Choice "A" is correct. A written client representation letter should include representations regarding matters that may affect recognition, measurement, and disclosure. Management's plans to discontinue a line of business may affect financial statement disclosure, since the results of operations of a component classified as "held for sale" would be reported separately in the income statement under "discontinued operations."
Choice "c" is incorrect. A client's plan to terminate an employee pension plan would not affect recognition, measurement, or disclosure in the current period financial statements.
Choice "b" is incorrect. A client's plans to make a public offering of its common stock would not affect recognition, measurement, or disclosure in the current period financial statements.
Choice "d" is incorrect. A letter from the client's attorney most likely would be an auditor's best source of corroborative information of a client's plans to settle an outstanding lawsuit for an amount less than the accrued loss contingency.