The SEC's original proposals issued last summer got lukewarm support from two of the Big 5 accounting firms, but were roundly criticised by the others and by the AICPA. The SEC has been concerned that the independence of auditors can be compromised if an audit firm also provides consultancy services to the company being audited, leading to biassed public information on which investors base judgements to buy and sell shares.

Many accountants and especially the Top 5 firms were unhappy that the rules would force dismemberment of advisory and audit practices which had been built on the 'one-stop-shop' principle; even so several of the Top 5 rapidly made plans to jump before they were pushed, although one such plan came unstuck just this week when Hewlett Packard backed out of its proposed purchase of PwC's consultancy arm.

Another facet of the row this year has been the discovery that individual partners of the major audit practices have significant shareholdings in their clients' shares. 8,000 infringements of the rules were found to have taken place at PwC alone. Now the SEC says that only those partners directly involved in audits will be subject to the 'no shareholding' rules.

The SEC's proposed compromise will allow IT consulting work to continue at audit clients provided a company's management informs its audit committee. The SEC hopes audit committees, typically comprising three independent directors, will scrutinise the relationships between companies, auditors and consultants on a continuing basis.

In addition, companies will be forced to disclose in their financial statements fees paid to auditors and consultants. This rule, similar to the regime in the UK, will lead to a new source of information about the relationships between firms and clients.

Arthur Levitt, SEC chairman, said he was pleased with the deal, saying: 'I think this is a wonderful solution. Involving the audit committees will give us on-the-scene, private-sector guidance.' The AICPA and the Top 5 also said they were broadly happy with the new proposals, although the final text of the rules will not be known for some weeks. The profession will have up to 2 years to comply with the new rules.