- The Washington Times - Thursday, January 23, 2003

Federal regulators issued a rule yesterday they said would make accountants more independent from the companies they audit, but it was a softer version of an earlier proposal that drew opposition from the accounting industry.
The five members of the Securities and Exchange Commission voted to prohibit the two most senior accounting partners on a team from auditing a company. It also barred other key team partners from working on that company's books for more than five or seven years.
The SEC had issued for public review in November a proposal that extended the job-rotation requirement to all team partners.
The new rule and others governing accounting firms and auditors "will go a long way" toward preventing accountants from becoming too cozy with their corporate clients, Paul S. Atkins, an agency commissioner, said before the vote.
SEC officials say the new rule goes beyond what was mandated by Congress rotation of only the top two partners in a sweeping law enacted in the summer to deal with a wave of corporate accounting scandals. The public-comment period brought objections from the accounting industry, as well as corporations.
Both expressed concern about a potential "loss of expertise" among auditors working on a company's account, said Cynthia Glassman, an agency commissioner.
If the requirements prove not to go far enough, she said, the SEC or the new accounting-industry oversight board, created by the accountability law, will impose additional safeguards.
The new rule also requires that the two most senior audit partners stay away from a company account for five years, and that other key partners keep away for two years, in addition to the five- or seven-year limit.
The SEC put off for a day, until today, the commissioners' vote on another contentious proposal under the law: A requirement that company lawyers resign and inform the agency should they suspect fraud by a client and cannot get company officials to stop it.
At least two of the five commissioners see problems with the proposed rule, a government source said Tuesday on the condition of anonymity, confirming a report in the Wall Street Journal.
The rule grew out of a proposal by Sen. John Edwards, North Carolina Democrat, a former trial lawyer who is a candidate for the Democratic presidential nomination next year.
Barbara Roper, director of investor protection for the Consumer Federation of America, said that if the agency had kept the broader all-partner ban, "it would have made this a fairly significant reform."
Even that ban was less stringent than a requirement to change entire accounting firms rather than individual auditors on company accounts. This was advocated by several congressional Democrats during debate on the bill. Changing audit partners was the compromise reached.
Other advocates for tough changes in laws to crack down on corporate fraud, among them teachers' pension fund chief John Biggs, also had pushed for mandatory rotation of accounting firms.
The new SEC rules also would prohibit a range of consulting and other nonauditing services often very lucrative that accounting firms may provide their clients, including information technology, bookkeeping, financial systems design and personnel and legal services.

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