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The Securities and Exchange Commission Tuesday announced proposed new restrictions and disclosure requirements for consulting work that accounting firms can do, but it stopped short of the far-reaching limitations commission Chairman Arthur Levitt had sought.

The proposed rules, which the commission is to take up in a meeting Wednesday morning, were accepted by four of the

Big Five

accounting firms, according to the SEC, and would set to rest a

contentious debate on the issue.

The rules are designed to enact what SEC officials called an "overarching standard" of independence for accounting firms that would block any activities that would inhibit their ability to provide objective and unbiased audits.

The rules would prohibit audit firms from having a material direct or indirect business relationship -- other than professional services -- with an audit client. They also would prohibit the external auditor from operating or supervising computer systems for its audit clients, although they would allow the accounting firms to provide computer consulting services to those clients. But the rules would require the accounting firms to then disclose, annually, the dollar amount of its audit fees, its computer consulting fees and the fees received for other services from those clients.

Key Issue

The computer consulting had been a key issue in the dispute over possible new audit independence requirements, with accounting firms fighting efforts to prohibit such work.

Arthur Andersen

,

PricewaterhouseCoopers

,

Ernst & Young

and

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Deloitte & Touche

all agreed to the new rules, the SEC said.

"We understand the things we think are important have been considered," said Linda Dunbar, a spokeswoman for the

American Institute of Certified Public Accountants

.

The proposal comes after months of debate on the issue. Levitt

has argued new restrictions were needed to prevent conflicts of interest that arise when accounting firms audit the books of the same clients for which they provide consulting services.

But the AICPA, Arthur Andersen, Deloitte and

KPMG

had strongly opposed the broader proposed restrictions. According to

The New York Times

, KPMG believed the SEC shouldn't be able to bring actions against firms based just on appearances of conflict. But the SEC said that because proof was tough to come by, it wanted to maintain the ability to bring actions based on appearances.

Going Easy

"Auditors are sometimes encouraged to 'go easy' on a judgment call, or 'look the other way' when it comes to accounting sleight of hand, all in the name of boosting revenues," Levitt told an AICPA meeting late last month. "In this environment of conflicting interests, the investing public relies on the accountant to stay true to his or her fiduciary duty."

Negotiations between the accounting firms and the SEC over the rule proposal continued through the day Tuesday. The SEC announced its draft of the new rules early in the evening.

Just last week, the AICPA and the three firms fighting the proposed restrictions urged the SEC not to approve a new rule without first putting it out for public comment, a move that could have delayed the rule significantly. The SEC has already received about 3,000 comment letters and held four days of public hearings on the auditing independence issue.