The

Securities and Exchange Commission

approved a plan Thursday to reform the system of self-regulation and create an independent auditing board as part of a bid to restore investor confidence in the U.S. accounting system.

"It is incontrovertibly clear that longstanding deficiencies in the system we employ to protect quality audits of financial statements have caused a serious threat to the efficacy of our capital markets," SEC Chairman Harvey Pitt said. "We're experiencing a significant loss of investor confidence in public companies, their audited financial statements and the accounting profession."

The new Public Accountability Board would consist of nine members, all of whom would be part-time, except for the chairman and vice chairman. Three members would come from within the accounting profession, but they wouldn't be allowed to participate in disciplinary decisions.

A competing plan, submitted earlier this week by Sen. Paul Sarbanes (D-Md.), calls for a five-member board, with no practicing accountants. The board members would also be full-time and authorized to set their own accounting standards.

In contrast, under the SEC plan, auditing standards would most likely be set by the American Institute of Certified Public Accountants, the trade group that currently sets audit standards.

The SEC's proposal would take effect if the Senate failed to endorse Sarbanes' bill.

"We like the SEC concept," said Lou Thomson, president of the National Investor Relations Institute. "Obviously we need a public accountability board that is not beholden to the accounting profession, and while the SEC board would have three members from the profession, they would not have a vote on disciplinary actions."

Still, others have criticized the SEC's proposal for not being independent enough and for not requiring members to work full-time.

Senate Majority Leader Thomas Daschle (D-S.D.) described the plan as a "toothless tiger" with no real merit. "This is almost a guarantee that you're going to get another

Enron

," he said.

The American Institute of Certified Public Accountants, which had criticized the Sarbanes bill, also took aim at the SEC proposal, but said it had gone too far in shutting out the accounting profession.

Both proposed boards would conduct frequent audit quality reviews, discipline individual accountants and firms and impose fines and censures. Additionally, both boards would be financed with fees from public companies and audit firms.

"Some speculate we are competing with Congress to see who gets to solve our crisis of confidence," Pitt said. "No such rivalry exists."

Pitt said he commended Sarbanes and other members of Congress for their legislative approaches but that his plan would provide the framework for "rigorous private sector regulation" if Congress fails to pass legislation.

"We take up this proposal with a deep conviction that, to improve our system of disclosure and strengthen investor confidence, immediate action is necessary," he said.