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Two of the Big Five accounting firms said Wednesday that the accounting industry needs updated rules, but they expressed reservations about an auditor independence rule the U.S. Securities and Exchange Commission has proposed. During the SEC’s third hearing on the proposal Sept. 20, Philip A. Laskawy, chairman and chief executive of Ernst & Young, and James J. Schiro, chief executive of PricewaterhouseCoopers, both said the profession should work with the agency to find a resolution. “There has been too much rhetoric and too little reasoning,” Schiro said at an SEC hearing at which about three dozen witnesses spoke. While Laskawy and Schiro have been lukewarm in support of the SEC’s efforts to craft auditor independence rules, the other members of accounting’s Big Five — Arthur Andersen, Deloitte & Touche and KPMG — have been sharply critical. The SEC proposal would prohibit an accounting firm from providing both consulting and auditing services to the same client. Joseph F. Berardino, a managing partner of Arthur Andersen who was also scheduled to speak at the hearing, said in a statement that the SEC’s proposed rule is “not proven and, in fact, not workable.” Schiro and Laskawy urged the commission to adopt an alternative independence rule that the two firms jointly developed. “Our approach would address most of the issues that were raised in the commission’s rule proposal, but at the same time, it would protect our ability to serve the needs of our audit clients in a fast-changing and global marketplace,” Laskawy said. The firms’ proposal, like the SEC’s rule, would restrict the provision of consulting services to audit clients, but not mandate a ban. In February, Ernst & Young sold its consulting business to Cap Gemini of France for $11.1 billion. It agreed to fully divest its stake in five years. PricewaterhouseCoopers is in discussions with Hewlett-Packard Co. to unload its consulting operations for about $18 billion in cash and stock. Also, the SEC has opened an inquiry into the independence of the accounting firm in its offerings of nonaudit services to Pinnacle Holdings Inc., a real estate investment trust. The SEC is also looking into PricewaterhouseCoopers’ relationship with Microstrategy Inc., a Virginia-software maker. The SEC continued its public hearing on the auditor independence proposal Thursday in Washington. Copyright (c)2000 TDD, LLC. All rights reserved.

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