(May 10) – “Securities and Exchange Commission Chairman Arthur Levitt is calling for new rules to deal with mounting conflicts raised by accounting firms’ increased offering of consulting services to corporate audit clients,” write Michael Schroeder and Judith Burns in today’s Wall Street Journal.
“In a major policy address at New York University Wednesday, Mr. Levitt also will call for rule making to include independence issues raised by other firm affiliations and strategic alliances. He is expected to discuss other moves to foster more auditor independence, including recommendations for revamping accounting-industry self-regulation.
“Alarm about the potential for tainted audits has grown out of fundamental changes in the accounting business, including the huge growth of revenue from consulting and interest by auditors in taking ownership stakes in new Internet corporate clients.
“Mr. Levitt won’t lay out explicitly a solution, but spinning off consulting operations is a viable option.
“In the speech, he points to the chairman of one major firm who said the pending sale of his firm’s consulting practice is ‘the right thing to do.’
“‘This recognition of the importance of the audit and independence concerns — and taking action to alleviate these concerns — represents business statesmanship. This represents a significant benchmark toward a workable solution,’ Mr. Levitt said.
“Indeed, several of the largest accounting firms already are separating consulting units in response to SEC concerns that the firms’ auditors increasingly ignore accounting irregularities in order to retain lucrative consulting contracts.