(FORTUNE Magazine) – The audit from hell. That's what companies are facing right now, as the year-end ritual of the annual audit begins. With the SEC breathing down accountants' necks and high-profile accounting problems plaguing companies as varied as Waste Management and Rite Aid, everyone's going to be taking an extra-close look at the books as 1999 winds down.

That means more than extra hours for the bean counters. It's also likely to add up to more headaches for investors who have relied on what may be hyped-up numbers in this heady market. Indeed, mere questions about the accounting methods of Tyco International have sent its formerly highflying stock down more than 25% this fall.

Ironically, the increasing scrutiny is quite a change from as recently as two years ago, when I wrote a column in FORTUNE headlined "The Auditors Are Always the Last to Know." It questioned why companies like Boston Chicken and Sunbeam were blowing up over accounting issues at the time. Shouldn't the auditors have seen disasters like Boston Chicken coming? Shouldn't they have at least raised the warning flag before so many investors were clobbered? Were accountants doing their jobs?

Apparently not. Because in September 1998, SEC chief Arthur Levitt made a now famous get-tough speech and created a SWAT team of in-house accountants to strike fear into the heart of corporate America. Since then, a series of companies, including Rite Aid, the North Face, and CHS Electronics, started revealing bookkeeping problems that caused their stocks to nosedive. A coincidence? I think not. In my years of reporting on stocks headed for trouble, I've never seen so many companies disclose so much unsettling news in such a short period of time. Some of it clearly was audit-related, some of it not. (Those revelations that weren't directly linked to audits appear to be the result of some strong suggestions by outside counsel.)

Which brings us back to this year's round of audits. They come just as the SEC is flexing even more muscle than it did late last year. For example, two months ago the agency filed 30 separate suits concerning fraud and related misconduct in the accounting, reporting, and disclosure of financial results against 68 people at 15 companies, including former Minnesota Vikings quarterback Fran Tarkenton. "They're saying, 'Guys, you've got a fourth-quarter audit coming. Get your house in order,'" says Jack Ciesielski, publisher of the Analyst's Accounting Observer. That's not all: Last summer the SEC sued two former Coopers & Lybrand auditors (not the firm itself) for failing to investigate shady accounting practices at California Micro Devices five years after the alleged misdeeds took place. The Cal Micro case, in particular, sent chills through the accounting industry, because the SEC was going after individual auditors for not catching the crooks.

"It's an environment where the enforcement agency not only is talking tough but is acting tough," says accounting sleuth Howard Schilit of the Center for Financial Research and Analysis. Adds Paul Brown, professor of accounting at New York University: "Auditors are running scared. They're under intense pressure. They have to be looking at all the signals they can." And Wall Street is clearly paying closer attention than ever to auditing issues. Just take a look at the pummeling Tyco suffered.

To be sure, it should be noted that outside auditors keep an eye on the books all year long. So what makes the end of the year so special for accountants? Because the fourth quarter is also known as the "cleanup quarter," when loose ends are pulled together and all the numbers are crunched. It's also when the partners of the accounting firms actually meet, face to face, with company executives, including the chief executive and chief financial officer, to discuss what they've found. Historically, this has involved a good deal of horse-trading, as companies try to convince auditors that the company's interpretation of Generally Accepted Accounting Principles, or GAAP, is correct. GAAP, however, is subject to interpretation, which means companies have plenty of leeway in how they interpret the rules. "Every management says that what they're doing is not a violation of GAAP," says New York University's Brown.

To avoid scrutiny, Brown believes, more companies than ever will bend over backwards this year, as Tyco says it plans to do, by offering more disclosure. What's more, Brown thinks that auditors are going to force companies to include footnotes in quarterly and annual reports on anything that looks murky. "The clients will say, 'We've never done that before,' and the auditor will say, 'Yes, but we're in a different environment,' " Brown says. Can't wait to see how Wall Street reacts to that. All in all, it's yet another reason for investors to keep reading the fine print--and to brace themselves for some fiendish fourth-quarter numbers.

HERB GREENBERG is senior columnist for TheStreet.com (www.thestreet.com).His e-mail address is herb@thestreet.com.