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Audit Sampling, Section 201 of Title II

20. Why might an auditor use sampling?
A. Because testing and entire accounting system is impractical and unnecessary.
B. Because the client has not paid for full testing of the financial statements.
C. The auditor deems that there is no fraud in a certain area of the business.
D. The auditor deems that there is fraud in a certain area of a business.
21. Which of the following does Section 201 of Title II allow an auditing firm to perform for their client?
A. Bookkeeping or other services related to the accounting records or financial statements of the audit
client.
B. Broker or dealer, investment adviser, or investment banking services.
C. Services (such as those relating to tax returns) not listed above to be provided contemporaneously with
audits.
D. Actuarial services.

Solution Preview

20. The only true way an auditor can determine that every transaction is correctly authorized and recorded is to test the entire accounting system. However, doing so would cost the auditor untold hours and the client an unreasonable amount of money. A well-designed test of a sample of transactions and balances can give the auditor the reasonable degree of assurance that he or she needs. Therefore, an auditor might use sampling because testing an entire accounting system is impractical and unnecessary. (Answer A is correct.) The client has paid for a well-performed audit; it is up to the auditor to determine how to perform it, so answer B is wrong. Finally, the auditor cannot "deem" that there is or is not fraud in any area of the business; he or she does not possess that intimate a knowledge about the daily operations of the client, so the final two answers are wrong.

21. According to Section 201 of Title II of the Sarbanes-Oxley Act, "Section 10A ...

Solution Summary

This solution discusses two topics. First, it discusses why an auditor might use sampling. It then discusses which services are permitted and prohibited under Section 201 of Title II.

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