NEW YORK (CNN/Money) - The Securities and Exchange Commission fined audit firm PricewaterhouseCoopers LLC $5 million for violating accounting standards, the agency said Wednesday.

In a letter to partners dated Wednesday, company Chairman Dennis Nally said PricewaterhouseCoopers LLP had agreed to pay a fine to the SEC to settle the case and to improve audit procedures without admitting or denying charges.

The settlement comes at a time when everyone from Wall Street to Washington to Main Street is keeping a close eye on accounting scandals such as at Enron and WorldCom (WCOM: Research, Estimates) that have dampened confidence in U.S. markets in the past several months.

The company said that it had disciplined three PwC Securities supervisors, and that in 2001, the firm sold a significant portion of its broker-dealer business.

"As part of the settlement, we have agreed to strengthen our internal risk and quality procedures," Nally said in the letter.

A person familiar with the settlement told the Wall Street Journal Wednesday that the SEC sees this case as a direct example of how a consulting-fee arrangement can lead to improper accounting and that the agency plans to show that Pinnacle wrote off the service costs as related to a merger. In August 1999 the SEC announced a settlement with Pinnacle for alleged improper accounting with regard to its acquisition of some Motorola units, and the company restated results for April and May 2001.

"This case demonstrates the heightened risk of an audit failure when an accounting firm assists in and approves the accounting treatment of its own consulting fees," said Stephen Cutler, the SEC's enforcement division director. "Faced with that situation here, PwC lacked the objectivity and impartiality required of an independent auditor."

The SEC found that between 1996 and 2001, PwC and one of its predecessors, Coopers & Lybrand, entered improper fee arrangements with 14 public audit clients. In each case, the client hired the firms' investment bankers and hinged the amount of their advisory fees to the success of each particular project, the SEC said.

That practice violated the rules of both the accounting profession and the SEC's auditor-independence rules, the SEC said.

Additionally, the agency ruled that in 1999 and 2000, PwC permitted the improper accounting if its own non-audit fees by clients Pinnacle Holdings Corp. and Avon Products Inc., both of whom were forced to restate financial information for those periods.

As part of its settlement with the SEC, PwC has agreed to make such changes as reviewing new fee agreements for non-audit services before signing off on them and appointing an "independent reviewing partner" from the company's Risk Management partners to ensure auditing and accounting industry rules are followed.

The company will also provide annual employee training on auditor-independence issues.