(Sec. 101) Prohibits Board membership from including more than two certified public accountants.
(Sec. 102) Mandates registration with the Board by any public accounting firm that performs or participates in any audit report with respect to any issuer.
(Sec. 105) Empowers the Board to impose disciplinary or remedial sanctions upon registered public accounting firms and their associated persons who are in violation of this Act, including the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect to them.
Restricts liability to intentional conduct, or repeated instances of negligent conduct.
Authorizes Board sanctions upon a registered accounting firm or its supervisory personnel for failure to supervise.
(Sec. 106) Places within the purview of this Act: (1) foreign public accounting firms that prepare or furnish an audit report with respect to any issuer; and (2) audit workpapers.
(Sec. 107) Grants the Securities and Exchange Commission (SEC) general oversight of the Board and the power to review Board actions, including general modification and rescission of Board authority.
(Sec. 108) Amends the Securities Act of 1933 to: (1) authorize the SEC to recognize, as "generally accepted" for purposes of the securities laws, any accounting principles established by a standard setting body; and (2) direct the SEC to study and report to Congress on the adoption by the U.S. financial reporting system of a principles-based accounting system.
Title II: Auditor Independence - Amends the Securities Exchange Act of 1934 to prohibit a registered public accounting firm from performing specified non-audit services contemporaneously with a mandatory audit. Requires preapproval for non-audit services not expressly forbidden by statute.
(Sec. 203) Mandates: (1) audit partner rotation on a five-year basis; and (2) auditor reports to audit committees of the issuer.
(Sec. 206) Prohibits a registered public accounting firm from performing statutorily mandated audit services for an issuer if the issuer's senior management officials had been employed by such firm and participated in the audit of that issuer during the one-year period preceding the audit initiation date.
(Sec. 209) States that it is the intention of this Act that, in supervising nonregistered public accounting firms and their associated persons, appropriate State regulatory authorities should make an independent determination of the proper standards applicable, particularly taking into consideration the size and nature of the business of the accounting firms they supervise.
Title III: Corporate Responsibility - Vests the audit committee of an issuer with responsibility for the appointment, compensation, and oversight of any registered public accounting firm employed to perform audit services. Requires committee members to be a member of the board of directors of the issuer, and to be otherwise be independent.
(Sec. 302) Requires the chief executive officer and chief financial officer of an issuer to: (1) certify that periodic financial statements filed with the SEC fairly present, in all material respects, the operations and financial condition of the issuer; and (2) forfeit certain bonuses and compensation received following an issuer's accounting restatement owing to noncompliance with securities laws.
(Sec. 305) Authorizes a court to prohibit a violator of certain SEC rules from serving as an officer or director of an issuer if the person's conduct demonstrates unfitness to serve (the current standard is "substantial unfitness").
(Sec. 306) Prohibits insider trades during pension fund blackout periods. States that profits realized from such trades shall inure to and be recoverable by the issuer irrespective of the intent of the parties to the transaction.
Title IV: Enhanced Financial Disclosures - Instructs the SEC to require by rule: (1) disclosure of all material off-balance sheet transactions and relationships that may have a material effect upon the financial status of an issuer; and (2) the presentation of pro forma financial information in a manner that is not misleading, and which is reconcilable with the financial condition of the issuer under generally accepted accounting principles.
(Sec. 401) Directs the SEC to study and report to Congress on: (1) the extent of off-balance sheet transactions and the use of special purpose entities; and (2) whether generally accepted accounting rules result in financial statements that reflect the economics of such off-balance sheet transactions in a transparent fashion to investors; and (3) the extent to which special purpose entities are used to facilitate off-balance sheet transactions.
(Sec. 402) Prohibits a corporation from making personal loans to its corporate executives. Cites exceptions for home improvement and manufactured home loans made in the ordinary course of the consumer credit business of such issuer and made on terms that are no more favorable than those offered to the general public.
(Sec. 403) Reduces the mandatory period for principal stockholders or senior executives to disclose changes in ownership of securities or security-based swap agreements to two business days after changes were executed (presently ten days after the close of a calendar month). Includes electronic filing within such mandate to disclose.
(Sec. 404) Directs the SEC to prescribe rules mandating inclusion of an internal control report and assessment within requisite annual reports. Requires a public accounting firm that issues the audit report to attest to, and report on, the assessment made by corporate management.
(Sec. 406) Directs the SEC to issue rules requiring a code of ethics for senior financial officers of an issuer applicable to the principal financial officer, comptroller or principal accounting officer.
(Sec. 407) Sets a deadline for the SEC to promulgate rules mandating issuer disclosure whether its audit committee comprises at least one member who is a financial expert.
Title V: Analyst Conflicts of Interest - Requires the SEC to adopt rules governing securities analysts' potential conflicts of interest, including: (1) restricting the prepublication clearance or approval of research reports by persons either engaged in investment banking activities, or not directly responsible for investment research; (2) limiting the supervision and compensatory evaluation of securities analysts to officials who are not engaged in investment banking activities; (3) prohibiting a broker or dealer involved with investment banking activities from retaliating against a securities analyst as a result of an unfavorable research report that may adversely affect the investment banking relationship of the broker or dealer with the subject of the research report; and (4) establishing safeguards to assure that securities analysts are separated within the investment firm from the review, pressure, or oversight of those whose involvement in investment banking activities might potentially bias their judgment or supervision.
Directs the SEC to adopt rules requiring securities analysts and broker/dealers to disclose specified conflicts of interest.
Title VI: Commission Resources and Authority - Authorizes appropriations for FY 2003 to the SEC for: (1) additional compensation, salaries and benefits; (2) enhanced oversight of auditors and audit services; and (3) additional professional staff for fraud prevention, risk management, market regulation, and investment management.
(Sec. 602) Grants the SEC censure authority in connection with appearance and practice before the Commission. Sets forth rules of professional responsibility for attorneys representing public companies before the SEC, including: (1) requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty to the chief legal counsel or the chief executive officer of the company; and (2) if corporate executives do not respond appropriately, requiring the attorney to report to the audit committee of the board of directors.
(Sec. 603) Amends the Securities Exchange Act of 1934 and the Securities Act of 1933 to grant Federal court authority to prohibit specified brokers, dealers, or issuers from participating in offerings of penny stock.
(Sec. 604) Amends the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 to authorize SEC censure or restriction of associated persons of brokers and dealers who are subject to any final order of certain State regulatory entities barring them from engaging in the business under their regulatory purviews.
Title VII: Studies and Reports - Mandates studies and reports to Congress by: (1) the Comptroller General regarding the consolidation of public accounting firms, and the impact upon the capital formation and securities markets; and (2) the SEC regarding the role and function of credit rating agencies in the operation of the securities market.
Title VIII: Corporate and Criminal Fraud Accountability - Corporate and Criminal Fraud Accountability Act of 2002 - Amends Federal criminal law to prohibit: (1) knowingly destroying, altering, concealing, or falsifying records with the intent to obstruct or influence an investigation in a matter in Federal jurisdiction or in bankruptcy; and (2) auditor failure to maintain for a five-year period all audit or review work papers pertaining to an issuer of securities. Directs the SEC to promulgate regulations regarding the retention of audit records containing conclusions, opinions, analyses, or financial data.
(Sec. 803) Amends Federal bankruptcy law to make non-dischargeable in bankruptcy certain debts that result from a violation relating to Federal or State securities law, or of common law fraud pertaining to securities sales or purchases.
(Sec. 804) Amends the Federal judicial code to permit a private right of action for a securities-fraud claim to be brought not later than the earlier of: (1) five years after the date of the alleged violation; or (2) two years after its discovery.
(Sec. 805) Directs the United States Sentencing Commission to review and amend Federal sentencing guidelines to ensure that the offense levels, existing enhancements, and/or offense characteristics are sufficient to deter and punish violations involving: (1) obstruction of justice; (2) record destruction; (3) fraud when the number of victims adversely involved is significantly greater than 50 or when it endangers the solvency or financial security of a substantial number of victims; and (4) organizational criminal misconduct.
(Sec. 806) Prohibits a publicly traded company from discharging or otherwise discriminating against an employee because of any lawful act by the employee to: (1) assist in an investigation of prohibited conduct by Federal regulators, Congress, or supervisors; or (2) file or participate in a proceeding relating to fraud against shareholders.
Delineates remedies for such aggrieved employee, including reinstatement, back pay, and compensatory damages.
(Sec. 807) Subjects to a fine and imprisonment any person who defrauds shareholders of publicly traded companies.
Title IX: White-Collar Crime Penalty Enhancements - White-Collar Crime Penalty Enhancement Act of 2002 - Amends Federal criminal law to increase criminal penalties for: (1) conspiracy to commit offense or to defraud the United States, including its agencies; and (2) mail and wire fraud.
(Sec. 904) Amends the Employee Retirement Income Security Act of 1974 to increase the criminal penalties for violations of such Act.
