SEC Chairman Blasts Accountants - TheStreet

SEC Chairman Blasts Accountants

Levitt says they're resisting proposed new rules designed to minimize conflicts of interest.
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Updated from 4:05 p.m. ET

Securities and Exchange Commission

Chairman Arthur Levitt went after the nation's big accounting firms Monday, blasting them for resisting a federal proposal that would restrict their ability to provide consulting services to companies they audit.

Levitt called on smaller independent accounting firms to leapfrog their behemoth industry brethren and take the lead on maintaining the integrity of the accounting industry.

"I believe the time has come for the profession's own broader membership -- the smaller, independent accounting firms -- to stand up and take back what some are trying to take from them: the pride and privilege of serving the American public and its investors," Levitt said in the prepared text of a speech he delivered to the

National Association of State Boards of Accountancy

in Boston.

"It baffles and sorrows me to see an apparent willingness by some to discount the very ideals that give the profession its credibility -- a willingness to reap the benefits of this public-mandated franchise, but largely ignore the premise of its responsibility."

Levitt leveled the criticism at the big accounting firms and their lobbying group, the

American Institute of Certified Public Accountants

, as the SEC is in the midst of seeking public comment on a

proposal that would effectively force accounting firms to separate their auditing and consulting services to avoid conflicts between the two.

Auditor independence and the purity of accounting have been a recurrent theme for Levitt in recent months, although the proposed restrictions he favors

haven't been greeted warmly by the industry's larger players.

Robert Elliot, the AICPA's chairman, said Levitt is "trying, it appears, to drive some kind of a wedge between different firms in the profession, which I think is completely inappropriate."

Elliot also objected to Levitt's questioning of the accounting industry's dedication to the public trust. "That, of course, is 180 degrees out of phase with reality," he said. He said he hoped the SEC would take a step back and study the issue of auditor independence more before rushing to approve new rules.

"

Levitt came out with his guns blazing today," Elliot said. "It's pretty discouraging when two guys with the white hats start shooting at each other."

Levitt has been at loggerheads with the AICPA in the past,

ripping the association for threatening to withhold funding for the private

Public Oversight Board

, or POB, as it studied the thorny issue of what investments accounting firm employees were themselves making.

On Monday, Levitt also criticized the trade group for recently rejecting a proposal that would have given the POB new authority over the industry commissions that monitor and guide the auditing industry.

"Why does the leadership of the AICPA reject the recommendations," to give the POB more authority? Levitt asked. "Why has the leadership of the AICPA withheld this important information from its members?"

Levitt also said that he has received no response to an offer to appear before the AICPA during its annual conference in October.

Levitt's speech Monday came as he's nearing the end of his current term as SEC chairman. Although his appointment to the commission extends until 2003, whoever is elected the next president in November will select the commission's chairman.

Levitt, who was appointed chairman in 1993 and now has served more years in that post than anyone else, hasn't decided if he'll retire from the commission next year, SEC spokesman Chris Ullman said. If he does retire, the auditor independence rules could be one of the final actions of his tenure on the commission.

"This nation's auditors are part of an honored tradition that has sustained for America the highest level of investor confidence in the world," Levitt said Monday. "I call today for a contract between the small and large firms, your trade group, state regulators and the SEC to renew and enhance our obligations to America's investors."