One issue concerning Enrons 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 auditors independence, and at least one reason why it might not be viewed as such a threat.

1. The firms auditor is heavily involved in non-audit services.

2. The audit partners compensation depends on both audit and non-audit fees from the same client.

3. In 1995, Congress passed the Private Securities Litigation Reform Act.