Securities and Exchange Commission officials are privately discussing steps to take if one of the Big Four accounting firms should collapse, according to the Wall Street Journal.

The Journal, citing “people familiar with the discussions,” reported Wednesday that the SEC is trying to put a “contingency plan” in place to change the rules so that it would be easier for companies to switch auditors if the Big Four becomes the Big Three.

Talks started after Arthur Andersen's demise three years ago, but they recently took on more urgency since the Department of Justice is considering a criminal indictment against KPMG for selling questionable tax shelters. An indictment would likely spark thousands of KPMG clients to go elsewhere, but the auditor independence rules of Sarbanes-Oxley make changing difficult.

The Journal said the SEC is considering allowing companies to seek a waiver from the rules, which were designed to prevent conflicts of interest by preventing companies from using the same firm to audit its books while also providing nonaudit services.

According to the Journal, any plan would have to be approved by the next SEC Chairman, likely to be President Bush's nominee, Rep. Christopher Cox, who would replace the retiring William Donaldson.

"We have scenarios in place for any eventuality that could come out of this, and we're prepared to deal with it," an SEC official told the Journal.

It's possible that Justice Department officials and KPMG can come to an agreement without a criminal indictment. KPMG has issued a statement taking responsibility for the actions of those who sold the tax shelters while also making governance and business changes to prevent a repeat.

Meanwhile, the Big Four are also under scrutiny in the U.K. from the Professional Oversight Board of Accountancy (POBA), a new audit inspection unit. Chairman Sir John Bourn, commenting on an analysis of 27 audits carried out by Big Four, said the firms “do well overall, but they could do better still.” He cited a need for stronger documentation and clearer lines of independence. The Big Four received private reports on the inspectors' findings.

The Big Four - KPMG, Deloitte & Touche LLP, Ernst & Young LLP and PricewaterhouseCoopers LLP - audited more than 78 percent of public companies in the U.S., the Government Accountability Office stated.