SEC goes easy on accountants' consulting practices

The intense negotiations between the regulator and four of the top five accounting firms broke down on Monday, but resumed on Tuesday ahead of an agreement announced yesterday.

The SEC had originally proposed that accounting firms should not do any IT consulting for their audit clients as the enormous fees they were earning could prejudice the independence of the audit.

It has now agreed that they may carry on consulting, as long as the price is disclosed in the annual accounts and it is certified by the client's audit committee.

Over the past three years large accountancy forms have been divesting themselves of their consulting arms. Ernst & Young sold its consultancy arm to Cap Gemini, Andersen's has only just completed an acrimonious divorce, KPMG's consultancy went predominantly to Cisco and PricewaterhouseCoopers' was ditched at the eleventh hour by Hewlett-Packard on Monday, bringing to a close negotiations on a deal worth $18bn.

Robert Bruce, industry analyst, said: "It is interesting to see that they have adopted a British style of disclosure. Also, at a time when consultancy firms were selling for high multiples of turnover, the sale was always blamed on the SEC.

"Now the partners won't have the obvious moral justification for flogging off the family silver. They'll have to find a new story. Most of them have been building up new consultancy arms since the sell-offs."