SEC lightens the load on big five
The US Securities and Exchange Commission (SEC) is to adopt milder than expected rule amendments regarding auditor independence. The announcement follows months of debate between the organization and the big five accounting firms.
Accounting firms felt threatened by the SEC's summer proposals that regarded any services other than audit services provided to audit clients to breach auditor independence. Many firms had been working on the one-stop-shop principle providing both audit and advisory services to clients. The SEC felt that this could jeopardize the independence of audits and lead to biased investment. PricewaterhouseCoopers has been especially criticized, with around 8000 allegations of rule violations in 2000 alone.
The new guidelines will become effective in February 2001. Although the firms have had insufficient time to study the legislation in detail, on the surface the amendments appear to help them. Ernst & Young, Deloitte & Touche and Arthur Andersen all confirm that they are very pleased with the new ruling.
The amendments reduce the number of audit firm employees whose investments in audit clients are attributed to the auditor, and allow firms to provide certain non-audit services, including IT consultancy, to audit clients. Certain conditions related to quality must be satisfied.
While the firms have expressed their satisfaction with the ruling, there is some risk that the details of the legislation could restrict services. However, Deloitte & Touche, who disagreed strongly with the original ruling states that the rules will have no significant impact on the business, as it can now continue to stay together as a multidisciplinary firm.