When Arthur Levitt gathers other members of the

Securities and Exchange Commission

Wednesday to decide how much to rein in the accounting industry, he'll be up against some awfully formidable legal foes.

Levitt, who many observers predict will retire as SEC chairman after a new president takes office, has effectively pushed to the edge the debate that has raged for months about whether accounting firms can offer their clients services besides audits.

Levitt has argued that auditors must be prohibited from offering other consulting services to their clients to avoid conflicts of interest. His position has drawn staunch opposition from several of the big accounting firms, and at times, a flurry of heated

rhetoric between the two sides.

A clear sign of what Levitt's up against came in a letter to the SEC last week from a Washington, D.C., law firm representing the

American Association of Certified Public Accountants

and the firms

Arthur Andersen

,

Deloitte & Touche

and

KPMG

. The letter demanded that any new rules Levitt proposes be put out for public comment, a suggestion that could effectively delay the enactment of any new requirements until after Levitt leaves the SEC. The letter was signed by lawyer Theodore Olson, of

Gibson Dunn & Crutcher

.

Big Guns

"Under these circumstances, law, prudence and the principles of good government all require that the commission offer the new version of its proposed rule for public comment," wrote Olson, who on Monday was before a federal judge in Florida representing the Bush campaign in its effort to block a hand recount in the presidential race.

Olson isn't the only hired gun pointed at Levitt.

Arthur Andersen has hired David Boies, the celebrated New York lawyer who led the

U.S. Justice Department's

antitrust effort against

Microsoft

(MSFT) - Get Report

and also has represented

Napster

in its battles with the recording industry. Boies also showed up Tuesday representing the Gore campaign.

Olson and Boies both are on

The National Law Journal's

June list of the nation's 100 most influential lawyers.

SEC officials remained tight-lipped about what final rule the agency would consider when it meets Wednesday.

"The discussions continue and nothing's off the table," spokesman Chris Ullman said after conflicting news reports in recent days about what the new audit rules would contain.

What Happens to Computer System Consulting?

Of particular concern to the accounting firms is whether the new rules would allow them to continue providing computer system consulting for their audit clients.

Levitt hasn't been shy about criticizing what he says is a blurring of the line between audits and other services accounting firms offer their clients.

"Like never before, companies are under increasing pressure to 'make their numbers' or risk losing millions of dollars in their stock value, simply because they are a penny or two shy of Wall Street earnings expectations," Levitt told the AICPA at its fall gathering last month. "Auditors are sometimes encouraged to 'go easy' on a judgment call.

"I caution the profession against taking actions that may have the potential to negatively impact or subordinate the credibility, integrity and most importantly the respect the public has for three letters -- C-P-A," he added. "Unfortunately, it has become clear that the perceived value of the audit is being put at risk."

Outside Influences

Levitt's decision to hold the critical SEC meeting on the so-called auditor independence rules now comes amid a period of business and political turmoil on several fronts.

Levitt announced the hearing before last week's general election, a vote that in just about any other year would have settled the question of whether a

Republican

or

Democratic

administration would next inhabit the White House, and thereby run the SEC. With the tortuous vote-tallying process under way in Florida, it remains unclear whether the next administration would continue the regulatory climate of the past eight years, with

Al Gore

as president, or take what many believe would be a turn away from regulation under

George W. Bush

.

The SEC also is to meet as

Congress

is still in session, having been unable to complete its work on next year's federal budget before the election. That leaves another threat hanging over Levitt, as some lawmakers, before the election break, had prepared to insert a rider in the budget bill that would block enactment of the auditor rules until next year, or again presumably until Levitt is gone.

A business development this week plays into the mix as well.

Two of the Big Five accounting firms --

Ernst & Young

and

PricewaterhouseCoopers

-- had broken from their colleague firms and expressed willingness to accept some restraint on nonaudit activities by the accounting concerns. Ernst & Young already had sold its consulting arm, and PwC was hoping to do the same. But on Monday, one suitor for the business,

Hewlett-Packard

(HWP)

, announced it wouldn't buy the unit.