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

What must a U.S. auditor understand before reporting on financial statements prepared according to another country's framework?

1. The auditor's state board of accountancy waiver.

2. The relevant legal responsibilities of the audit.

3. The certification process by the other country’s board.

4. The requirement to disclaim an opinion on the statements.

The correct answer is: The relevant legal responsibilities of the audit.

For a U.S. auditor to effectively report on financial statements prepared in accordance with another country's framework, it is crucial to understand the relevant legal responsibilities of the audit. This encompasses the laws and regulations that govern auditing practices in the jurisdiction where the financial statements are prepared. Different countries may have varied legal frameworks impacting auditor responsibilities, compliance requirements, and ethical standards. Knowing the legal obligations helps the auditor to assess whether there are additional responsibilities that must be fulfilled under the foreign jurisdiction, which may differ from those in the U.S. context. For example, it may involve understanding local laws regarding financial reporting, the auditor's accountability, and how the audit should be conducted in accordance with that jurisdiction's standards. Understanding these responsibilities ensures that the U.S. auditor can appropriately navigate any legal implications that may arise from their audit work, thus assuring stakeholders that the audit is compliant with both U.S. and foreign regulatory requirements. This comprehensive grasp of legal responsibilities is essential for maintaining the integrity and credibility of the audit process, as well as for ensuring that the auditor is adequately prepared to issue a report that meets both U.S. and international standards.