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Four of the nation’s Big Five accounting firms have agreed to scaled-down auditor independence rules that do not completely ban firms from providing both auditing and consulting services to the same client, a senior Securities and Exchange Commission official said late Tuesday. Arthur Andersen LLP, Deloitte & Touche LLP, Ernst & Young LLP, and PricewaterhouseCoopers, all agreed to the rules, while KPMG LLP is the lone hold-out, said the official, who requested anonymity. The industry trade group, the American Institute of Certified Public Accountants, has also indicated it would have no problem with the revised rules, the official said. The SEC’s four commissioners approved the rules by a 4-to-0 vote at a meeting on Wednesday. The rules will go into effect in mid-January, at the earliest. The SEC official said the commission does not view the revised rules as backing down, but as taking public comments seriously. SEC chairman Arthur Levitt had sought to ban accounting firms from providing both auditing and consulting services to the same client. He has said the integrity of an accounting firm’s auditing work for a company is questioned when the firm provides consulting services to the same company. According to the revised rules, an auditor can provide financial information systems consulting provided certain criteria are met, including that client management retain control of the project and make all decisions, as well as that the client does not rely on the accountant’s work as the primary basis for determining the adequacy of its financial reporting system. The rules also require companies to disclose in their annual proxy statements the fees for audit, information systems consulting and all other services provided by their auditors during the last fiscal year. The SEC estimates that consulting revenues from audit clients amount to about 10 percent of an accounting firm’s total revenues. Yet, the commission does not expect the rule to have a significant economic impact, a senior official said. The rule also says that an audit firm cannot maintain or prepare an audit client’s accounting records, or prepare that client’s financial statements. Exceptions include bookkeeping for foreign divisions or subsidiaries of an audit client. Additionally, the revised rule allows an audit firm to perform up to 40% of an audit client’s internal audit work. Exceptions include companies with less than $200 million in assets. Violators of the auditor independence rules will be investigated by the SEC’s enforcement division, the SEC official said, adding that the commission does not expect a rise in enforcement actions related to the rule. Furthermore, the official said, financial statements filed on the behalf of companies by auditors that are not independent could be rejected by the commission. Copyright (c)2000 TDD, LLC. All rights reserved.

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