So what does the SEC propose? In June 2000, the SEC's proposal would have forced a major restructuring of the accounting profession. The most crippling rule would prohibit accounting firms who perform audits for SEC requirements from providing most non-audit services for the same company and their affiliates. A few of the non-audit services include: system implementation, bookkeeping, internal auditing, and legal services (SEC Proposes).
This proposal was defeated with the assistance of the accounting lobby. These same congressional members responsible for its defeat are now up in arms and demanding reform.
In February 2001, the SEC took a step by requiring that companies include in their annual proxy statements audit fees, IT consulting fees, and fees paid to auditors during the fiscal year. In addition, they must also comment on the auditor's independence (D"Amico).
In a recent study conducted by Karen Nelson, from Stanford Graduate School of Business, the objectivity and auditor independence was analyzed. The researcher looked to see if there was more creative accounting among companies that paid their accounting firms large consulting fees compared to auditing fees. This study looked at the ratio of fees paid for non-auditing services versus auditing services. They found "that over half of the firms paid more for consulting services than audit services, and that 95 percent of firms purchase at lease some non-audit services from their auditor" (Stanford).
Recently, a shareholder of Walt Disney Co. proposed to formally prohibit its independent auditing firm, PricewaterhouseCoopers, LLP from performing consulting services (Hiestand). Although the formal prohibition was defeated, Walt Disney Co., in an effort to avoid any appearance of inappropriate accounting, announced that their auditor would no longer perform consulting or any other non-auditing services. Many other companies are undertaking the same measures.