(Sec. 905) Directs the United States Sentencing Commission to review Federal Sentencing Guidelines to: (1) ensure that they reflect the serious nature of the offenses and the penalties set forth in this Act, the growing incidence of serious fraud offenses, and the need to deter and punish such offenses; and (2) consider whether a specific offense characteristic should be added in order to provide stronger penalties for fraud committed by a corporate officer or director.
(Sec.906) Amends Federal criminal law to require senior corporate officers to certify in writing that financial statements and the disclosures therein fairly present in all material aspects the operations and financial condition of the issuer.
Subjects to criminal liability any person who recklessly and knowingly violates such requirement, including maximum imprisonment of: (1) ten years for willful violation; and (2) five years for reckless and knowing violation.
(Sec. 908) Subjects to a maximum ten-year prison term anyone who corruptly tampers with a record with intent to impair the object's integrity or availability for use in an official proceeding, or otherwise impedes an official proceeding.
(Sec. 909) Amends the Securities Exchange Act of 1934 to authorize the SEC to seek a temporary injunction to freeze extraordinary payments earmarked for designated persons or corporate staff under investigation for possible violations of Federal securities laws.
(Sec. 910) Requests the United States Sentencing Commission to: (1) promptly review sentencing guidelines applicable to securities and accounting fraud; and (2) expeditiously consider promulgation of new sentencing guidelines to provide an enhancement concerning senior corporate officers who commit fraud and related offenses. Prescribes guidelines for Commission consideration, including a request that it ensure that the sentencing guidelines and policy statements reflect the serious nature of securities, pension, and accounting fraud and the need for aggressive and appropriate law enforcement action to prevent such offenses. Sets a deadline for promulgation of such guidelines.
(Sec. 911) Amends the Securities Exchange Act of 1934 and the Securities Act of 1933 to authorize the SEC to prohibit a violator of rules governing manipulative and deceptive devices, and fraudulent interstate transactions, respectively, from serving as officer or director of a publicly traded corporation if such person's conduct demonstrates unfitness to serve.
Title X: Corporate Tax Returns - Expresses the sense of the Senate that the Federal income tax return of a corporation should be signed by the chief executive officer of such corporation.
[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2673 Placed on Calendar Senate (PCS)]
Calendar No. 442
107th CONGRESS
2d Session
S. 2673
To improve quality and transparency in financial reporting and
independent audits and accounting services for public companies, to
create a Public Company Accounting Oversight Board, to enhance the
standard setting process for accounting practices, to strengthen the
independence of firms that audit public companies, to increase
corporate responsibility and the usefulness of corporate financial
disclosure, to protect the objectivity and independence of securities
analysts, to improve Securities and Exchange Commission resources and
oversight, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
June 25, 2002
Mr. Sarbanes, from the Committee on Banking, Housing, and Urban
Affairs, reported the following original bill; which was read
twice and placed on the calendarYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY
_______________________________________________________________________
A BILL
To improve quality and transparency in financial reporting and
independent audits and accounting services for public companies, to
create a Public Company Accounting Oversight Board, to enhance the
standard setting process for accounting practices, to strengthen the
independence of firms that audit public companies, to increase
corporate responsibility and the usefulness of corporate financial
disclosure, to protect the objectivity and independence of securities
analysts, to improve Securities and Exchange Commission resources and
oversight, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Public Company
Accounting Reform and Investor Protection Act of 2002''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Commission rules and enforcement.
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
Sec. 101. Establishment; administrative provisions.
Sec. 102. Registration with the Board.
Sec. 103. Auditing, quality control, and independence standards and
rules.
Sec. 104. Inspections of registered public accounting firms.
Sec. 105. Investigations and disciplinary proceedings.
Sec. 106. Foreign public accounting firms.
Sec. 107. Commission oversight of the Board.
Sec. 108. Accounting standards.
Sec. 109. Funding.
TITLE II--AUDITOR INDEPENDENCE
Sec. 201. Services outside the scope of practice of auditors.
Sec. 202. Preapproval requirements.
Sec. 203. Audit partner rotation.
Sec. 204. Auditor reports to audit committees.
Sec. 205. Conforming amendments.
Sec. 206. Conflicts of interest.
Sec. 207. Study of mandatory rotation of registered public accounting
firms.
Sec. 208. Commission authority.
Sec. 209. Considerations by appropriate State regulatory authorities.
TITLE III--CORPORATE RESPONSIBILITY
Sec. 301. Public company audit committees.
Sec. 302. Corporate responsibility for financial reports.
Sec. 303. Improper influence on conduct of audits.
Sec. 304. Forfeiture of certain bonuses and profits.
Sec. 305. Officer and director bars and penalties.
Sec. 306. Insider trades during pension fund blackout periods
prohibited.
TITLE IV--ENHANCED FINANCIAL DISCLOSURES
Sec. 401. Disclosures in periodic reports.
Sec. 402. Enhanced conflict of interest disclosures.
Sec. 403. Disclosures of transactions involving management and
principal stockholders.
Sec. 404. Management assessment of internal controls.
Sec. 405. Exemption.
Sec. 406. Code of ethics for senior financial officers.
Sec. 407. Disclosure of audit committee financial expert.
TITLE V--ANALYST CONFLICTS OF INTEREST
Sec. 501. Treatment of securities analysts by registered securities
associations.
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
Sec. 601. Authorization of appropriations.
Sec. 602. Appearance and practice before the Commission.
Sec. 603. Federal court authority to impose penny stock bars.
Sec. 604. Qualifications of associated persons of brokers and dealers.
TITLE VII--STUDIES AND REPORTS
Sec. 701. GAO study and report regarding consolidation of public
accounting firms.
Sec. 702. Commission study and report regarding credit rating agencies.
SEC. 2. DEFINITIONS.
(a) In General.--In this Act, the following definitions shall
apply:
(1) Appropriate state regulatory authority.--The term
``appropriate State regulatory authority'' means the State
agency or other authority responsible for the licensure or
other regulation of the practice of accounting in the State or
States having jurisdiction over a registered public accounting
firm or associated person thereof, with respect to the matter
in question.
(2) Audit.--The term ``audit'' means an examination of the
financial statements of any issuer by an independent public
accounting firm in accordance with the rules of the Board or
the Commission (or, for the period preceding the adoption of
applicable rules of the Board under section 103, in accordance
with then-applicable generally accepted auditing and related
standards for such purposes), for the purpose of expressing an
opinion on such statements.
(3) Audit committee.--The term ``audit committee'' means--
(A) a committee (or equivalent body) established by
and amongst the board of directors of an issuer for the
purpose of overseeing the accounting and financial
reporting processes of the issuer and audits of the
financial statements of the issuer; and
(B) if no such committee exists with respect to an
issuer, the entire board of directors of the issuer.
(4) Audit report.--The term ``audit report'' means a
document or other record--
(A) prepared following an audit performed for
purposes of compliance by an issuer with the
requirements of the securities laws; and
(B) in which a public accounting firm either--
(i) sets forth the opinion of that firm
regarding a financial statement, report, or
other document; or
(ii) asserts that no such opinion can be
expressed.
(5) Board.--The term ``Board'' means the Public Company
Accounting Oversight Board established under section 101.
(6) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(7) Issuer.--The term ``issuer'' means an issuer (as
defined in section 3 of the Securities Exchange Act of 1934 (15
U.S.C. 78c)), the securities of which are registered under
section 12 of that Act (15 U.S.C. 78l), or that is required to
file reports pursuant to section 15(d) of that Act (15 U.S.C.
78o(d)), or that will be required to file such reports at the
end of a fiscal year of the issuer in which a registration
statement filed by such issuer has become effective pursuant to
the Securities Act of 1933 (15 U.S.C. 77a et. seq.), unless its
securities are registered under section 12 of the Securities
Exchange Act of 1934 (15 U.S.C. 78c) on or before the end of
such fiscal year.
(8) Non-audit services.--The term ``non-audit services''
means any professional services provided to an issuer by a
registered public accounting firm, other than those provided to
an issuer in connection with an audit or a review of the
financial statements of an issuer.
(9) Person associated with a public accounting firm.--
(A) In general.--The terms ``person associated with
a public accounting firm'' (or with a ``registered
public accounting firm'') and ``associated person of a
public accounting firm'' (or of a ``registered public
accounting firm'') mean any individual proprietor,
partner, shareholder, principal, accountant, or other
professional employee of a public accounting firm, or
any other independent contractor or entity that, in
connection with the preparation or issuance of any
audit report--
(i) shares in the profits of, or receives
compensation in any other form from, that firm;
or
(ii) participates as agent or otherwise on
behalf of such accounting firm in any activity
of that firm.
(B) Exemption authority.--The Board may, by rule,
exempt persons engaged only in ministerial tasks from
the definition in subparagraph (A), to the extent that
the Board determines that any such exemption is
consistent with the purposes of this Act, the public
interest, or the protection of investors.
