Such "forensic audits" would "provide yet an additional measure of quality control," Pitt said.

Pitt floated the idea as the SEC agreed to put out for public comment a set of auditing rules called for by legislation that Congress passed in July after a series of corporate accounting scandals. Pitt's idea was not part of the rulemaking proposal that the SEC staff outlined for the commissioners [Tuesday], but he asked that the agency seek comments on it as part of the same process.

Pitt's suggestion relates to one of the limits of routine corporate audits. The public may expect outside auditors to detect fraud, but accounting industry leaders have long resisted that responsibility and have argued that clever fraud by corporate management may be impossible for them to expose.

Forensic audits, conducted by specialized accountants, dig deeper and are typically conducted when there is already reason to suspect wrongdoing -- often to establish the extent of fraud once it has come to light.

Having a separate set of examiners conduct periodic forensic audits would relieve regular auditors "of having to take responsibilities that some of them seem to have suggested may be more difficult," Pitt said.

Forensic audits also could give the audit committees of corporate boards a way to check up on their regular auditors, Pitt said.

Commissioner Cynthia A. Glassman, formerly an economist at the accounting firm Ernst & Young, said Pitt's proposal "could be very costly," and she called for an assessment of the costs compared with the benefits.

Lynn E. Turner, former chief accountant at the SEC, said Pitt's idea was "a cop-out."

"It's the job of the external auditors to do the audit," Turner said. "If you're saying that they're not up to the job, then . . . my question is 'Why do I have them in the first place?' "

Alexandria accountant David L. Cotton, a member of an ethics panel at the American Institute of Certified Public Accountants, said requiring routine forensic audits would have ended improper accounting Enron Corp. and WorldCom Inc. much sooner, sparing investors some of their losses.

"At a minimum, it would keep the regular auditors on their toes if they knew that was going to happen," Cotton said.

Pitt floated his idea as the SEC discussed a proposed requirement that the individual accounting firm partners assigned to lead a company's audit be changed every five years. Pitt said the SEC could consider granting companies exemptions from that requirement if they regularly submitted to forensic audits.

A report by the industry-sponsored Panel on Audit Effectiveness in 2000 said forensic auditing should be part of all audits. "The objectives in an audit should include detecting material financial statement fraud -- that goal should drive both the auditing standards and the way they are applied," the report said. It appeared that auditors were demanding less evidence and conducting fewer tests, it said.

At [the] meeting, the SEC proposed rules it said would make auditors more independent from their clients. Going beyond what Congress mandated, one rule would prohibit accounting firms from directly linking the pay of audit partners to the amount of consulting services provided to companies they audit. Some big accounting firms have rewarded auditors, who are supposed to be watchdogs, for their success as rainmakers. Critics say that gives them an incentive to cultivate warm relations with clients instead of challenging their accounting.

The SEC may not release the text of the proposed rules at least until next week.

One point that remained unclear at the end of the meeting was how the proposed rules would affect the work of accounting firms as tax advisers to companies they audit.

"It is a fine line" between creating a tax shelter "and traditional tax planning, so we are going to try to seek some input," the SEC's acting chief accountant, Jackson M. Day, told the commissioners.

Audit firms routinely help clients prepare tax returns and advise them on ways to reduce their taxes. Tax services are a major source of revenue for accounting firms.

Members of the SEC staff said one governing principle behind the proposed rules is that auditors should not audit their own work. Some accountants and lawyers say the tax advice audit firms provide often would violate that principle. They note that judgments about how much tax a company owes can significantly affect the financial statements the auditors must review.

"In the preparation of the tax return, you're determining the company's tax liability," said Cotton, the Alexandria accountant. "You end up auditing your own work. I think it's inevitable."

But Day said after [the] meeting that corporate managers, not auditors, determine the tax liability.

"The intention was not to limit the traditional tax-type services," Samuel L. Burke, associate chief accountant at the SEC, told the commissioners. Asked how, if at all, the proposed rules would restrict tax services, SEC spokeswoman Christi Harlan said, "That's something they're really looking forward to hearing comment on before the final rules are proposed."

The rules must be in place by Jan 26, 2003, and Pitt may not have any say over their final form. He announced his resignation on Nov. 5 and is staying on the job while President Bush searches for a replacement.

-- David S. Hilzenrath