Industry watchers speculated that when KPMG, Ernst & Young and PricewaterhouseCoopers announced last year that they would sell off their consulting arms, it was because of pressure from the SEC.

Lynn Turner, SEC chief accountant, has told Accountancy Online that "All three came in and said our investigation had absolutely nothing to do with their splitting up of their practices. And they're absolutely right on that."

He explains that KPMG, PricewaterhouseCoopers and Ernst & Young approached the SEC about selling their consulting practices in 1998 and 1999. The SEC campaign against the Big Five did not begin until January 2000.

Turner says that business decisions drove the firms, not pressure from the SEC.

"Financing of consultancies has become a major strategic business issue for the Big Five," he says. "A lot of cash has gone from the audit practice to fund consulting activities."

He adds that audit and consulting have become separate and "diametrically opposed" businesses within one structure. "You don't keep those together in the same company. You split them out."

He says last year's audit independence conflict involved old issues that had come to a head because of recent developments in the accounting firms: "CEOs were under pressure to grow the business -- audit revenues didn't do that as fast as the consulting revenues did."

"If the CEO's didn't accomplish that job they would get thrown out," Turner added. "So they were basically doing their job."

Turner stresses that he has been a partner at Coopers & Lybrand, the FD of a technology company, as well as a regulator, so he can see the situation from a number of perspectives. And he says he is confident that the new "scope of services" independence rules are a reasonable compromise for all parties.

"I think what's in the final rulemaking will work for them. At the same time, I think investors will get what they need so they can make informed decisions. And I think it will also energize audit committees to actually get in and look at auditors' independence and become more involved."

According to Turner, the audit committees are just as responsible for audit independence as the auditors. And he hopes that provisions in the new audit independence rules will allow them to monitor audit independence.

Under the new rules, the audit committees have to disclose their assessment of the impact of non-audit services on audit independence. They also have to disclose a complete breakdown of how much money has been spent on audit and non-audit services.

He says recent proxy disclosures filed with the SEC that were prepared according to the new rules indicate that the non-audit services are not a small percentage of the audit fee. "Instead, they're going to be a multiple of the audit fee for many companies."

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