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SEC, Big Five Agree on Independence Review Program

A fter the July 2000 issue of the JofA went to press, the Big Five accounting firms agreed, at the SEC’s request, to review their compliance with rules limiting auditors’ and their relatives’ financial interests in the stock of the firms’ audit clients.

In exchange for the firms’ cooperation, the SEC offered immunity in all but the most serious cases—for example, where the firm or its auditors own stock in an audit client.

Any firm practicing before the SEC was eligible to participate in the program, provided it agreed to do so by June 15, 2000, when the reviews began. Participating firms are required to retain independent counsel to oversee the reviews, the findings of which must be submitted to the SEC by July 15, 2001.

One of the Big Five firms participating in the program, PricewaterhouseCoopers, had undergone a far more extensive review late in 1999 and subsequently spent $25 million to upgrade its compliance system, which alerts partners and staff to potential conflicts of interest and thus reduces the chance they will inadvertently violate the investment rules.

During the course of its compliance review, PricewaterhouseCoopers looked back two and a half years at any violation covered by the independence rules limiting financial interests in audit clients that an individual could have committed. Reviewers checked the propriety of investments by more than 40,000 employees—all audit and nonaudit partners, managers and staff, as well as administrative support staff subject to the rules—and all family members, including cohabitants, nondependent children, siblings and parents. The majority of violations detected were considered minor infractions.