(10) Professional standards.--The term ``professional
standards'' means--
(A) accounting principles that are--
(i) established by the standard setting
body described in section 19(b) of the
Securities Act of 1933, as amended by this Act,
or prescribed by the Commission under section
19(a) of that Act (15 U.S.C. 17a(s)) or section
13(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78a(m)); and
(ii) relevant to audit reports for
particular issuers, or dealt with in the
quality control system of a particular
registered public accounting firm; and
(B) auditing standards, standards for attestation
engagements, quality control policies and procedures,
ethical and competency standards, and independence
standards (including rules implementing title II) that
the Board or the Commission determines--
(i) relate to the preparation or issuance
of audit reports for issuers; and
(ii) are established or adopted by the
Board under section 103(a), or are promulgated
as rules of the Commission.
(11) Public accounting firm.--The term ``public accounting
firm'' means--
(A) a proprietorship, partnership, incorporated
association, corporation, limited liability company,
limited liability partnership, or other legal entity
that is engaged in the practice of public accounting or
preparing or issuing audit reports; and
(B) to the extent so designated by the rules of the
Board, any associated person of any entity described in
subparagraph (A).
(12) Registered public accounting firm.--The term
``registered public accounting firm'' means a public accounting
firm registered with the Board in accordance with this Act.
(13) Rules of the board.--The term ``rules of the Board''
means the bylaws and rules of the Board (as submitted to, and
approved, modified, or amended by the Commission, in accordance
with section 107), and those stated policies, practices, and
interpretations of the Board that the Commission, by rule, may
deem to be rules of the Board, as necessary or appropriate in
the public interest or for the protection of investors.
(14) Security.--The term ``security'' has the same meaning
as in section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)).
(15) Securities laws.--The term ``securities laws'' means
the provisions of law referred to in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), as
amended by this Act, and includes the rules, regulations, and
orders issued by the Commission thereunder.
(16) State.--The term ``State'' means any State of the
United States, the District of Columbia, Puerto Rico, the
Virgin Islands, or any other territory or possession of the
United States.
(b) Conforming Amendment.--Section 3(a)(47) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) is amended by inserting
``the Public Company Accounting Reform and Investor Protection Act of
2002,'' before ``the Public''.
SEC. 3. COMMISSION RULES AND ENFORCEMENT.
(a) Regulatory Action.--The Commission shall promulgate such rules
and regulations, as may be necessary or appropriate in the public
interest or for the protection of investors, and in furtherance of this
Act.
(b) Enforcement.--
(1) In general.--A violation by any person of this Act, any
rule or regulation of the Commission issued under this Act, or
any rule of the Board shall be treated for all purposes in the
same manner as a violation of the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) or the rules and regulations
issued thereunder, consistent with the provisions of this Act,
and any such person shall be subject to the same penalties, and
to the same extent, as for a violation of that Act or such
rules or regulations.
(2) Investigations, injunctions, and prosecution of
offenses.--Section 21 of the Securities Exchange Act of 1934
(15 U.S.C. 78u) is amended
(A) in subsection (a)(1), by inserting ``the rules
of the Public Company Accounting Oversight Board, of
which such person is a registered public accounting
firm or a person associated with such a firm,'' after
``is a participant,'';
(B) in subsection (d)(1), by inserting ``the rules
of the Public Company Accounting Oversight Board, of
which such person is a registered public accounting
firm or a person associated with such a firm,'' after
``is a participant,'';
(C) in subsection (e), by inserting ``the rules of
the Public Company Accounting Oversight Board, of which
such person is a registered public accounting firm or a
person associated with such a firm,'' after ``is a
participant,''; and
(D) in subsection (f), by inserting ``or the Public
Company Accounting Oversight Board'' after ``self-
regulatory organization'' each place that term appears.
(3) Cease-and-desist proceedings.--Section 21C(c)(2) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is
amended by inserting ``registered public accounting firm (as
defined in section 2 of the Public Company Accounting Reform
and Investor Protection Act of 2002),'' after ``government
securities dealer,''.
(c) Effect on Commission Authority.--Nothing in this Act or the
rules of the Board shall be construed to impair or limit--
(1) the authority of the Commission to regulate the
accounting profession, accounting firms, or persons associated
with such firms for purposes of enforcement of the securities
laws;
(2) the authority of the Commission to set standards for
accounting or auditing practices or auditor independence,
derived from other provisions of the securities laws or the
rules or regulations thereunder, for purposes of the
preparation and issuance of any audit report, or otherwise
under applicable law; or
(3) the ability of the Commission to take, on the
initiative of the Commission, legal, administrative, or
disciplinary action against any registered public accounting
firm or any associated person thereof.
TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.
(a) Establishment of Board.--There is established the Public
Company Accounting Oversight Board, to oversee the audit of public
companies that are subject to the securities laws, and related matters,
in order to protect the interests of investors and further the public
interest in the preparation of informative, accurate, and independent
audit reports for companies the securities of which are sold to, and
held by and for, public investors. The Board shall be a body corporate,
operate as a nonprofit corporation, and have succession until dissolved
by an Act of Congress.
(b) Status.--The Board shall not be an agency or establishment of
the United States Government, and, except as otherwise provided in this
Act, shall be subject to, and have all the powers conferred upon a
nonprofit corporation by, the District of Columbia Nonprofit
Corporation Act. No member or person employed by, or agent for, the
Board shall be deemed to be an officer or employee of or agent for the
Federal Government by reason of such service.
(c) Duties of the Board.--The Board shall, subject to action by the
Commission under section 107, and once a determination is made by the
Commission under subsection (d) of this section--
(1) register public accounting firms that prepare audit
reports for issuers, in accordance with section 102;
(2) establish or adopt, or both, by rule, auditing, quality
control, ethics, independence, and other standards relating to
the preparation of audit reports for issuers, in accordance
with section 103;
(3) conduct inspections of registered public accounting
firms, in accordance with section 104 and the rules of the
Board;
(4) conduct investigations and disciplinary proceedings
concerning, and impose appropriate sanctions where justified
upon, registered public accounting firms and associated persons
of such firms, in accordance with section 105;
(5) perform such other duties or functions as the Board
determines are necessary or appropriate to promote high
professional standards among, and improve the quality of audit
services offered by, registered public accounting firms and
associated persons thereof, or otherwise to carry out this Act,
in order to protect investors, or to further the public
interest;
(6) enforce compliance with this Act, the rules of the
Board, professional standards, and the securities laws relating
to the preparation and issuance of audit reports and the
obligations and liabilities of accountants with respect
thereto, by registered public accounting firms and associated
persons thereof; and
(7) set the budget and manage the operations of the Board
and the staff of the Board.
(d) Commission Determination.--The members of the Board shall take
such action (including hiring of staff, proposal of rules, and adoption
of initial and transitional auditing and other professional standards)
as may be necessary or appropriate to enable the Commission to
determine, not later than 270 days after the date of enactment of this
Act, that the Board is so organized and has the capacity to carry out
the requirements of this title, and to enforce compliance with this
title by registered public accounting firms and associated persons
thereof.
(e) Board Membership.--
(1) Composition.--The Board shall have 5 members, appointed
from among prominent individuals of integrity and reputation
who have a demonstrated commitment to the interests of
investors and the public, and an understanding of the
responsibilities for and nature of the financial disclosures
required of issuers under the securities laws and the
obligations of accountants with respect to the preparation and
issuance of audit reports with respect to such disclosures.
(2) Limitation.--Two members, and only 2 members, of the
Board shall be or have been certified public accountants
pursuant to the laws of 1 or more States, provided that, if 1
of those 2 members is the chairperson, he or she may not have
been a practicing certified public accountant for at least 5
years prior to his or her appointment to the Board.
(3) Full-time independent service.--Each member of the
Board shall serve on a full-time basis, and may not, concurrent
with service on the Board, be employed by any other person or
engage in any other professional or business activity. No
member of the Board may share in any of the profits of, or
receive payments from, a public accounting firm (or any other
person, as determined by rule of the Commission), other than
fixed continuing payments, subject to such conditions as the
Commission may impose, under standard arrangements for the
retirement of members of public accounting firms.
(4) Appointment of board members.--
(A) Initial board.--Not later than 90 days after
the date of enactment of this Act, the Commission,
after consultation with the Chairman of the Board of
Governors of the Federal Reserve System and the
Secretary of the Treasury, shall appoint the
chairperson and other initial members of the Board, and
shall designate a term of service for each.
(B) Vacancies.--A vacancy on the Board shall not
affect the powers of the Board, but shall be filled in
the same manner as provided for appointments under this
section.
(5) Term of service.--
(A) In general.--The term of service of each Board
member shall be 5 years, and until a successor is
appointed, except that--
(i) the terms of office of the initial
Board members (other than the chairperson)
shall expire in annual increments, 1 on each of
the first 4 anniversaries of the initial date
of appointment; and
(ii) any Board member appointed to fill a
vacancy occurring before the expiration of the
term for which the predecessor was appointed
shall be appointed only for the remainder of
that term.
