1.

Rule 3520, Auditor Independence, requires that an audit firm and its
associated persons be independent throughout the audit and professional
engagement period.
The auditor should be independent from the client company, so that the audit
opinion will not be influenced by any relationship between them. The auditors
are expected to give an unbiased and honest professional opinion on the
financial statements to the shareholders.
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.

2. Do you believe that Section 201 was needed? Why or why not?
Section 201 is necessary to limit the criteria on the task and services of an
auditing firm that they may provide to their client company. These restrictions
will help to enable auditors to express freely their opinion about the result of
their audit and to maintain the reliability of the information.

3. Refer to Sections 203 and 206 of SARBOX. How would these sections of the
law have impacted the Enron audit? Do you believe that these sections were
needed? Why or why not?
These sections of the law have impacted the Enron audit. According to
Section 203 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. Section 206 states that 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 any capacity in the
audit of that issuer during the 1-year period preceding the date of the initiation
of the audit.
Andersen had performed Enrons internal audit function since 1993. He also
hired Enrons personnel, including the Vice President of internal audit, to be

part of his team in providing auditing services. Duncan joined Andersen that
became his partner and was named the lead partner of Enron 2 years later.
Duncan developed a close relationship with Enrons Accounting Officer
Richard Causey, who himself had worked at Andersen for almost 9 years.
Here, it may result to conflict of interest in developing an opinion about the
audit results because of having close relationship between the auditor and the
other personnel of Enron. These sections are needed to prevent conflict of
interest between the auditor and the management and to ensure
independence in auditing services. These will help to provide reliable
information that will be useful to the users.