SEC chairman Arthur Levitt.

The Commission unanimously approved rules concerning auditor independence requirements, perhaps bringing to a close long-standing negotiations -- and at times heated debates -- between the Commission and many in the profession such as the American Institute of CPAs and Big Five firms Arthur Andersen, Deloitte & Touche and KPMG.

"I firmly believe that today's result strikes a balance that serves the interests of America's investors while remaining flexible and adaptable for the unforeseen changes in tomorrow's marketplace," said SEC chairman Arthur Levitt.

According to SEC officials, the rules will be effective 60 days after being published in the Federal Register, which may take a week or two. However, new restrictions won't take hold for about 18 months.

The rule is a softer version than the SEC's original proposal, which would have prevented corporations from outsourcing internal audits to their independent auditor. Under the rule approved Wednesday, an audit firm would be allowed to perform up to 40 percent of an audit client's internal work. And because many, including the AICPA, had expressed concern on the impact the rule may have on smaller firms, the Commission included a provision in which companies with less than $200 million in assets are excluded.

The AICPA and three of the Big Five firms -- Arthur Andersen, Deloitte & Touche and KPMG -- strongly opposed the SEC's original proposal and believed that the original proposal, if approved, would decay audit quality and prevent the firms from attracting talent.

However, after Wednesday's meeting many of the Big Five firms seemed pleased with the outcome.

Bill Ezzell, the director of government relations for Deloitte & Touche, said the rules were "substantial improvements" compared to the SEC's original proposal.

"(The SEC) went about it the right way in the end," said Ezzell, who added that the firm is now waiting to review the final language. "I think it was a positive step forward."

George Ledwith, a KPMG spokesman, said, "It seems like they addressed the concerns we raised in key areas. (The proposal) seems more workable."

Representatives from PwC, Ernst & Young and the AICPA could not be reached for comment.

The rule also states that auditors can provide IT consulting services, if a half-dozen criteria are met, including that management makes all the significant decisions with respect to the IT project and does not rely on the accountant's work as the primary basis for determining the adequacy of its financial reporting system. In addition, the issuer must disclose the total amount of fees for IT services received from its auditor.

In addition, the SEC outlined nine non-audit services "deemed inconsistent with an auditor's independence," with seven of the nine being already restricted by the Commission or the profession.

Accounting firms will probably be pleased to learn that they may not find themselves slapped with an independence violation if an employee is unaware they violated an independence rule, the violation was corrected immediately and the firm has quality controls in place that provide reasonable assurance that the firm and its employees maintain their independence.

As far as proxy disclosures, companies must disclose in their annual proxy statements all the fees for audits, IT consulting and other services provided by their auditors during the last fiscal year.

Companies must also state whether the audit committee has considered whether a provision of the non-audit services is compatible with maintaining the auditor's independence.

Lou Salvatore, interim worldwide managing partner for Arthur Andersen, issued a statement after Wednesday's ruling that said, "The SEC's revised approach is a significant improvement over their original proposal. We believe the give-and-take during the past several weeks has helped reduce the heat and rhetoric surrounding this issue, allowing opportunities for all parties to shed more light on their respective views and solutions."

-- By Antoinette Alexander

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