Reactions to the new auditor independence rules vary widely. Large accounting firms seem generally pleased. But consumer activists are openly scolding the Securities and Exchange Commission for watering down the rules.

A report issued by The Consumer Federation of America concludes the accounting profession was "almost entirely successful in beating back" the SEC's efforts to expand on the Sarbanes-Oxley Act to the benefit of investors. Among other things, the consumer group faults the SEC for:

• Tacitly approving the rights of auditors to provide a wide range of non-audit services, including tax services. The group says the SEC made it easy for audit firms to get non-audit services approved by suggesting that services can violate independence principles without necessarily impairing independence and by allowing audit committees to pre-approve non-audit services through policies and procedures, rather than requiring specific reviews of each service.

• Watering down the rules that apply to disclosures of audit and non-audit services, partner rotation, partner incentive compensation for selling non-audit services, definitions of prohibited non-audit services, and auditors of small companies and foreign companies.

Charlie Cray, director of Citizen Works' campaign for corporate reform added, "It appears that the accountants and lawyers who stood by as their clients cooked the books are now writing the recipes for the next course of financial fraud and abuse." The group was formed by Ralph Nader to strengthen citizen participation in government decisions.

In contrast, Dennis Nally, U.S. chairman of PricewaterhouseCoopers, welcomed and praised the SEC's auditor independence rules, saying the SEC has provided regulatory clarity over what is expected of accountants, which should help lessen market turmoil and build investor confidence in the credibility of financial statements from public companies. "What the SEC did," he said, "was not cave in to any one group - be it the accounting profession or corporations."

Mr. Nally acknowledged that smaller accounting firms may find it harder to compete for clients now, partly because lead auditors must be changed every five years and smaller firms have less expertise. As a result, large accounting firms have picked up more business, helping their revenue and fee outlook this year. But, the flip side of that trend, explained Mr. Nally, is that "It does put the spotlight on us and increases our responsibility to satisfy public expectations."