Michael Conway, the KPMG partner whose role in auditing Xerox's financial statements has drawn the attention of the SEC, was a finalist to replace FASB Chairman Edmund Jenkins, according to a source close to the search. Conway was one of several candidates scheduled to have a final interview with the FASB search committee last week.

Earlier this month, Xerox agreed to pay a $10 million fine to the SEC over charges related to its restatement of earnings from 1997 to 2000. But the SEC is continuing its investigation into accounting improprieties at Xerox, and has sent ''Wells notices'' to top executives at the copier giant and KPMG, its former auditor. As the lead partner on the account, Conway received such a notice. So did former Xerox chairman Paul Allaire and ex-CFO Barry Romeril.

According to the SEC, Wells letters are sent to potential targets of commission investigations. They function as a warning and afford recipients the opportunity to explain to the SEC why an investigation is not justified. Not everyone who gets a Wells notice ends up being investigated.

Still, the fact that Conway got such a notice could be enough to derail his candidacy for the top job at FASB. In recent months, the accounting board has come under fire from SEC Chairman Harvey Pitt for not responding more quickly to the accounting needs of the marketplace.

In such a hostile atmosphere, the selection of Conway to head the accounting industry's primary rulemaking body would probably draw criticism.

Monday, an FASB spokeswoman said she didn't know who the finalists for Jenkins' position are. David Ruder, a former SEC chairman who is a trustee of FASB's parent, the Financial Accounting Foundation, would neither confirm nor deny Conway's candidacy. He said he'd seen a list of candidates but was not in a position to comment on the search. Manuel Johnson, chairman of the FASB trustees group, could not be reached.

KPMG disputes the SEC's belief that it played any role in Xerox's accounting problems, noting that it was fired six months ago for disagreeing with its former client.

''We did the right thing with Xerox, served our role as independent auditors, raised the right questions and took difficult, tough positions with our clients,'' says KPMG spokesman George Ledwith. ''Michael Conway always has been, and is, highly regarded by the firm and in the profession.''

KPMG says it has no involvement with the FASB selection process.

Conway could not be reached.

-- Greg Farrell