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

According to the Sarbanes-Oxley Act, which service is allowed for an SEC audit client?

1. Tax services that are preapproved by the audit committee

2. Expert services unrelated to the audit

3. Appraisal and valuation services

4. All listed services are disallowed

The correct answer is: Tax services that are preapproved by the audit committee

The Sarbanes-Oxley Act, established in 2002, was designed to improve corporate governance and accountability, particularly in the wake of major financial scandals. One of the important provisions of the Sarbanes-Oxley Act is the restrictions it places on the types of non-audit services that auditors can provide to their audit clients, specifically those that are publicly traded and under the jurisdiction of the SEC. Under Section 201 of the Act, auditors are prohibited from providing certain non-audit services to their audit clients to maintain independence. However, tax services can be permissible if they are preapproved by the audit committee. This provision reflects a balance between allowing auditors to provide valuable tax consulting services while simultaneously safeguarding the integrity and independence of the audit process. The option stating that tax services can be provided, given they have received preapproval from the audit committee, aligns with the intent of the Sarbanes-Oxley Act to ensure that such services do not compromise the auditor's objectivity during the financial audit. In contrast, expert services unrelated to the audit, appraisal and valuation services, and other non-audit services generally fall under the disallowed category, thus enhancing the need for the audit committee's active involvement. This understanding highlights why the