Perhaps its poetic justice or maybe a bit ironic, that on the same day that President Bush signs the historic public accounting oversight and corporate governance reform legislation, IBM announces that it is acquiring PricewaterhouseCoopers' consulting unit for $3.5 billion in cash and stock. And since everything comes in threes, add the July 30th SEC ruling by SEC Chief Accountant Robert Herdman, which will allow IBM to keep PwC as its auditor.

Put them all together and what do you get? You have a Big Five--sorry Big Four firm--divesting itself of a consulting unit that does the exact non-audit activities prohibited under the new legislation. Of course, the sale is to an audit client of the firm.

Like a marriage made in heaven, neither PwC nor IBM want to sever the audit relationship. After all, IBM is a great audit client and is obviously very happy with PwC's handling of the audits. And the SEC, in response to a request from PwC and IBM, adds its blessing to their continuing audit relationship.

It should be pointed out that the SEC in its ruling did indicate there were 11 conditions that must be met. Among the conditions are that PwC will not receive or retain any equity interest in IBM and IBM will not use the PwC name or logo. Also, indemnification claims for certain losses must be made by IBM within two years of the closing and the aggregate amount of those claims may not exceed 12.5 percent of the purchase price. Another condition is that IBM will engage an independent auditor other than PwC to audit the initial transaction accounting and subsequent accounting including all of the reporting units containing the transferred consulting practice for the three fiscal years commencing with the fiscal year in which this transaction closes.

Guess what? There has been instant criticism of the SEC's decision coming from the likes of Congressman Edward Markey, New York Controller H. Carl McCall, and a number of analysts and institutional investors, to name a few.

This legislation is supposed to instill investors' confidence that public company reporting is being reformed, auditors are independent, and the regulatory bodies are diligent in their oversight and, if necessary, criminal prosecution. The worse thing that can happen is a perception by investors that nothing has really changed.

There was a phrase used years ago that was associated with auditing--"Avoid even the appearance of impropriety." It doesn't seem like IBM, PwC, and SEC are too worried about appearances. It will be interesting to see how much actually changes as a result of this legislation.

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