Explain the problems associated with lack of auditor independence

Answer 1

Auditing firms who are also engaged by their clients to perform non-accounting activities such as actuarial services, internal audit outsourcing services, and consulting lack independence. They are essentially auditing their own work. This risk is that as auditors they will not bring to management's attention detected problems that may adversely affect their consulting fees. For example, Enron's auditors – Arthur Andersen – were also their internal auditors and their management consultants.