Question

Explain why the consulting fees and importance of Enron to David Duncan and the Houston office of Authur Andersen might have affected Duncan’s independence, and thus the quality of the audit he supervised.

Answer 1

An auditor has to be independent both in terms of fact and appearance. Duncan did not breach any standards related to independence which existed at that point of time. Anderson was well within its rights to provide both comsulting and audit services to Enron as the standards did not prohibit it. However, the consulting revenues were high which may have led to lapse in the auditor's independence and judgement. Loss of Enron as a client might have motivated Duncan to relax auditing norms for Enron , thereby adversely affecting the quality of the audit.