of wrongful dismissal. The audit engagement partner has confirmed that this is a contingent liability that requires disclosure. The managing director has agreed to disclose some details of the potential claims in the financial statements, but the audit team is yet to confirm the adequacy of these disclosures. Required b) Describe the impact on the auditor's report of ABC Limited of both adequate and inadequate disclosure of the contingent liability. (4 marks) Your audit client Golden Loans Ltd, a lending company regulated by the Financial Services Commission (FSC) has a year end of March 31, 2022. The field work was completed on May 15,2022 , and the audited financial statements were sent to the FSC June 10, 2022. However, the following matters were brought to your attention: i. On May 4, 2022, the auditor discovered that a client of Golden Loans Ltd went bankrupt on April 5,2022, as they were consistently losing market share since the start of 2022. The loan which resulted in the debt was granted on December 17, 2021. ii. On July 14, 2022, the auditor discovered that a client of Golden Loans Ltd went bankrupt on April 23, 2022. The loan was granted February 22, 2022 and appeared collectible on May 15,2022. iii. On June 15, 2022, the auditor discovered that a client of Golden Loans Ltd went bankrupt on May 10, 2022. The loan was granted on April 30,2022, and no cash receipts had been received since that date. Required: For each material event above, state the appropriate action the auditor should take for the situation and provide the rationale for your response. (3marks)