(B) Term limitation.--No person may serve as a
member of the Board, or as chairperson of the Board,
for more than 2 terms, whether or not such terms of
service are consecutive.
(6) Removal from office.--A member of the Board may be
removed by the Commission from office, in accordance with
section 107(d)(3), for good cause shown before the expiration
of the term of that member.
(f) Powers of the Board.--In addition to any authority granted to
the Board otherwise in this Act, the Board shall have the power,
subject to section 107--
(1) to sue and be sued, complain and defend, in its
corporate name and through its own counsel, with the approval
of the Commission, in any Federal, State, or other court;
(2) to conduct its operations and maintain offices, and to
exercise all other rights and powers authorized by this Act, in
any State, without regard to any qualification, licensing, or
other provision of law in effect in such State (or a political
subdivision thereof);
(3) to lease, purchase, accept gifts or donations of or
otherwise acquire, improve, use, sell, exchange, or convey, all
of or an interest in any property, wherever situated;
(4) to appoint such employees, accountants, attorneys, and
other agents as may be necessary or appropriate, and to
determine their qualifications, define their duties, and fix
their salaries or other compensation (at a level that is
comparable to private sector self-regulatory, accounting,
technical, supervisory, or other staff or management
positions);
(5) to allocate, assess, and collect accounting support
fees established pursuant to section 109, for the Board, and
other fees and charges imposed under this title; and
(6) to enter into contracts, execute instruments, incur
liabilities, and do any and all other acts and things
necessary, appropriate, or incidental to the conduct of its
operations and the exercise of its obligations, rights, and
powers imposed or granted by this title.
(g) Rules of the Board.--The rules of the Board shall, subject to
the approval of the Commission--
(1) provide for the operation and administration of the
Board, the exercise of its authority, and the performance of
its responsibilities under this Act;
(2) permit, as the Board determines necessary or
appropriate, delegation by the Board of any of its functions to
an individual member or employee of the Board, or to a division
of the Board, including functions with respect to hearing,
determining, ordering, certifying, reporting, or otherwise
acting as to any matter, except that--
(A) the Board shall retain a discretionary right to
review any action pursuant to any such delegated
function, upon its own motion;
(B) a person shall be entitled to a review by the
Board with respect to any matter so delegated, and the
decision of the Board upon such review shall be deemed
to be the action of the Board for all purposes
(including appeal or review thereof); and
(C) if the right to exercise a review described in
subparagraph (A) is declined, or if no such review is
sought within the time stated in the rules of the
Board, then the action taken by the holder of such
delegation shall for all purposes, including appeal or
review thereof, be deemed to be the action of the
Board;
(3) establish ethics rules and standards of conduct for
Board members and staff, including a bar on practice before the
Board (and the Commission, with respect to Board-related
matters) of 1 year for former members of the Board, and
appropriate periods (not to exceed 1 year) for former staff of
the Board; and
(4) provide as otherwise required by this Act.
(h) Annual Report to the Commission.--The Board shall submit an
annual report (including its audited financial statements) to the
Commission, and the Commission shall transmit a copy of that report to
the Committee on Banking, Housing, and Urban Affairs of the Senate, and
the Committee on Financial Services of the House of Representatives,
not later than 30 days after the date of receipt of that report by the
Commission.
SEC. 102. REGISTRATION WITH THE BOARD.
(a) Mandatory Registration.--Beginning 180 days after the date of
the determination of the Commission under section 101(d), it shall be
unlawful for any person that is not a registered public accounting firm
to prepare or issue, or to participate in the preparation or issuance
of, any audit report with respect to any issuer.
(b) Applications for Registration.--
(1) Form of application.--A public accounting firm shall
use such form as the Board may prescribe, by rule, to apply for
registration under this section.
(2) Contents of applications.--Each public accounting firm
shall submit, as part of its application for registration, in
such detail as the Board shall specify--
(A) the names of all issuers for which the firm
prepared or issued audit reports during the immediately
preceding calendar year, and for which the firm expects
to prepare or issue audit reports during the current
calendar year;
(B) the annual fees received by the firm from each
such issuer for audit services, other accounting
services, and non-audit services, respectively;
(C) such other current financial information for
the most recently completed fiscal year of the firm as
the Board may reasonably request;
(D) a statement of the quality control policies of
the firm for its accounting and auditing practices;
(E) a list of all accountants associated with the
firm who participate in or contribute to the
preparation of audit reports, stating the license or
certification number of each such person, as well as
the State license numbers of the firm itself;
(F) information relating to criminal, civil, or
administrative actions or disciplinary proceedings
pending against the firm or any associated person of
the firm in connection with any audit report;
(G) copies of any periodic or annual disclosure
filed by an issuer with the Commission during the
immediately preceding calendar year which discloses
accounting disagreements between such issuer and the
firm in connection with an audit report furnished or
prepared by the firm for such issuer; and
(H) such other information as the rules of the
Board or the Commission shall specify as necessary or
appropriate in the public interest or for the
protection of investors.
(3) Consents.--Each application for registration under this
subsection shall include--
(A) a consent executed by the public accounting
firm to cooperation in and compliance with any request
for testimony or the production of documents made by
the Board in the furtherance of its authority and
responsibilities under this title (and an agreement to
secure and enforce similar consents from each of the
associated persons of the public accounting firm as a
condition of their continued employment by or other
association with such firm); and
(B) a statement that such firm understands and
agrees that cooperation and compliance, as described in
the consent required by subparagraph (A), and the
securing and enforcement of such consents from its
associated persons, in accordance with the rules of the
Board, shall be a condition to the continuing
effectiveness of the registration of the firm with the
Board.
(c) Action on Applications.--
(1) Timing.--The Board shall approve a completed
application for registration not later than 45 days after the
date of receipt of the application, in accordance with the
rules of the Board, unless the Board, prior to such date,
issues a written notice of disapproval to, or requests more
information from, the prospective registrant.
(2) Treatment.--A written notice of disapproval of a
completed application under paragraph (1) for registration
shall be treated as a disciplinary sanction for purposes of
sections 105(d) and 107(c).
(d) Periodic Reports.--Each registered public accounting firm shall
submit an annual report to the Board, and may be required to report
more frequently, as necessary to update the information contained in
its application for registration under this section, and to provide to
the Board such additional information as the Board or the Commission
may specify, in accordance with subsection (b)(2).
(e) Public Availability.--Registration applications and annual
reports required by this subsection, or such portions of such
applications or reports as may be designated under rules of the Board,
shall be made available for public inspection, subject to rules of the
Board or the Commission, and to applicable laws relating to the
confidentiality of proprietary, personal, or other information
contained in such applications or reports, provided that, in all
events, the Board shall protect from public disclosure information
reasonably identified by the subject accounting firm as proprietary
information.
(f) Registration and Annual Fees.--The Board shall assess and
collect a registration fee and an annual fee from each registered
public accounting firm, in amounts that are sufficient to recover the
costs of processing and reviewing applications and annual reports.
SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND
RULES.
(a) Auditing, Quality Control, and Ethics Standards.--
``(1) In general.--The Board shall, by rule, establish,
including, to the extent it determines appropriate, through
adoption of standards proposed by 1 or more professional groups
of accountants designated pursuant to paragraph (3)(A) or
advisory groups convened pursuant to paragraph (4), and amend
or otherwise modify or alter, such auditing and related
attestation standards, such quality control standards, and such
ethics standards to be used by registered public accounting
firms in the preparation and issuance of audit reports, as
required by this Act or the rules of the Commission, or as may
be necessary or appropriate in the public interest or for the
protection of investors.
(2) Rule requirements.--In carrying out paragraph (1), the
Board--
(A) shall include in the auditing standards that it
adopts, requirements that each registered public
accounting firm shall--
(i) prepare, and maintain for a period of
not less than 7 years, audit work papers, and
other information related to any audit report,
in sufficient detail to support the conclusions
reached in such report;
(ii) provide a concurring or second partner
review and approval of such audit report (and
other related information), and concurring
approval in its issuance, by a qualified person
(as prescribed by the Board) associated with
the public accounting firm, other than the
person in charge of the audit, or by an
independent reviewer (as prescribed by the
Board); and
(iii) describe the scope of the auditor's
testing of the system of internal accounting
controls of the issuer required by section
13(b)(2) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(b)(2)), and present (in such
report or in a separate report)--
(I) the findings of the auditor
from such testing;
(II) an evaluation of whether such
system of internal accounting
controls--
(aa) complies with the
requirements of that section
13(b)(2); and
(bb) provides reasonable
assurance that receipts and
expenditures of the issuer
comply with applicable law, and
are being made in accordance
with proper authorizations of
the management and directors of
the issuer; and
(III) a description of significant
defects in such internal controls, and
of any material noncompliance, of which
the auditor should know on the basis of
such testing; and
(B) shall include, in the quality control standards
that it adopts with respect to the issuance of audit
reports, requirements for every registered public
accounting firm relating to--
(i) monitoring of professional ethics and
independence from issuers on behalf of which
the firm issues audit reports;
(ii) consultation within such firm on
accounting and auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional development, and
advancement of personnel;
(v) the acceptance and continuation of
engagements;
(vi) internal inspection; and
(vii) such other requirements as the Board
may prescribe, subject to subsection (a)(1).
