The Securities and Exchange Commission on Wednesday approved new restrictions designed to assure the independence of accounting firms by limiting some of their consulting work and requiring them to disclose the extent of their nonaudit services.
The decision effectively ended months of
contentious debate on the issue, with four of the
accounting firms endorsing the new rule. And it fell well short of the sweeping initiative SEC Chairman Arthur Levitt had sought. Levitt wanted to prohibit accounting firms from offering consulting services to their auditing clients.
"As many know well, the process of working towards an effective but workable final rule has been a long and often difficult one," Levitt said in a statement Wednesday. "The role of government in the circumstances is not
to shackle the industry with costly regulations that can be circumvented. Rather, it is to define the issues and catalyze a public interest resolution."
The new rule allows accounting firms to offer computer consulting to their audit clients, but requires them to disclose annually the dollar value of the consulting and audit services. The rule also defines the pool of accounting firm employees whose personal investments might be deemed as potential conflicts with their firm's audit work.
has argued that consulting services accounting firms provide their audit clients create potential conflicts of interest, particularly with the intense pressure Wall Street places on such financial performance indicators as earnings reports.
The rule the commission approved is supported by
Ernst & Young
Deloitte & Touche
, the SEC said. The remaining Big Five firm,
, didn't not take a position on the rule proposal Wednesday.
"We need to see the specific rule language," said KPMG spokesman George Ledwith. "We understand that the commission has now recognized a number of our key concerns. We've worked hard to help the SEC amend its original proposal."