Auditing Enron | Accounting Dissertation

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Recently of corporate collapse in the US, Australia, and elsewhere, regulatory attention has been drawn to the published of auditor provided non-audit services (NAS) and audit client relationship. This assignment aims to debate on auditor independence by providing evidence regarding the relationship between non audit services and provide consulting services at a lower cost for their audit clients.

In tracking the development and identify the key stages and the changes that took place in approaches to external auditing. The two listed companies selected for arguments are Enron Corporation versus Chartered Semiconductor Manufacturing Ltd.

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Enron Corporation (former NYSE ticker symbol ENE) was an American energy company based in Huston, Texas. It was one of the world’s leading electricity, nature gas, paper and communications companies.1

Chartered Semiconductor Manufacturing Ltd (Chartered) is one of the world’s top dedicated semiconductor foundries in Singapore. It provides comprehensive wafer fabrication services and technologies to semiconductor supplier and system companies.

They are taken a reference for the arguments that influenced by the changes which have reported and analyses the effect. Research on non audit service provision impairs auditor independence, differential incentives drive auditor behavior.


Auditor independence is a cornerstone of the auditing profession, a crucial element in the statutory corporate reporting process and a key prerequisite for the adding of value to an audited financial statement (Mautz and Sharaf, 1961). However, recent account scandals, involving corporations such as Enron in the US, HIH Insurance in Australia have cast doubt over the independence of auditors and overall value of auditing.

These legislative interventions however have occurred despite limited and mixed empirical evidence of these proposed threats to auditor independence. Furthermore, some basic questions underlying this debate remain unresolved. For example, “ What factors influence a company’s decision to purchase NAS from its incumbent auditor?’2

The provision of NAS reduces investors’ judgments of auditor independence, audit quality and the attractiveness of the firm investment but not their auditor knowledge or financial statement reliability judgment. This assignment have consider two areas of literature which relating the theories and model of auditor independence. It also relevance on NAS found in current professional, regulatory frameworks, reviewed and summarized original theoretical and empirical studies but have excluded commentaries and opinion.

The Big Five audit firms (Ernst & Young, Arthur Anderson, Deloitte & Touche, PricewaterhouseCoppers and KPMG) charger higher audit fees for initial engagement. It has prediction that where audit fees are disclosed publicly. The audit firms lower their audit fees to accept new clients when they also provide more lucrative non audit services. It is no actual loss of audit independence despite the loss of perceived independence of the Big 5 firms.

The provision of NAS by audit firms for their audit clients are popular in the current market and continuous debate over auditor independence.

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