(3) Authority to adopt other standards.--
(A) In general.--In carrying out this subsection,
the Board--
(i) may adopt as its rules, subject to the
terms of section 107, any portion of any
statement of auditing standards or other
professional standards that the Board
determines satisfy the requirements of
paragraph (1), and that were proposed by 1 or
more professional groups of accountants that
shall be designated or recognized by the Board,
by rule, for such purpose, pursuant to this
paragraph or 1 or more advisory groups convened
pursuant to paragraph (4); and
(ii) notwithstanding clause (i), shall
retain full authority to modify, supplement,
revise, or subsequently amend, modify, or
repeal, in whole or in part, any portion of any
statement described in clause (i).
(B) Initial and transitional standards.--The Board
shall adopt standards described in subparagraph (A)(i)
as initial or transitional standards, to the extent the
Board determines necessary, prior to a determination of
the Commission under section 101(d), and such standards
shall be separately approved by the Commission at the
time of that determination, without regard to the
procedures required by section 107 that otherwise would
apply to the approval of rules of the Board.
(4) Advisory groups.--The Board shall convene, or authorize
its staff to convene, such expert advisory groups as may be
appropriate, which may include practicing accountants and other
experts, as well as representatives of other interested groups,
subject to such rules as the Board may prescribe to prevent
conflicts of interest, to make recommendations concerning the
content (including proposed drafts) of auditing, quality
control, ethics, independence, or other standards required to
be established under this section.
(b) Independence Standards and Rules.--The Board shall establish
such rules as may be necessary or appropriate in the public interest or
for the protection of investors, to implement, or as authorized under,
title II of this Act.
(c) Cooperation With Designated Professional Groups of Accountants
and Advisory Groups.--
(1) In general.--The Board shall cooperate on an ongoing
basis with professional groups of accountants designated under
subsection (a)(3)(A) and advisory groups convened under
subsection (a)(4) in the examination of the need for changes in
any standards subject to its authority under subsection (a),
recommend issues for inclusion on the agendas of such
designated professional groups of accountants or advisory
groups, and take such other steps as it deems appropriate to
increase the effectiveness of the standard setting process.
(2) Board responses.--The Board shall respond in a timely
fashion to requests from designated professional groups of
accountants and advisory groups referred to in paragraph (1)
for any changes in standards over which the Board has
authority.
(d) Evaluation of Standard Setting Process.--The Board shall
include in the annual report required by section 101(h) the results of
its standard setting responsibilities during the period to which the
report relates, including a discussion of the work of the Board with
any designated professional groups of accountants and advisory groups
described in paragraphs (3)(A) and (4) of subsection (a), and its
pending issues agenda for future standard setting projects.
SEC. 104. INSPECTIONS OF REGISTERED PUBLIC ACCOUNTING FIRMS.
(a) In General.--The Board shall conduct a continuing program of
inspections to assess the degree of compliance of each registered
public accounting firm and associated persons of that firm with this
Act, the rules of the Board, the rules of the Commission, or
professional standards, in connection with its performance of audits,
issuance of audit reports, and related matters involving issuers.
(b) Inspection Frequency.--
(1) In general.--Subject to paragraph (2), inspections
required by this section shall be conducted--
(A) annually with respect to each registered public
accounting firm that regularly provides audit reports
for more than 100 issuers; and
(B) not less frequently than once every 3 years
with respect to each registered public accounting firm
that regularly provides audit reports for 100 or fewer
issuers.
(2) Adjustments to schedules.--The Board may, by rule,
adjust the inspection schedules set under paragraph (1) if the
Board finds that different inspection schedules are consistent
with the purposes of this Act, the public interest, and the
protection of investors.
(c) Procedures.--The Board shall, in each inspection under this
section, and in accordance with its rules for such inspections--
(1) identify any act or practice or omission to act by the
registered public accounting firm, or by any associated person
thereof, revealed by such inspection that may be in violation
of this Act, the rules of the Board, the rules of the
Commission, the firm's own quality control policies, or
professional standards;
(2) report any such act, practice, or omission, if
appropriate, to the Commission and each appropriate State
regulatory authority; and
(3) begin a formal investigation or take appropriate
disciplinary action, if any, with respect to any such
violation, in accordance with this Act and the rules of the
Board.
(d) Conduct of Inspections.--In conducting an inspection of a
registered public accounting firm under this section, the Board shall--
(1) inspect and review selected audit and review
engagements of the firm (which may include audit engagements
that are the subject of ongoing litigation or other controversy
between the firm and 1 or more third parties), performed at
various offices and by various associated persons of the firm,
as selected by the Board;
(2) evaluate the sufficiency of the quality control system
of the firm, and the manner of the documentation and
communication of that system by the firm; and
(3) perform such other testing of the audit, supervisory,
and quality control procedures of the firm as are necessary or
appropriate in light of the purpose of the inspection and the
responsibilities of the Board.
(e) Record Retention.--The rules of the Board may require the
retention by registered public accounting firms for inspection purposes
of records whose retention is not otherwise required by section 103 or
the rules issued thereunder.
(f) Procedures for Review.--The rules of the Board shall provide a
procedure for the review of and response to a draft inspection report
by the registered public accounting firm under inspection. The Board
shall take such action with respect to such response as it considers
appropriate (including revising the draft report or continuing or
supplementing its inspection activities before issuing a final report),
but the text of any such response, appropriately redacted to protect
information reasonably identified by the accounting firm as
confidential, shall be attached to and made part of the inspection
report.
(g) Report.--A written report of the findings of the Board for each
inspection under this section, subject to subsection (h), shall be--
(1) transmitted, in appropriate detail, to the Commission
and each appropriate State regulatory authority, accompanied by
any letter or comments by the Board or the inspector, and any
letter of response from the registered public accounting firm;
and
(2) made available in appropriate detail to the public
(subject to section 105(b)(5)(A), and to the protection of such
confidential and proprietary information as the Board may
determine to be appropriate, or as may be required by law),
except that no portions of the inspection report that deal with
criticisms of or potential defects in the quality control
systems of the firm under inspection shall be made public if
those criticisms or defects are addressed by the firm, to the
satisfaction of the Board, not later than 12 months after the
date of the inspection report.
(h) Interim Commission Review.--
(1) Reviewable matters.--A registered public accounting
firm may seek review by the Commission, pursuant to such rules
as the Commission shall promulgate, if the firm--
(A) has provided the Board with a response,
pursuant to rules issued by the Board under subsection
(f), to the substance of particular items in a draft
inspection report, and disagrees with the assessments
contained in any final report prepared by the Board
following such response; or
(B) disagrees with the determination of the Board
that criticisms or defects identified in an inspection
report have not been addressed to the satisfaction of
the Board within 12 months of the date of the
inspection report, for purposes of subsection (g)(2).
(2) Treatment of review.--Any decision of the Commission
with respect to a review under paragraph (1) shall not be
reviewable under section 25 of the Securities Exchange Act of
1934 (15 U.S.C. 78y), or deemed to be ``final agency action''
for purposes of section 704 of title 5, United States Code.
(3) Timing.--Review under paragraph (1) may be sought
during the 30-day period following the date of the event giving
rise to the review under subparagraph (A) or (B) of paragraph
(1).
SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.
(a) In General.--The Board shall establish, by rule, subject to the
requirements of this section, fair procedures for the investigation and
disciplining of registered public accounting firms and associated
persons of such firms.
(b) Investigations.--
(1) Authority.--In accordance with the rules of the Board,
the Board may conduct an investigation of any act or practice,
or omission to act, by a registered public accounting firm, any
associated person of such firm, or both, that may violate any
provision of this Act, the rules of the Board, the provisions
of the securities laws relating to the preparation and issuance
of audit reports and the obligations and liabilities of
accountants with respect thereto, including the rules of the
Commission issued under this Act, or professional standards,
regardless of how the act, practice, or omission is brought to
the attention of the Board.
(2) Testimony and document production.--In addition to such
other actions as the Board determines to be necessary or
appropriate, the rules of the Board may--
(A) require the testimony of the firm or of any
person associated with a registered public accounting
firm, with respect to any matter that the Board
considers relevant or material to an investigation;
(B) require the production of audit work papers and
any other document or information in the possession of
a registered public accounting firm or any associated
person thereof, wherever domiciled, that the Board
considers relevant or material to the investigation,
and may inspect the books and records of such firm or
associated person to verify the accuracy of any
documents or information supplied;
(C) request the testimony of, and production of any
document in the possession of, any other person,
including any client of a registered public accounting
firm that the Board considers relevant or material to
an investigation under this section, with appropriate
notice, subject to the needs of the investigation, as
permitted under the rules of the Board; and
(D) provide for procedures to seek issuance by the
Commission, in a manner established by the Commission,
of a subpoena to require the testimony of, and
production of any document in the possession of, any
person, including any client of a registered public
accounting firm, that the Board considers relevant or
material to an investigation under this section.
