Two auditors were having the following discussion:
Auditor 1: Risk analysis is good. But, when all is said and done, it does not add much to the audit. You still need to directly test the account balances with procedures such as confirmations or observation. You can't ever get away from good old-fashioned auditing.
Auditor 2: The problem with "good old-fashioned auditing" is that there is a tendency to overaudit.We spends a lot of time on areas in which the likelihood of material misstatement is almost nil. At the same time, we don't spend enough time understanding the company's strategy and the structure of its transactions to determine where the real risk of misstatement may be occurring.

Required
a. Analyze the arguments made by the two auditors. Which has the more persuasive argument? Why is the argument more persuasive?
b. Explain how the two approaches to auditing are complementary, not conflicting.
c. The SEC and others have worried that (1) the risk analysis approach isn't auditing at all, (2) there is a greater likelihood that auditors can see trends that management makes to look consistent with previous results, and (3) that auditors will miss major problems because not enough detailed testing is performed. How would you address these concerns raised by the SEC?
d. How are tests of account balances linked to the risk analysis? Describe in detail.