Stunned by the public outcry against auditors and the flurry of shareholder lawsuits and regulatory probes, major accounting firms have been struggling since then to reshape themselves. They have improved training for auditors, backed away from some types of businesses and started to craft new kinds of relationships with clients.

A look into the operations of one of the influential Big Four accounting firms, Ernst & Young LLP, illustrates that a number of changes in the audit process are working as lawmakers had hoped. Ernst partners say that in disputes with clients, the partners have more clout with client boards of directors. Some partners say corporate executives are more willing to share details about complex deals than in the past. And most clients have agreed to pay for more extensive audits.

Ernst's experience also reflects how difficult it can be to try to shift gears in a mammoth company at a time when new rules are not yet written, key court cases have not been decided and scandals keep erupting. One partner said the ongoing news coverage of Ernst's troubles makes him sick to his stomach. Others resent that the firm has to give up business they consider legitimate, because of negative publicity.

Ernst partners are braced for the news to get worse. Congressional hearings in September will examine Ernst's audit of troubled HealthSouth Corp., and the SEC staff is trying to get Ernst barred from accepting new public clients for six months because of its relationship with a software company in the 1990s.

Meanwhile, partners say that as audits get tougher, more problems will be uncovered, and they fear the accounting profession will get the blame for not catching the problems sooner rather than the credit for catching them now. Auditors have come to be seen as "silent accomplices" because they failed to uncover corporate fraud, investor advocate Patrick McGurn said. The nation's other three major accounting firms, PricewaterhouseCoopers, KPMG LLP and Deloitte & Touche LLP, are also under scrutiny for at least one high-profile audit failure each.

"Investors right now are having a tough time putting a wall between the past and what's going forward," said Beth A. Brooke, vice chairman of Ernst. "What's problematic is, for the next 12 months probably we're going to see more cleansing in the marketplace."

Clients, meanwhile, are jittery, making frequent calls to their auditors. In the past, accountants generally reviewed financial records a few times each year to prepare the annual report and filings with the Securities and Exchange Commission. Ernst partner Jim G. Logothetis said he now hears from directors and corporate managers who want to run practically everything with numbers past him -- quarterly reports, press releases and documents prepared for important meetings.

Working for a major accounting firm these days feels like being a piñata, said Mark A. Weinberger, the head of Ernst's tax practice and a former Treasury Department official. He tries to reassure rattled younger employees that this will pass, that Ernst is just the current "flavor of the month."

But some Ernst partners remember how Arthur Andersen LLP officials assumed that the firm's problems were temporary until a federal indictment last year sent its clients fleeing and caused the accounting powerhouse to quickly collapse.

Some partners said they think often about Andersen's fate. They said they were amazed that during Andersen's criminal trial, prosecutors pointed to the fact that top Andersen auditors accompanied Enron Corp. leaders on golf outings and trips to sunny conference spots as supposed proof the auditors were too cozy with their clients. One Ernst partner said he started worrying that if he were ever deposed, a plaintiff's lawyer might look at his appointment book and point to weeks of lunches with a client. He wondered if a jury would see that as evidence that he failed to be a tough auditor. He has started insisting that he split the lunch check with his clients.

"In the old days you used to think it'd be great to be so experienced, knowing the client's business," Susan Frieden, said Ernst vice chairman for quality. "It used to be terrific to have a good relationship with your client, so they would talk to you and tell you a lot of things. The world has changed. Perceptions have changed."

Ernst, which is based in New York, reaped $4.5 billion in revenue last year in the United States. Its 24,000 U.S. employees review the books of public and private companies, prepare tax returns, and advise clients on tax and accounting rules across the world. Over the past year, Ernst took on 314 public clients and more than 200 U.S. partners from Arthur Andersen. Ernst's operations in the Americas are overseen by a 13-member executive board that includes eight vice chairmen.

More than 50 percent of Ernst revenue from public company clients came from auditing and about 40 percent from performing tax work in 2002, with a much smaller percentage coming from consulting work, according to industry newsletter Bowman's Accounting Report. Ernst was the first big accounting firm to sell its consulting unit in the late 1990s.

Like the other major accounting firms, Ernst is set up as a partnership. Each of the 2,100 partners must contribute to a pool of capital that bankrolls the firm's big initiatives, with younger partners sometimes taking out loans to make those payments. The partners divide up the profits after rent, employee salaries and other bills are paid. Ernst officials refused to disclose their partners' earnings. Industry analysts said most of Ernst's partners take home $300,000 to $500,000 a year. Veteran partners and top executives can earn more than double that figure.