(3) Noncooperation with investigations.--
(A) In general.--If a registered public accounting
firm or any associated person thereof refuses to
testify, produce documents, or otherwise cooperate with
the Board in connection with an investigation under
this section, the Board may--
(i) suspend or bar such person from being
associated with a registered public accounting
firm, or require the registered public
accounting firm to end such association;
(ii) suspend or revoke the registration of
the public accounting firm; and
(iii) invoke such other lesser sanctions as
the Board considers appropriate, and as
specified by rule of the Board.
(B) Procedure.--Any action taken by the Board under
this paragraph shall be subject to the terms of section
107(c).
(4) Referral.--The Board may refer an investigation under
this section--
(A) to the Commission;
(B) to any other Federal functional regulator (as
defined in section 509 of the Gramm-Leach-Bliley Act
(15 U.S.C. 6809)), in the case of an investigation that
concerns an audit report for an institution that is
subject to the jurisdiction of such regulator; and
(C) at the direction of the Commission, to--
(i) the Attorney General of the United
States;
(ii) the attorney general of 1 or more
States; and
(iii) the appropriate State regulatory
authority.
(5) Use of documents.--
(A) Confidentiality.--Except as provided in
subparagraph (B), all documents and information
prepared or received by or specifically for the Board,
and deliberations of the Board and its employees and
agents, in connection with an inspection under section
104 or with an investigation under this section, shall
be confidential and privileged as an evidentiary matter
(and shall not be subject to civil discovery or other
legal process) in any proceeding in any Federal or
State court or administrative agency, and shall be
exempt from disclosure, in the hands of an agency or
establishment of the Federal Government, under the
Freedom of Information Act (5 U.S.C. 552a), or
otherwise, unless and until presented in connection
with a public proceeding or released in accordance with
subsection (c).
(B) Availability to government agencies.--All
information referred to in subparagraph (A) may, in the
discretion of the Board, when determined by the Board
to be necessary to accomplish the purposes of this Act
or to protect investors, and without the loss of its
status as confidential and privileged in the hands of
the Board, be made available to the Commission, the
Attorney General of the United States, to the
appropriate Federal functional regulator (as defined in
section 509 of the Gramm-Leach-Bliley Act (15 U.S.C.
6809)), other than the Commission, with respect to an
audit report for an institution subject to the
jurisdiction of such regulator, to State attorneys
general in connection with any criminal investigation,
and to any appropriate State regulatory authority,
which shall maintain such information as confidential
and privileged.
(6) Immunity.--Any employee of the Board engaged in
carrying out an investigation under this Act shall be immune
from any civil liability arising out of such investigation in
the same manner and to the same extent as an employee of the
Federal Government in similar circumstances.
(c) Disciplinary Procedures.--
(1) Notification; recordkeeping.--The rules of the Board
shall provide that in any proceeding by the Board to determine
whether a registered public accounting firm, or an associated
person thereof, should be disciplined, the Board shall--
(A) bring specific charges with respect to the firm
or associated person;
(B) notify such firm or associated person of, and
provide to the firm or associated person an opportunity
to defend against, such charges; and
(C) keep a record of the proceedings.
(2) Public hearings.--Hearings under this section shall not
be public, unless otherwise ordered by the Board for good cause
shown, with the consent of the parties to such hearing.
(3) Supporting statement.--A determination by the Board to
impose a sanction under this subsection shall be supported by a
statement setting forth--
(A) each act or practice in which the registered
public accounting firm, or associated person, has
engaged (or omitted to engage), or that forms a basis
for all or a part of such sanction;
(B) the specific provision of this Act, the
securities laws, the rules of the Board, or
professional standards which the Board determines has
been violated; and
(C) the sanction imposed, including a justification
for that sanction.
(4) Sanctions.--If the Board finds, based on all of the
facts and circumstances, that a registered public accounting
firm or associated person thereof has engaged in any act or
practice, or omitted to act, in violation of this Act, the
rules of the Board, the provisions of the securities laws
relating to the preparation and issuance of audit reports and
the obligations and liabilities of accountants with respect
thereto, including the rules of the Commission issued under
this Act, or professional standards, the Board may impose such
disciplinary or remedial sanctions as it determines
appropriate, subject to applicable limitations under paragraph
(5), including--
(A) temporary suspension or permanent revocation of
registration under this title;
(B) temporary or permanent suspension or bar of a
person from further association with any registered
public accounting firm;
(C) temporary or permanent limitation on the
activities, functions, or operations of such firm or
person (other than in connection with required
additional professional education or training);
(D) a civil money penalty for each such violation,
in an amount equal to--
(i) not more than $100,000 for a natural
person or $2,000,000 for any other person; and
(ii) in any case to which paragraph (5)
applies, not more than $750,000 for a natural
person or $15,000,000 for any other person;
(E) censure;
(F) required additional professional education or
training; or
(G) any other appropriate sanction provided for in
the rules of the Board.
(5) Intentional or other knowing conduct.--The sanctions
and penalties described in subparagraphs (A) through (C) and
(D)(ii) of paragraph (4) shall only apply to--
(A) intentional or knowing conduct, including
reckless conduct, that results in violation of the
applicable statutory, regulatory, or professional
standard; or
(B) repeated instances of negligent conduct, each
resulting in a violation of the applicable statutory,
regulatory, or professional standard.
(6) Failure to supervise.--
(A) In general.--The Board may impose sanctions
under this section on a registered accounting firm or
upon the supervisory personnel of such firm, if the
Board finds that--
(i) the firm has failed reasonably to
supervise an associated person, either as
required by the rules of the Board relating to
auditing or quality control standards, or
otherwise, with a view to preventing violations
of this Act, the rules of the Board, the
provisions of the securities laws relating to
the preparation and issuance of audit reports
and the obligations and liabilities of
accountants with respect thereto, including the
rules of the Commission under this Act, or
professional standards; and
(ii) such associated person commits a
violation of this Act, or any of such rules,
laws, or standards.
(B) Rule of construction.--No associated person of
a registered public accounting firm shall be deemed to
have failed reasonably to supervise any other person
for purposes of subparagraph (A), if--
(i) there have been established in and for
that firm procedures, and a system for applying
such procedures, that comply with applicable
rules of the Board and that would reasonably be
expected to prevent and detect any such
violation by such associated person; and
(ii) such person has reasonably discharged
the duties and obligations incumbent upon that
person by reason of such procedures and system,
and had no reasonable cause to believe that
such procedures and system were not being
complied with.
(7) Effect of suspension.--
(A) Association with a public accounting firm.--It
shall be unlawful for any person that is suspended or
barred from being associated with a registered public
accounting firm under this subsection willfully to
become or remain associated with any registered public
accounting firm, or for any registered public
accounting firm that knew, or, in the exercise of
reasonable care should have known, of the suspension or
bar, to permit such an association, without the consent
of the Board or the Commission.
(B) Association with an issuer.--It shall be
unlawful for any person that is suspended or barred
from being associated with an issuer under this
subsection willfully to become or remain associated
with any issuer in an accountancy or a financial
management capacity, and for any issuer that knew, or
in the exercise of reasonable care should have known,
of such suspension or bar, to permit such an
association, without the consent of the Board or the
Commission.
(d) Reporting of Sanctions.--
(1) Recipients.--If the Board imposes a disciplinary
sanction, in accordance with this section, the Board shall
report the sanction to--
(A) the Commission;
(B) any appropriate State regulatory authority or
any foreign accountancy licensing board with which such
firm or person is licensed or certified; and
(C) the public (once any stay on the imposition of
such sanction has been lifted).
(2) Contents.--The information reported under paragraph (1)
shall include--
(A) the name of the sanctioned person;
(B) a description of the sanction and the basis for
its imposition; and
(C) such other information as the Board deems
appropriate.
(e) Stay of Sanctions.--
(1) In general.--Application to the Commission for review,
or the institution by the Commission of review, of any
disciplinary action of the Board shall operate as a stay of any
such disciplinary action, unless and until the Commission
orders (summarily or after notice and opportunity for hearing
on the question of a stay, which hearing may consist solely of
the submission of affidavits or presentation of oral arguments)
that no such stay shall continue to operate.
(2) Expedited procedures.--The Commission shall establish
for appropriate cases an expedited procedure for consideration
and determination of the question of the duration of a stay
pending review of any disciplinary action of the Board under
this subsection.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) Applicability to Certain Foreign Firms.--
(1) In general.--Any foreign public accounting firm that
prepares or furnishes an audit report with respect to any
issuer, shall be subject to this Act and the rules of the Board
and the Commission issued under this Act, in the same manner
and to the same extent as a public accounting firm that is
organized and operates under the laws of the United States or
any State, except that registration pursuant to section 102
shall not by itself provide a basis for subjecting such a
foreign public accounting firm to the jurisdiction of the
Federal or State courts, other than with respect to
controversies between such firms and the Board.
