In the course of the interim audit of Forleys of Budapest Co, which has 100 employees, you discover that the production manager, who controls clock cards and distributes cash wage packets to employees, has been completing a fictitious clock card and claiming wages in respect of an employee who left the company six months ago. You consider that the loss to the company is not material.

Which of the following statements is/are correct?

1. Since the irregularity is not material, additional audit testing will not be necessary.

2. Since the irregularity is not material, the matter need not be reported to management.

3. The discovery will necessitate modification of the audit opinion on the grounds of non-compliance with proper accounting records.