BUACC5935 Auditing and Assurance Services - Group Assignment

Scenario:

In the summer of 2002, there were several significant accounting scandals in the United States.  The business failures of Enron, WorldCom, Global Crossing, Lehman Bros.  The auditor of Enron, Arthur Andersen, suffered a criminal indictment (later overturned) that forced the firm’s dissolution.  These events led the public to strongly question the independence of the auditor.  Extensive evidence emerged that Arthur Andersen had been aware of Enron’s questionable accounting for years.  The account was viewed as too big a risk losing, producing revenues of $52 million.

In its analysis of the role of auditors in the financial crisis, the European Commission identified impaired professional skepticism and undermined independence of audit firms as key drivers of audit quality problems.  The Commission identified three main causes:

• Provision of non-audit services
• The issuer-pays business model
• The threat of familiarity due to the same audit firm being re-appointed for several years.

It took a wave of massive accounting scandals at the start of the last decade to provide the impetus for the passage of the  Sarbanes Oxley Act (2002) including its independence reforms. 

Required:

Your starting point is a search of the literature on auditor independence.  Some journal articles are attached in a zip file in moodle  they are by no means complete.  In preparing your assignment you should include at least three of the points below.

   3) Why is the issue of auditor independence important? Discuss what exactly is auditor           independence.