The nation’s top five accounting firms have agreed to report past violations of rules barring firms and their employees from owning stock in companies they audit, the Securities and Exchange Commission announced Wednesday.
In exchange, the Big Five accounting firms will be sheltered from enforcement actions by regulators, except in cases involving the most serious violations, the SEC said. Those cases would include an accounting firm or one of its senior executives working on an audit while owning stock in the audited company, the SEC said.
The five firms that dominate the accounting industry–PricewaterhouseCoopers, Arthur Andersen, KPMG Peat Marwick, Deloitte & Touche and Ernst & Young–also agreed to hire independent attorneys to oversee reviews of stocks held by the firms’ partners and managers.
The SEC is inviting all U.S. accounting firms to participate in the new voluntary program, which takes effect June 15.
“This serious and comprehensive review will enhance investor confidence and lead to improved quality-control systems going forward,” SEC Chairman Arthur Levitt said in a statement.
The SEC has long contended the integrity of the financial reporting process rests on sound, clean audits. An examination of a company’s financial statements could be compromised if an accountant has interests in the company.
An independent report released in January found that nearly half of the partners at PricewaterhouseCoopers had admitted violating the rules, with more than 8,000 reported infractions by various employees over a two-year period. The firm said the violations did not impair the integrity of any audits.
