You have completed in the financial statement audit of ABC Company for the year ended December 31, 2020. You are drafting the independent auditors report and are reviewing the situations described in the following four questions.

Explain how and why the standard unqualified report should be modified for each of the following items, or explain why it would not be modified.

1) During fiscal 2020, ABC increased its estimated useful life on equipment. You determined that this new estimate is not consistent with ABCs actual use of this equipment. The resulting increase in income was below your overall materiality threshold for the financial statements, but the estimate change did have a material effect on the equipment asset.

2) During fiscal 2020, ABC changed its accounting principle for inventory from LIFO to FIFO to better match the physical flow of its inventory to the customer. The change had a material effect on the inventory asset.

3) You were not able to observe a material amount of ABCs inventory at year-end due to weather conditions that prevented travel to the inventory locations. You had assessed high RMM for the Inventory asset based on concerns about management integrity, and you were unable to conduct alternative audit procedures that provided sufficient appropriate evidence in your professional judgment. The size of the inventory asset is above your overall materiality threshold for the financial statements.

4) You established an overall materiality threshold of 5% of pretax income in the audit planning stage. The total estimated misstatement based on obtaining sufficient appropriate audit evidence is below your materiality threshold.