Partners' take-home pay would drop if they cannot pass on the rising costs of doing business. So far, the Big Four have generally been able to pass on those costs, and the firms' profits do not seem to have suffered, said Arthur W. Bowman, a longtime industry analyst.

Indeed Ernst chairman James S. Turley said Ernst is "exceptionally" sound financially. Some Ernst clients said in interviews that they agreed to pay about 10 to 20 percent more for audits, but they also warned that they would object if fees rise dramatically. The higher fees paid for larger audit teams, more training and more professional expertise. For instance, Ernst expanded a team that is supposed to keep the firm from signing off on risky accounting schemes. Known as the Professional Practices Group, this 125-member in-house think tank -- which added more than 30 experts earlier this year -- fields difficult questions from auditors.

Ernst has also exited some business, some voluntarily and some because of the law. Sarbanes-Oxley barred auditors from performing technology consulting work for clients and from doing internal audits of client firms. Separately, Ernst said it would no longer sell off-the-shelf tax shelters and disbanded the unit that marketed tax shelters to wealthy executives before the law was passed. An Ernst official said it was not a big source of revenue for the firm.

Discussions about cutting out lines of business not banned by the law have been intense. For instance, earlier this year, after two top executives at Sprint Corp. who bought tax shelters from Ernst were ousted by Sprint's board amid an Internal Revenue Service investigation, Ernst got calls from worried clients and heard complaints from outraged investor groups. After several weeks of negative media reports, some top Ernst officials proposed that the firm no longer sell tax advice to executives at companies it audited. But other partners strongly opposed giving up that business, which Ernst had been performing legally for decades.

Ernst Vice Chairman Brooke said she argued that "the rules don't say there is a problem, but the market says there is." In the end, the firm decided to continue to provide tax services to executives at companies whose books Ernst reviews, but only if the clients' board of directors approve the arrangement, an attempt to shield the firm from blame.

Another subject of intense debate has been whether some clients are too risky to keep.

Last fall, Ernst began doing more rigorous background investigations -- including interviews with others in the business community and a review of legal records -- to find out whether the top executives of potential clients may be troublesome. Legal problems and even reports that the chief executive is a bully or has a reputation for pushing the limits of accounting rules are all grounds for possibly rejecting a client, according to Ernst partners.

For instance Ernst partner Robert A. Bedingfield said he now tells clients he needs to get involved in reviewing complex deals as they are being put together to make sure they have a legitimate business purpose. Clients are sometimes reluctant, but he said that so far they have agreed. But if they were to refuse, he said he would notify the company's directors and that reticence would be noted when Ernst reviewed whether to keep the client.

Over the past 12 months, the firm has parted ways with about 200 public and private clients, worth as much as $100 million in revenue to the firm. That figure includes about four dozen public companies. Some clients left after disputes over higher fees. Others were dropped by Ernst when the accounting firm became concerned about the corporate culture, according to an Ernst partner.

Meanwhile, Ernst top officials have been traveling around the country to reassure employees and top clients that the firm is solid and to assess morale. Turley says morale is good, pointing to a 12-question survey Gallup Organization sends annually to Ernst staff members. The most recent survey went out two weeks after the HealthSouth scandal broke. The questions include, "Do my coworkers seem committed to doing quality work?" and "Does the mission/purpose of my company make me feel my job is important?"

Turley and other Ernst leaders frequently leave voice mail messages warning of potentially bad news reports. The hope is that if employees are prepared for negative media reports, they will be less demoralized by them. There have been lots of messages in recent months, according to partners.

On a recent Friday night, Ernst's general counsel sent out a company-wide voice mail, warning partners that the newspapers would probably run a story the next day in which the SEC staff described some Ernst documents as "fantasy" worthy of the Harry Potter books. Kathryn A. Oberly told employees the statements were the latest step in a case the SEC brought over Ernst's relationship with audit client PeopleSoft Inc.

The SEC staff wants Ernst to be banned from taking on new public audit clients for six months, arguing that the firm broke independence rules by selling a PeopleSoft software product in the 1990s. Oberly told partners in her message that the dispute was in its last stages before an administrative judge was to decide on it, and therefore posturing was taking place.

At least one client has sought a meeting with Ernst over the PeopleSoft case, asking Ernst to explain the issues, according to a board member of the client firm. If the answers the company gets aren't good enough, it could seek another audit firm, reasoning that it's bad to have an auditor involved in a long-running dispute with regulators, the board member said.

It's just one more example of how the new environment can be dangerous territory for accountants.

It used to be that accounting rules were "a two-lane highway with very wide shoulders," said Ernst partner Bedingfield, who joined the firm in 1968 as an intern. "As long as you stayed on that highway, you were in pretty good shape. Right now, it's kind of a one-lane road with no shoulders."