In 2002, the audit firm Arthur Andersen (one of the then 'Big 5' audit firms!) collapsed following charges brought against it in the United States relating to the failure of its client, Enron. Some other clients announced that they would be dismissing Arthur Andersen as their auditor even before it was clear that Arthur Andersen would not survive.

Required (a) Using the three theories outlined in Moroney et al. (2017, chapter 1)) (i.e., the prescribed textbook) on the demand for audit ((i) Agency theory, (ii) Information hypothesis, and (iii) Insurance hypothesis), explain some reasons why these clients took this action. (3 x 2 marks = 6 marks)