One issue concerning Enron's collapse centered on the amount of non-audit fees paid by Enron to its external auditor, Arthur Andersen. For each of the following items, discuss the potential ethical issues between the firm and its auditor. For each item, list at least one reason why the statement might be viewed as a threat to the auditor's independence, and at least one reason why it might not be viewed as such a threat.
1. The firm's auditor is heavily involved in non-audit services.
2. The audit partner's compensation depends on both audit and non-audit fees from the same client.
3. In 1995, Congress passed the Private Securities Litigation Reform Act. This act reduced plaintiffs' ability to sue auditors.