(2) Board authority.--The Board may, by rule, determine
that a foreign public accounting firm (or a class of such
firms) that does not issue audit reports nonetheless plays such
a substantial role in the preparation and furnishing of such
reports for particular issuers, that it is necessary or
appropriate, in light of the purposes of this Act and in the
public interest or for the protection of investors, that such
firm (or class of firms) should be treated as a public
accounting firm (or firms) for purposes of registration under,
and oversight by the Board in accordance with, this title.
(b) Production of Audit Workpapers.--
(1) Consent by foreign firms.--If a foreign public
accounting firm issues an opinion or otherwise performs
material services upon which a registered public accounting
firm relies in issuing all or part of any audit report or any
opinion contained in an audit report, that foreign public
accounting firm shall be deemed to have consented--
(A) to produce its audit workpapers for the Board
or the Commission in connection with any investigation
by either body with respect to that audit report; and
(B) to be subject to the jurisdiction of the courts
of the United States for purposes of enforcement of any
request for production of such workpapers.
(2) Consent by domestic firms.--A registered public
accounting firm that relies upon the opinion of a foreign
public accounting firm, as described in paragraph (1), shall be
deemed--
(A) to have consented to supplying the audit
workpapers of that foreign public accounting firm in
response to a request for production by the Board or
the Commission; and
(B) to have secured the agreement of that foreign
public accounting firm to such production, as a
condition of its reliance on the opinion of that
foreign public accounting firm.
(c) Exemption Authority.--The Commission, and the Board, subject to
the approval of the Commission, may, by rule, regulation, or order, and
as the Commission (or Board) determines necessary or appropriate in the
public interest or for the protection of investors, either
unconditionally or upon specified terms and conditions exempt any
foreign public accounting firm, or any class of such firms, from any
provision of this Act or the rules of the Board or the Commission
issued under this Act.
(d) Definition.--In this section, the term ``foreign public
accounting firm'' means a public accounting firm that is organized and
operates under the laws of a foreign government or political
subdivision thereof.
SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.
(a) General Oversight Responsibility.--The Commission shall have
oversight and enforcement authority over the Board, as provided in this
Act.
(b) Rules of the Board.--
(1) Definition.--In this section, the term ``proposed
rule'' means any proposed rule of the Board, and any
modification of any such rule.
(2) Prior approval required.--No rule of the Board shall
become effective without prior approval of the Commission in
accordance with this section, other than as provided in section
103(a)(3)(B) with respect to initial or transitional standards.
(3) Approval criteria.--The Commission shall approve a
proposed rule, if it finds that the rule is consistent with the
requirements of this Act and the securities laws, or is
necessary or appropriate in the public interest or for the
protection of investors.
(4) Proposed rule procedures.--The provisions of paragraphs
(1) through (3) of section 19(b) of the Securities Exchange Act
of 1934 (15 U.S.C. 78s(b)) shall govern the proposed rules of
the Board, as fully as if the Board were a ``registered
securities association'' for purposes of that section 19(b),
except that, for purposes of this paragraph--
(A) the phrase ``consistent with the requirements
of this title and the rules and regulations thereunder
applicable to such organization'' in section 19(b)(2)
of that Act shall be deemed to read ``consistent with
the requirements of title I of the Public Company
Accounting Reform and Investor Protection Act of 2002,
and the rules and regulations issued thereunder
applicable to such organization, or as necessary or
appropriate in the public interest or for the
protection of investors''; and
(B) the phrase ``otherwise in furtherance of the
purposes of this title'' in section 19(b)(3)(C) of that
Act shall be deemed to read ``otherwise in furtherance
of the purposes of title I of the Public Company
Accounting Reform and Investor Protection Act of
2002''.
(5) Commission authority to amend rules of the board.--The
provisions of section 19(c) of the Securities Exchange Act of
1934 (15 U.S.C. 78s(c)) shall govern the abrogation, deletion,
or addition to portions of the rules of the Board by the
Commission as fully as if the Board were a ``registered
securities association'' for purposes of that section 19(c),
except that the phrase ``to conform its rules to the
requirements of this title and the rules and regulations
thereunder applicable to such organization, or otherwise in
furtherance of the purposes of this title'' in section 19(c) of
that Act shall, for purposes of this paragraph, be deemed to
read ``to assure the fair administration of the Public Company
Accounting Oversight Board, conform the rules promulgated by
that Board to the requirements of title I of the Public Company
Accounting Reform and Investor Protection Act of 2002, or
otherwise further the purposes of that Act, the securities
laws, and the rules and regulations thereunder applicable to
that Board''.
(c) Commission Review of Disciplinary Action Taken by the Board.--
(1) Notice of sanction.--The Board shall promptly file
notice with the Commission of any final sanction on any
registered public accounting firm or on any associated person
thereof, in such form and containing such information as the
Commission, by rule, may prescribe.
(2) Review of sanctions.--The provisions of sections
19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934
(15 U.S.C. 78s (d)(2) and (e)(1)) shall govern the review by
the Commission of final disciplinary sanctions imposed by the
Board (including sanctions imposed under section 105(b)(3) of
this Act for noncooperation in an investigation of the Board),
as fully as if the Board were a self-regulatory organization
and the Commission were the appropriate regulatory agency for
such organization for purposes of those sections 19(d)(2) and
19(e)(1), except that, for purposes of this paragraph--
(A) section 105(e) of this Act (rather than that
section 19(d)(2)) shall govern the extent to which
application for, or institution by the Commission on
its own motion of, review of any disciplinary action of
the Board operates as a stay of such action;
(B) references in that section 19(e)(1) to
``members'' of such an organization shall be deemed to
be references to registered public accounting firms;
(C) the phrase ``consistent with the purposes of
this title'' in that section 19(e)(1) shall be deemed
to read ``consistent with the purposes of this title
and title I of the Public Company Accounting Reform and
Investor Protection Act of 2002'';
(D) references to rules of the Municipal Securities
Rulemaking Board in that section 19(e)(1) shall not
apply; and
(E) the reference to section 19(e)(2) of the
Securities Exchange Act of 1934 shall refer instead to
section 107(c)(3) of this Act.
(3) Commission modification authority.--The Commission may
enhance, modify, cancel, reduce, or require the remission of a
sanction imposed by the Board upon a registered public
accounting firm or associated person thereof, if the
Commission, having due regard for the public interest and the
protection of investors, finds, after a proceeding in
accordance with this subsection, that the sanction--
(A) is not necessary or appropriate in furtherance
of this Act or the securities laws; or
(B) is excessive, oppressive, inadequate, or
otherwise not appropriate to the finding or the basis
on which the sanction was imposed.
(d) Censure of the Board; Other Sanctions.--
(1) Rescission of board authority.--The Commission, by
rule, consistent with the public interest, the protection of
investors, and the other purposes of this Act and the
securities laws, may relieve the Board of any responsibility to
enforce compliance with any provision of this Act, the
securities laws, the rules of the Board, or professional
standards.
(2) Censure of the board; limitations.--The Commission may,
by order, as it determines necessary or appropriate in the
public interest, for the protection of investors, or otherwise
in furtherance of the purposes of this Act or the securities
laws, censure or impose limitations upon the activities,
functions, and operations of the Board, if the Commission
finds, on the record, after notice and opportunity for a
hearing, that the Board--
(A) has violated or is unable to comply with any
provision of this Act, the rules of the Board, or the
securities laws; or
(B) without reasonable justification or excuse, has
failed to enforce compliance with any such provision or
rule, or any professional standard by a registered
public accounting firm or an associated person thereof.
(3) Censure of board members; removal from office.--The
Commission may, as necessary or appropriate in the public
interest, for the protection of investors, or otherwise in
furtherance of the purposes of this Act or the securities laws,
remove from office or censure any member of the Board, if the
Commission finds, on the record, after notice and opportunity
for a hearing, that such member--
(A) has willfully violated any provision of this
Act, the rules of the Board, or the securities laws;
(B) has willfully abused the authority of that
member; or
(C) without reasonable justification or excuse, has
failed to enforce compliance with any such provision or
rule, or any professional standard by any registered
public accounting firm or any associated person
thereof.
SEC. 108. ACCOUNTING STANDARDS.
