1.

Under Rule 3520, a registered public accounting firm or associated person's

independence obligation with respect to an audit client encompasses not only an
obligation to satisfy the independence criteria applicable to the engagement set out in the
rules and standards of the PCAOB, but also an obligation to satisfy all other
independence criteria applicable to the engagement, including the independence criteria
set out in the rules and regulations of the Commission under the federal securities laws.
Auditor independence refers to the independence of the external auditor. It is
characterized by integrity and an objective approach to the audit process. The concept
requires the auditor to carry out his or her work freely and in an objective manner.
To be independent in fact, an auditor must have integrity, a character of intellectual
honesty and candor; and objectivity, a state of mind of judicial impartiality that
recognizes an obligation of fairness to current and prospective management and owners
of a client, creditors and other stakeholders. To be independent in appearance, the auditor
must not have any obligations or interests in the client, its management, or its owners,
that could cause others to believe the auditor is biased with respect to the client, its
management, or its owners. It is important that even if an auditor maintains independence
in fact, that independence in appearance is also maintained. Without being independent in
appearance, the value that the audit function has to the public is weakened or lost.
https://www.coursehero.com/file/pfrncf4/What-is-the-difference-between-independencein-appearance-and-independence-in/
http://www.icaew.com/en/technical/ethics/auditor-independence
2. According to Sarbanes Oxley Act Section 201
(b) the PROHIBITED ACTIVITIES.Except as provided in subsection (h), it shall
be unlawful for a registered public accounting firm (and any associated person of
that firm, to the extent determined appropriate by the Commission) that performs
for any issuer any audit required by this title or the rules of the Commission under
this title or, beginning 180 days after the date of commencement of the operations of
the Public Company Accounting Oversight Board established under section 101 of
the Sarbanes-Oxley Act of 2002 (in this section referred to as the Board), the rules
of the Board, to provide to that issuer, contemporaneously with the audit, any nonaudit service, including (1) bookkeeping or other services related to the
accounting records or financial statements of the audit client; (2) financial
information systems design and implementation; (3) appraisal or valuation
services, fairness opinions, or contribution-in-kind reports; (4) actuarial services;
(5) internal audit outsourcing services; (6) management functions or human
resources; (7) broker or dealer, investment adviser, or investment banking services;
(8) legal services and expert services unrelated to the audit; and (9) any other
service that the Board determines, by regulation, is impermissible. (h)
PREAPPROVAL REQUIRED FOR NON-AUDIT SERVICES.A registered public

accounting firm may engage in any non-audit service, including tax services, that is
not described in any of paragraphs (1) through (9) of subsection (g) for an audit
client, only if the activity is approved in advance by the audit committee of the
issuer, in accordance with subsection (i)..
Based on the services provided by Andersen to Enron, the prohibited additional services
that they provided were internal audit outsourcing services, management functions or
human resources and consulting services. Section 201 of Sarbox is very important. We
know that an auditor must function fairly and avoiding actions that may form bias and
conflict with the credibility of their opinion. With those given rules/ standards for
auditing, I believe that this must be strictly followed by auditors to present a credible,
unbiased and reasonable opinion.
3. SEC. 203. AUDIT PARTNER ROTATION.
It shall be unlawful for a registered public accounting firm to provide audit services
to an issuer if the lead (or coordinating) audit partner (having primary
responsibility for the audit), or the audit partner responsible for reviewing the audit,
has performed audit services for that issuer in each of the 5 previous fiscal years of
that issuer..
SEC. 206. CONFLICTS OF INTEREST.
It shall be unlawful for a registered public accounting firm to perform for an issuer
any audit service required by this title, if a chief executive officer, controller, chief
financial officer, chief accounting officer, or any person serving in an equivalent
position for the issuer, was employed by that registered independent public
accounting firm and participated in capacity in the audit of that issuer during the 1year period preceding the date of the initiation of the audit..
Enron had been receiving the services of Andersen for many years which, according to
Sarbox, is unlawful. Also, the employee of Enron which had first been an employee in
Andersen- Enrons Chief Accounting Officer, Richard Causey and Duncan. Those actions
made both by Enron and Andersen, may show incorrect actions between the auditor-client
relation. Auditors must act independently; auditing firms must have check their
relatedness with its clients and clients must choose employees which would not affect the
companys credibility. Sections 203 and 206 in Sarbox are important for the auditors to
establish independence and unbiased judgment to its client.
4. SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.
(3) INDEPENDENCE. (A) IN GENERAL.Each member of the audit
committee of the issuer shall be a member of the board of directors of the issuer, and
shall otherwise be independent. (B) CRITERIA.In order to be considered to be
independent for purposes of this paragraph, a member of an audit committee of an
issuer may not, other than in his or her capacity as a member of the audit
committee, the board of directors, or any other board committee (i) accept any

consulting, advisory, or other compensatory fee from the issuer; or (ii) be an

affiliated person of the issuer or any subsidiary thereof.
(4) COMPLAINTS.Each audit committee shall establish procedures for
(A) the receipt, retention, and treatment of complaints received by the issuer
regarding accounting, internal accounting controls, or auditing matters; and
(B) the confidential, anonymous submission by employees of the issuer of concerns
regarding questionable accounting or auditing matters.
(5) AUTHORITY TO ENGAGE ADVISERS.Each audit committee shall have
the authority to engage independent counsel and other advisers, as it determines
necessary to carry out its duties.
(6) FUNDING.Each issuer shall provide for appropriate funding, as determined
by the audit committee, in its capacity as a committee of the board of directors, for
payment of compensation
(A) to the registered public accounting firm employed by the issuer for the
purpose of rendering or issuing an audit report; and
(B) to any advisers employed by the audit committee under paragraph (5)..
I believe that independence between the auditor and client important for it affects the
reputation and credibility of the financial statement and the client. A doubt may be
established to the primary users of the information if they would know that the auditor
and the client had violated the principle of independence. A well-established relationship
of auditor and the client may affect the opinion and judgment that will be made. Auditors
may be pressured to give a judgment mostly if they are very close with the client and
would affect their relationship so it is better to establish independence to receive a
reasonable and unbiased opinion that will be the used for decision making.