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

When performing an engagement involving financial statements of a non-U.S. entity, the U.S. auditor is required to:

1. Use a generic reporting template.

2. Be familiar with the foreign reporting framework.

3. Be certified in the foreign country.

4. Automatically disclaim an opinion.

The correct answer is: Be familiar with the foreign reporting framework.

Being familiar with the foreign reporting framework is essential for a U.S. auditor when performing an engagement involving the financial statements of a non-U.S. entity. This familiarity is crucial because different countries have various accounting standards and reporting requirements, such as International Financial Reporting Standards (IFRS) or local GAAP. Understanding these differences enables the auditor to assess whether the financial statements comply with the applicable framework, ensuring they can provide a relevant opinion on the financial statements. Knowledge of the foreign framework allows the auditor to evaluate the appropriateness of accounting policies and to identify any discrepancies that may arise from differing standards. This understanding also plays a vital role in conducting risk assessments and understanding the entity's environment, which ultimately informs the audit strategy and procedures. Option A, using a generic reporting template, is not feasible because a one-size-fits-all approach would overlook essential details specific to the foreign entity's financial statement framework. Option C, being certified in the foreign country, is unnecessary as U.S. auditors can perform audits without needing foreign certification, although they must understand the relevant financial reporting standards. Option D, automatically disclaiming an opinion, is not a requirement but rather a decision based on the circumstances encountered during the audit. Automatic disclaimers undermine the assessment process and