"This step alone is not a magic bullet that will fix the deeper problems of the system," said Richard Breeden, a former chairman of the Securities and Exchange Commission, which regulates U.S. stock and bond markets.

The Enron case has sparked a barrage of criticism of the industry's practice in which accounting companies hold lucrative consulting contracts with the same companies they audit. Chicago-based Andersen, Enron's auditor, had $27 million in annual consulting contracts with the Houston energy trading company.

Three of the so-called Big Five accounting firms have announced they will either sell their consulting business or drop some of their most controversial consulting services. The other two firms previously dropped consulting over the past two years.

The consulting contracts are only part of the problem, some experts say. The audit contracts themselves, they point out, are so large that they create their own conflicts for auditors reviewing the financial reports of major clients.

Andersen, formerly known as Arthur Andersen, received $25 million a year to act as Enron's auditor. (SmartPros Editor's Note: In light of recent events, Andersen has distinguished its U.S. firm from its global operations by calling its U.S. firm Arthur Andersen.)

Whether it's consulting or audit contracts, the potential conflict is the same. Auditors are supposed to protect investors by making sure a company's financial reports are accurate. But their paycheck comes from the companies. If a company wants to stretch the accounting rules, its auditor may feel pressured to go along because it wants its contract renewed for the following year.

"They're humans," said Lynn Turner, a former SEC chief accountant. "...They want the next contract, and they know what it takes to get that. At the same time, they've got to serve the investors. That's a tough job."

In fact, getting out of consulting could increase pressures on auditors because they will financially depend on renewal of their audit contracts, Breeden told lawmakers this week at a Senate hearing that featured five former SEC chiefs.

Harold Williams, who was President Carter's SEC chairman, recommended that companies be required to change auditors every five to seven years. He also said that companies should be forced to keep the auditor for the full period, making it hard for a company's executives to fire the auditors if they were unhappy with an audit.

Breeden, SEC chairman under the first President Bush, supported fixed, multi-year contracts for auditors rather than the current practice of annual contracts. But he said the cost to business of changing auditors at the end of each contract would be too high.

Audit fees would rise because a new accountant would have to learn the company's finances.

Williams said the expense would be worth it.

"I view all of these potential costs as acceptable if it reinforces auditor independence," he said.

The head of one of the Big Five firms argued that changing auditors would lead to more audit failures, not fewer.

"Rotation of auditors would routinely result in the loss of huge stores of institutional knowledge necessary to effectively audit businesses like Enron," said Jim Copeland, the chief executive officer of Deloitte & Touche.

One former SEC chief agreed.

"Forcing a change of auditors can only lower the quality of audits and increase their costs," said Roderick Hills, chairman under President Ford. "The longer an auditor is with a company, the more it learns about its personnel, its business and its intrinsic values. To change every several years will simply create a merry-go-round of mediocrity."

But Arthur Levitt Jr., SEC chairman under President Clinton, said the proposal deserves serious consideration, if only "to ensure that fresh and skeptical eyes are always looking at the numbers."

On the consulting issue, several of the former SEC chiefs called for congressional action to mandate the now-voluntary moves by the accounting firms to get out of the business.

"Now that that horse seems to be out of the barn, it might not be too controversial to lock down the barn door," Breeden said. "Legislation here can prevent backsliding and competitive pressures (to return to consulting) once the spotlight is off."

-- By Ken Moritsugu