"We have heard a number of well-grounded concerns expressed by smaller firms and sole practitioners that they might somehow be restricted from offering the types of general business and tax advice they have been providing to their clients for years," Levitt said Friday, addressing members of the National Conference of CPA Practitioners at the groups' annual meeting. The NCCPAP has about 1,200 member firms representing roughly 5,000 practicing CPAs.

"I want to be clear about this. The proposed rule does not restrict tax compliance and planning services, nor does it restrict general business advice," he assured listeners. While SEC rules apply only to firms that audit SEC-registered entities, Levitt noted concerns by some members of the profession that any rule will "trickle down" to auditors of non-public companies.

"Representatives from the smaller firms are squarely in place to ensure that small practitioners and small businesses are considered and protected," he assured practitioners.

Noting that the discretion to adopt or not adopt any aspect of a Commission rule falls to the individual state boards of accountancy, most of whose members are from small firms, Levitt added, "We are confident that each board will exercise its own judgment based on local conditions, needs and concerns.

"I have said in the past, and I think it bears repeating: small accounting firms are part of the spirit and heartland of American business," he said. "I cherish the integrity and dedication that is their hallmark. I would do nothing to impair their business."

Levitt also said he intends to include language in the rule that will specifically carve out from most of the provisions smaller, independent firms.

The battle over the proposed rules, which would limit what the consulting services firms could offer their audit clients, between the SEC and opponents that include the American Institute of CPAs, members of Congress, and three of the Big Five firms, has been dragging on for months.

But Levitt's remarks in New York on Friday and on Capitol Hill earlier in the week hint that both sides are coming closer to accord.

"I've sensed a new willingness by those in the profession who have expressed the greatest concern about this rulemaking to come to the table and work through the issues," he said. "A willingness to talk constructively towards crafting flexible, long-term rules that will serve our nation's markets and the interests of investors. Barry Melancon, head of the AICPA, I believe is making a sincere effort to lower the rhetoric and minimize differences."

Levitt said he plans to attend the AICPA's Fall Council Meeting next week in Las Vegas.

The SEC chairman, whose term continues until 2003, said he expects a rule to be issued within the next two months.

In his remarks, Levitt made it clear that, in his eyes, nothing less than the public's confidence in financial reporting is as stake.

"Whether you are an accountant in a large firm, or a sole practitioner in a small town, you all have a hand in what's at stake," he told NCCPAP members.

Citing what he called seismic changes in the accounting profession, Levitt told listeners: "Every accountant in America has been handed the same precious franchise, granted its special privileges, and charged with its care. But, by the same token, all must bear the burden of its responsibilities if public confidence -- this sacred trust -- is ever lost."

"The accounting profession is at a crossroads," he continued. "Some entities once devoted almost exclusively to auditing now resemble large diversified professional practices. Management consulting services account for one-half of the Big Five's revenues, while auditing services have dropped to only a third. As a result of increasing pressures placed on the auditing professional, the independent audit, eclipsed by the more lucrative consulting businesses, too often may be jeopardized."

"As history teaches us, the greatest threat to continued prosperity is a loss of perspective," Levitt warned. "Nothing guarantees a short-lived and uncertain future more than eroding the very cornerstones on which the American marketplace rests."

"In recent months, certain initiatives by some in the profession have given me pause," Levitt said, referring to American Institute of CPAs' proposed Cognitor designation and its new Internet Portal. "This may be a commercialization of the significant responsibilities well performed by America's auditors. Now more than ever, can we really afford nagging uncertainty when something as important as the public trust is at stake?" he asked.

The controversy over the proposal centers largely around the part that relates to the scope of services that firms today provide to their audit clients.

"We've heard a lot of sweeping statements -- 'sky is falling down' kinds of statement, predictions about firms having to sell off entire consulting practices, the dramatic increase in the cost of audits, and the recruiting crisis that will result," Levitt said. "This, I strongly believe, is simply an overstatement."

He emphasized that under the proposal, firms would still be able to provide consulting services to non-audit clients, which is where they derive most of their non-audit revenue. He also noted that the rule doesn't prohibit most of the services auditors perform for their audit clients, but rather, identifies 10 services that impair independence, most of which are already severely or totally restricted under current profession and SEC rules.

Citing critics of the proposed rules, who contend that banning firms from providing consulting services to audit clients will lower the quality of audits, Levitt said, "They have constructed arguments which hide behind the dazzle of the so-called New Economy, and ignore the very principles that make our markets the most respected in the world."

"Are we really to believe that firms who have chosen to separate their consulting arms will no longer be able to perform quality audits?" he asked, adding, "The fact that some of the largest firms are considering splitting these services from their auditing practices may indicate that synergies between audit and non-audit services are not as great as some would have you believe."

On a lighter note, Levitt also shared with NCCPAP members where he stands on another important issue, at least in the eyes of citizens of a baseball-crazed state on the eve of the first Subway Series in more than forty years: Levitt, who hails from Brooklyn, is a Mets fan.

-- By Melissa Klein

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