SEC to Consider New Rules on Audit Teams

Heads of corporate audit teams -- the bean counters who vouch for companies’ financial records -- would be barred from serving one client for more than five years in a row, under rules to be considered today by the Securities and Exchange Commission.

The SEC is tackling dozens of corporate and accounting reforms ordered by Congress after a rash of business scandals that tarnished the reputations of corporate accountants.

The agency also is set to examine proposed rules to make auditors hold on to important audit records for up to five years.

Those and other measures were scheduled to go before the SEC in a public hearing today. After discussion, the rules were expected to be proposed formally and sent out for public comment.

Auditor independence became an issue in Congress’ scandal-driven reform push this summer, as legislators focused on ties between accounting firm Arthur Andersen and energy giant Enron Corp. Andersen was paid hefty fees as both auditor and consultant to Enron.

When the Sarbanes-Oxley Act was passed in July, it included outlines for rules to combat conflicts of interest between auditors and clients. The act left many of the details up to the SEC and a new accounting oversight board.

Proposed rules coming before the SEC today also would bar accounting firms from auditing companies whose managers include a former member of a firm’s audit team.

Accounting firms would have to win the approval of a company’s audit committee for the sale of all audit and non-audit services to a company. Restrictions on the sale of some non-audit services also will be reviewed by the SEC.

SEC staffers said that under the restrictions, non-audit work would be barred if it resulted in an auditor’s auditing its own work, acting as a member of corporate management or being an advocate for the company.

Another rule would require auditors to keep work papers and other documents from an audit for five years. That measure followed the June 15 conviction of Andersen for obstruction of justice tied to the destruction of Enron audit records.

SEC Chairman Harvey L. Pitt resigned Nov. 5 after being criticized for his handling of the nomination of former federal judge William H. Webster to chair the new accounting oversight board.

Webster resigned last week. Pitt remains on the job pending White House nomination of a successor.