Regulators Seek Curbs on Corporate Auditors

As expected, the SEC on Tuesday proposed new rules governing corporate accounting, including a plan to bar auditors from providing corporate clients with consulting services that may pose conflicts of interest.

The proposals implement prohibitions against auditors providing information technology and eight other consulting services that were detailed in a federal corporate governance law enacted in July.

Companies’ audit committees also would have to give advance approval to tax services and other consulting by auditors not specifically barred by the law.

“Spectacular corporate au- dit failures have significantly harmed many investors,” said SEC Commissioner Paul Atkins, a former lawyer at PricewaterhouseCoopers, the largest accounting firm. “The professionals fell down on the job.”

Some of the SEC proposals approved Tuesday go beyond the new law’s requirements. One would bar accounting firms from paying their senior auditors for selling consulting services. Its goal is to prevent auditors from also acting as salesmen, said Robert Burns, chief counsel for the SEC’s accounting unit.

The SEC rule proposals, which go out for public comment for 30 days, must be approved in some form by Jan. 26.

Some SEC officials expressed concern about a proposed rule that would prohibit individuals who are the lead audit partners from providing audit services to the same client for more than five consecutive years.

“The cost of these rules will be borne more heavily by small [accounting] firms than large firms,” said SEC Chief Economist Lawrence Harris.

The SEC proposals also would prohibit an accounting firm from auditing a company if a senior executive of that corporation worked for the firm during the previous year and participated in an audit of the company. Auditors also would be barred from acting as legal advocates, or in other advocacy capacities, for their clients.