The harsh criticism of the audit profession, which followed in the wake of the Enron collapse, had a major impact on regulators’ activities worldwide. One result of the Enron debacle was that regulators started to address auditor independence issues as never before,
claiming auditors’ independence was impaired for the following reasons:
Arthur Andersen, the audit firm of Enron, was earning more from the provision of non-audit than audit services ($27 million and $25 million, respectively) and nonaudit services included assisting Enron devise accounting schemes compliant with US-GAAP, but which had the objective of keeping liabilities off the balance sheet,
Enron had been the managing partner’s only client for some years and was the principal client of Andersen’s local office, thus both the partner and the office were economically dependent on retaining Enron as a client,
a number of ex-Andersen staff worked for Enron and the relationship was believed to be very intimate, and
there were concerns about how Andersen managed its internal quality control and its partner incentive mechanisms (Fearnley and Beattie 2004: 118). After the Enron collapse and several other accounting scandals,
there were demands for significant revisions in accounting practices, foremost being the rotation of audit firms, the implementation of an effective audit committee and the banning of the provision of many non-audit services by incumbent auditors.