The Securities and Exchange Commission yesterday patted the accounting industry on the back with one hand while holding a regulatory gun to its head with the other.

Chairman Harold M. Williams said the industry had made enough progress toward self-regulation during the past 10 months that legislation was not necessary at this time. However, he warned that "if the profession's initiative is not successful, a legislative alternative may well be required."

The SEC would leave control in the hands of the American Institute of Certified Public Accountants, a trade organization. The AICPA recently formed an "SEC Practice Section", or self policing entity, which Williams singled out as "the primary basis for the commission's conclusion that there is promise for successful voluntary self-regulation."

An AICPA spokesman said yesterday the organization was "very pleased" by the SEC recommendations. At Senate hearings last year the industry appeared divided on the issue of government regulation. Walter E. Hanson, senior partner of Peat, Marwick, Mitchell & Co. testified against it, while John C. Biegler, senior partner at Price Waterhouse & Co., third largest, proposed that all accountants with publicly owned clients should come under the supervision of the SEC.

The role and responsibility of accountants has come under public scrutiny and criticism in recent years as the result of major business failures and scandals involving bribes or questionable payments. Fortune magazine for example reports that Peat, Marwick, Mitchell & Co., the nation's largest accounting firm, has lost a significant number of clients because of its role in auditing the books of Penn Central, National Student Marketing, Republic National Life Insurance and Stirling Homex. It also mentions a "barrage of suits" against accountants, including a $30 million negligence judgement against Touche Ross, eighth largest of the Big Eight Firms.

Moreover, as competition grows among these and other companies, many accountants have branched out into other services like tax preparation and management consulting, feasibility studies and financial forecasting. This has led not only to charges of conflict of interest, but in some cases to sloppy accounting work due to time pressures, according to the Cohen Commission, a blue ribbon panel that studied accountants 18 months ago.

Earlier this year Rep. John Moss (D.-Cal.), chairman of the House American public was "painfully aware" of illegal payments and slush funds that were "artfully concealed under the rubric of generally accepted accounting principles.'"

Last month he introduced a bill to create an independent self-regulatory body for the accounting industry on the model of th non-government National Association of Securities Dealers which oversees the Over The Counter market.

Yesterday Moss called the SEC decision "wholly unsupported and even contradicted by the report's critical findings. It makes the SEC appear to be completely confused and disoriented," he said. He cited a June 2 letter from Williams in which the chairman wrote that the profession's self-regulatory program "now stands perilously close to being reduced to a self-serving effot conducted behind closed doors."

In its 14-pound report to Congress, the SEC stressed the needs for professional independence, active oversight and standard accounting procedures. The single most important aspect of AICPA's self-regulatory program is peer review, possibly firm-on-firm review. Also under study are the questions of disciplinary action against firms by the SEC, public access to the results of the peer review program, and the extent to which it could perform outside the United States.

The SEC recommends the formation of audit committees by public companies. Composed of independent directors, they are intended to provide a buffer between management and outside auditors.

Chairman Williams was asked at a press conference if these and other measures would prevent or detect an Equity Funding situation at an early age. (Equity Funding boosted the price of its stock by programming its computer to show non-existent life insurance policies.) Williams replied that it wouldn't necessarily act as an early warning system, but added, "We can't conclude from an audit failure that self-regulation won't work."

Williams declined to set any deadlines for accomplishing the proposed reforms. But he said the AICPA is aiming at completing a full cycle of peer reviews within three years.