Who will take home the gold: the SEC which wants to limit the services provided by the audit firms to their audit clients, or the opponents -- which includes three of the Big Five -- who believe that the limiting of services will do more harm than good?

While it is too early to tell who will prevail, the SEC appears to be making some headway after two of the Big Five, PricewaterhouseCoopers and Ernst & Young, sided with the Commission in a public hearing last week and submitted an 18-page proposal of their own, which calls for the limiting of services.

James Schiro, chief executive of PwC

"We would support restrictions on the types of consulting services accounting firms provide -- including internal audit outsourcing -- because we believe that changing market forces are making it increasingly difficult for firms to provide these services alongside their assurance practices," James Schiro, PwC's chief executive, told the Commission.

Like the comment letters and testimonies, the PwC/E&Y proposal will be reviewed by the Commission. Also expected to review the proposal is the American Institute of CPAs and the other Big Five firms -- Arthur Andersen, Deloitte & Touche and KPMG - who believe that limiting services will decay audit quality and prevent firms from attracting talent.

SEC's proposal has not only shaken many in the accounting community, but has sparked a mud-slinging match between the commission and the AICPA.

In an effort to thwart SEC's proposal, the AICPA launched a letter campaign urging its members to voice their opposition to the proposed rule to not only the Commission, but also to members of Congress in the U.S. Senate and House of Representatives.

And in the Sept. 13 public hearing in New York, discussions between the two entities became heated, especially when SEC chairman Arthur Levitt questioned whether the AICPA has the public's interest at heart and Commissioner Laura Unger scolded the organization for not attempting to have "constructive dialogue" with the Commission.

SEC Chairman Arthur Levitt

And just days later, Levitt, in a speech before the National Association of State Boards of Accountancy in Boston, Mass., urged small firms to confront the AICPA, which he accused of "too often ignoring a duty to the public trust."

"I believe the time has come for the profession's own broader membership -- the smaller, independent accounting firms -- to stand up and take back what some are trying to take from them," Levitt told the group.

However, the ice between the AICPA and the SEC appeared to soften during the final public hearing held last week in the Commission's headquarters in Washington, D.C.

"I think the Commission and the profession worked well together today, and the Commission demonstrated a willingness to dialogue," Barry Melancon, the AICPA's president and chief executive, said after the AICPA's three-hour testimony.

Now, with the public hearings behind them, the Commission will wade through the testimonies, comment letters and the PwC/E&Y proposal while the profession hangs in limbo. If modifications are made to the proposal the Commission could vote on the modified proposal or a less likely scenario would be to seek additional comments from the profession.

There are, nevertheless, some signs that relations between the SEC and the AICPA may be healing and a willingness to work together could be in bloom.

Melancon told the Commission that while the AICPA does not agree with the proposal, they do agree on the importance of auditor independence and he hopes the two entities can work together on the matter. 

-- By Antoinette Alexander

Send comments to information@smartpros.com

To read the complete testimonies regarding the proposed auditor-independence rule visit: http://www.sec.gov/rules/s71300t.htm#9-21

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