GAMA & Associates, was appointed as the statutory auditor of SARA Ltd., an unlisted company engaged in paper manufacturing. During the audit,…

GAMA & Associates, was appointed as the statutory auditor of SARA Ltd., an unlisted company engaged in paper manufacturing. During the audit, the following observations were made: Observation 1: A major flood during the year damaged one of the company’s warehouses, resulting in losses. The management has adequately disclosed the same in the financial statements and considers the loss to be not material. Observation 2: Due to the flood, certain transaction records were completely destroyed, and no duplicate records were maintained. The impact of this matter is material but not pervasive. Under which heading GAMA and Associates should report Observation 1 and 2 in the audit report.