Updated from 3:46 p.m. EST

Scrambling to contain the damage still rippling from the collapse of


, the chairman of the

Securities and Exchange Commission

proposed a new regulatory panel Thursday that would punish incompetent or crooked accountants.

Harvey Pitt's proposal, under which members of the public and not the profession would make up the majority of the board, is actually the latest in a series of initiatives dating to former SEC commissioner Arthur Levitt's administration to consolidate industry oversight in one body. The group also would set professional and ethical standards.

"We initially envision a public body that will be dominated by public members with two primary components -- discipline and quality control," Pitt said at a news conference. "We are at the early stages of this proposal and many details remain to be worked out."

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The accounting industry got a huge black eye when it was revealed that Arthur Andersen failed to raise red flags about accounting practices that eventually led to Enron's collapse. Subsequent disclosures that the firm destroyed documents related to its audit and was warned about accounting concerns at Enron last year have worsened the public's perception of the profession.

"The commission cannot, and in any event will not, tolerate this pattern of growing restatements, audit failures, corporate failures and investor losses," Pitt said. "Somehow, we must put a stop to a vicious cycle that has been in evidence for far too many years."

Accountants said it was a positive development. "Once you have this commission put it into place, you may have a real opportunity to accomplish something," said Jeff Brotman, adjunct professor of accounting at the University of Pennsylvania Law School. "If you have strong leadership at the top, somebody with a stellar reputation within the segments, regarded highly by companies, by Wall Street and by the unions, that could help an awful lot."

Pitt proposed a system in which the SEC would prosecute accounting infractions that broke the law while the review board would handle matters of professional conduct. The body would be allowed to perform investigations, bring proceedings and keep accountants from performing audits.

One accounting specialist said he was confused about exactly what role the panel would play, and was surprised that the SEC hadn't chosen to set up the panel in house. "They're going to act as an ethical body,

but what does that mean?," said Bob Willens, an accounting specialist at Lehman Brothers. "Under this system I guess auditors would go to them to ask how to apply accounting principles in questionable situations. I don't see why it was necessary to set something up outside of the SEC. That surprised me. I just thought it would be an arm of the SEC."

Possibly anticipating criticism that accountants have done a poor job overseeing themselves, Pitt said there wouldn't be a role for the American Institute of Certified Public Accountants, a trade group that previously reviewed and disciplined accounting firms.

"The need for change can not be ignored any longer,"' Pitt said. "We simply cannot afford a system like the present one that facilitates failure rather than success."

Willens anticipated that setting up the group could take up to a year. "This is going to take a good many months before they appoint the panel members," he said. "It won't be so easy to staff up because they're going to have to get some pretty experienced and respected accountants to join this body if it will function the right way."