Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

Before reporting on a U.S. entity's financial statements prepared for a foreign parent, what should the auditor obtain?

1. A waiver from the foreign country’s authority.

2. Written management representations about the statements.

3. Approval from the parent’s auditor.

4. A disclaimer from the continuing accountant.

The correct answer is: Written management representations about the statements.

The requirement for an auditor to obtain written management representations about the financial statements is an essential aspect of the audit process. Management representations are formal statements made by management during the audit that confirm the accuracy and completeness of the financial statements, as well as adherence to applicable accounting standards. This step is crucial because it provides the auditor with additional assurance regarding the financial information provided. By obtaining these written representations, the auditor can corroborate the performance of substantive procedures and gain a clearer understanding of the management’s intentions and the context surrounding the financial statements. This is particularly important when auditing a U.S. entity preparing its financial statements for a foreign parent, as the auditor needs to ensure compliance with both U.S. and foreign reporting requirements. In this context, the other options do not address the specific need of acquiring confirmations and statements directly from management regarding the financial statements. A waiver from a foreign country’s authority, approval from the parent’s auditor, or a disclaimer from a continuing accountant might be relevant in different situations but do not provide the essential management assurances needed in this scenario. Thus, obtaining written management representations is a critical part of maintaining the integrity and reliability of the audit report.