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

How may KCP America’s auditor report on its financial statements prepared for a foreign parent?

1. With a U.S.-style report only.

2. With a report modified to reflect both frameworks.

3. According to the parent’s country reporting form.

4. With an unmodified report without restrictions.

The correct answer is: With a report modified to reflect both frameworks.

The most appropriate approach for the auditor of KCP America to report on its financial statements prepared for a foreign parent is to modify the report to reflect both the U.S. and the foreign reporting frameworks. This is because the financial statements may need to be in compliance with both U.S. Generally Accepted Accounting Principles (GAAP) and the reporting requirements of the foreign parent’s jurisdiction. By modifying the report in this way, the auditor can appropriately address the needs of the users of the financial statements, which may include both U.S. stakeholders and the foreign parent, ensuring that all relevant accounting standards are acknowledged and adhered to. This dual compliance helps provide a comprehensive view of the financial statements' reliability in the context of both accounting frameworks. Using only a U.S.-style report would not adequately fulfill the reporting needs of the foreign parent if its jurisdiction follows different regulations. Additionally, reporting solely according to the parent’s country reporting form might ignore U.S. regulatory requirements, which could mislead any U.S.-based stakeholders relying on the financial statements. Lastly, issuing an unmodified report without restrictions would not appropriately convey the potential differences or limitations imposed by the inter-jurisdictional reporting requirements. Therefore, modifying the report to reflect both frameworks ensures compliance and