(a) Amendment to Securities Act of 1933.--Section 19 of the
Securities Act of 1933 (15 U.S.C. 77s) is amended--
(1) by redesignating subsections (b) and (c) as subsections
(c) and (d), respectively; and
(2) by inserting after subsection (a) the following:
``(b) Recognition of Accounting Standards.--
``(1) In general.--In carrying out its authority under
subsection (a) and under section 13(b) of the Securities
Exchange Act of 1934, the Commission may recognize, as
`generally accepted' for purposes of the securities laws, any
accounting principles established by a standard setting body--
``(A) that--
``(i) is organized as a private entity;
``(ii) has, for administrative and
operational purposes, a board of trustees (or
equivalent body) serving in the public
interest, the majority of whom are not,
concurrent with their service on such board,
and have not been during the 2-year period
preceding such service, associated persons of
any registered public accounting firm;
``(iii) is funded as provided in section
109 of the Public Company Accounting Reform and
Investor Protection Act of 2002;
``(iv) has adopted procedures to ensure
prompt consideration, by majority vote of its
members, of changes to accounting principles
necessary to reflect emerging accounting issues
and changing business practices;
``(v) considers, in adopting accounting
principles, the need to keep standards current
in order to reflect changes in the business
environment, the extent to which international
convergence on high quality accounting
standards is necessary or appropriate in the
public interest and for the protection of
investors; and
``(B) that the Commission determines has the
capacity to assist the Commission in fulfilling the
requirements of subsection (a) and section 13(b) of the
Securities Exchange Act of 1934, because, at a minimum,
the standard setting body is capable of improving the
accuracy and effectiveness of financial reporting and
the protection of investors under the securities laws.
``(2) Annual report.--A standard setting body described in
paragraph (1) shall submit an annual report to the Commission
and the public, containing audited financial statements of that
standard setting body.''.
(b) Commission Authority.--The Commission shall promulgate such
rules and regulations to carry out section 19(b) of the Securities Act
of 1933, as added by this section, as it deems necessary or appropriate
in the public interest or for the protection of investors.
(c) No Effect on Commission Powers.--Nothing in this Act, including
this section and the amendment made by this section, shall be construed
to impair or limit the authority of the Commission to establish
accounting principles or standards for purposes of enforcement of the
securities laws.
(d) Study and Report on Adopting Principles-Based Accounting.--
(1) Study.--
(A) In general.--The Commission shall conduct a
study on the adoption by the United States financial
reporting system of a principles-based accounting
system.
(B) Study topics.--The study required by
subparagraph (A) shall include an examination of--
(i) the extent to which principles-based
accounting and financial reporting exists in
the United States;
(ii) the length of time required for change
from a rules-based to a principles-based
financial reporting system;
(iii) the feasibility of and proposed
methods by which a principles-based system may
be implemented; and
(iv) a thorough economic analysis of the
implementation of a principles-based system.
(2) Report.--Not later than 1 year after the date of
enactment of this Act, the Commission shall submit a report on
the results of the study required by paragraph (1) to the
Committee on Banking, Housing, and Urban Affairs of the Senate
and the Committee on Financial Services of the House of
Representatives.
SEC. 109. FUNDING.
(a) In General.--The Board, and the standard setting body
designated pursuant to section 19(b) of the Securities Act of 1933, as
amended by section 108, shall be funded as provided in this section.
(b) Annual Budgets.--The Board and the standard setting body
referred to in subsection (a) shall each establish a budget for each
fiscal year, which shall be reviewed and approved according to their
respective internal procedures not less than 1 month prior to the
commencement of the fiscal year to which the budget pertains. The
budget of the Board shall be subject to approval by the Commission.
(c) Sources and Uses of Funds.--
(1) Recoverable budget expenses.--The budget of the Board
(reduced by any registration or annual fees received under
section 102(e) for the year preceding the year for which the
budget is being computed), and all of the budget of the
standard setting body referred to in subsection (a), for each
fiscal year of each of those 2 entities, shall be payable from
annual accounting support fees, in accordance with subsections
(d) and (e).
(2) Funds generated from the collection of monetary
penalties.--All funds collected by the Board as a result of the
assessment of monetary penalties shall be used to fund a merit
scholarship program for undergraduate and graduate students
enrolled in accredited accounting degree programs, which
program is to be administered by the Board or by an entity or
agent identified by the Board.
(d) Annual Accounting Support Fee for the Board.--
(1) Establishment of fee.--The Board shall establish, with
the approval of the Commission, a reasonable annual accounting
support fee (or a formula for the computation thereof), as may
be necessary or appropriate to establish and maintain the
Board.
(2) Assessments.--The rules of the Board under paragraph
(1) shall provide for the equitable allocation, assessment, and
collection by the Board (or an agent appointed by the Board) of
the fee established under paragraph (1), among issuers, in
accordance with subsection (f), allowing for differentiation
among classes of issuers, as appropriate.
(e) Annual Accounting Support Fee for Standard Setting Body.--The
annual accounting support fee for the standard setting body referred to
in subsection (a)--
(1) shall be allocated in accordance with subsection (f),
and assessed and collected against each issuer, on behalf of
the standard setting body, by 1 or more appropriate designated
collection agents, as may be necessary or appropriate to pay
for the budget and provide for the expenses of that standard
setting body, and to provide for an independent, stable source
of funding for such body, subject to review by the Commission;
and
(2) may differentiate among different classes of issuers.
(f) Allocation of Accounting Support Fees Among Issuers.--Any
amount due from issuers (or a particular class of issuers) under this
section to fund the budget of the Board or the standard setting body
referred to in subsection (a) shall be allocated among and payable by
each issuer (or each issuer in a particular class, as applicable) in an
amount equal to the total of such amount, multiplied by a fraction--
(1) the numerator of which is the average monthly equity
market capitalization of the issuer for the 12-month period
immediately preceding the beginning of the fiscal year to which
such budget relates; and
(2) the denominator of which is the average monthly equity
market capitalization of all such issuers for such 12-month
period.
(g) Conforming Amendments.--Section 13(b)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(b)(2)) is amended--
(1) in subparagraph (A), by striking ``and'' at the end;
(2) in subparagraph (B), by striking the period at the end
and inserting the following: ``; and
``(C) notwithstanding any other provision of law, pay the
allocable share of such issuer of a reasonable annual
accounting support fee or fees, determined in accordance with
section 109 of the Public Company Accounting Reform and
Investor Protection Act of 2002.''.
(h) Rule of Construction.--Nothing in this section shall be
construed to render either the Board, the standard setting body
referred to in subsection (a), or both, subject to procedures in
Congress to authorize or appropriate public funds, or to prevent such
organization from utilizing additional sources of revenue for its
activities, such as earnings from publication sales, provided that each
additional source of revenue shall not jeopardize, in the judgment of
the Commission, the actual and perceived independence of such
organization.
TITLE II--AUDITOR INDEPENDENCE
SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.
(a) Prohibited Activities.--Section 10A of the Securities Exchange
Act of 1934 (15 U.S.C. 78j-1) is amended by adding at the end the
following:
``(g) Prohibited Activities.--It shall be unlawful for a registered
public accounting firm (and any associated person of that firm, to the
extent determined appropriate by the Commission) that performs for any
issuer any audit required by this title or the rules of the Commission
under this title or, beginning 180 days after the date of commencement
of the operations of the Public Company Accounting Oversight Board
established under section 101 of the Public Company Accounting Reform
and Investor Protection Act of 2002 (in this section referred to as the
`Board'), the rules of the Board, to provide to that issuer,
contemporaneously with the audit, any non-audit service, including--
``(1) bookkeeping or other services related to the
accounting records or financial statements of the audit client;
``(2) financial information systems design and
implementation;
``(3) appraisal or valuation services, fairness opinions,
or contribution-in-kind reports;
``(4) actuarial services;
``(5) internal audit outsourcing services;
``(6) management functions or human resources;
``(7) broker or dealer, investment adviser, or investment
banking services;
``(8) legal services and expert services unrelated to the
audit; and
``(9) any other service that the Board determines, by
regulation, is impermissible.
``(h) Preapproval Required for Non-Audit Services.--A registered
public accounting firm may engage in any non-audit service, including
tax services, that is not described in any of paragraphs (1) through
(9) of subsection (g) for an audit client, only if the activity is
approved in advance by the audit committee of the issuer, in accordance
with subsection (i).''.
(b) Exemption Authority.--The Board may, on a case by case basis,
exempt any person, issuer, public accounting firm, or transaction from
the prohibition on the provision of services under section 10A(g) of
the Securities Exchange Act of 1934 (as added by this section), to the
extent that such exemption is necessary or appropriate in the public
interest and is consistent with the protection of investors, and
subject to review by the Commission in the same manner as for rules of
the Board under section 107.
SEC. 202. PREAPPROVAL REQUIREMENTS.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
``(i) Preapproval Requirements.--
``(1) In general.--
``(A) Audit committee action.--All auditing
services (which may entail providing comfort letters in
connection with securities underwritings) and non-audit
services, other than as provided in subparagraph (B),
provided to an issuer by the auditor of the issuer
shall be preapproved by the audit committee of the
issuer.
``(B) De minimus exception.--The preapproval
requirement under subparagraph (A) is waived with
respect to the provision of non-audit services for an
issuer, if--
``(i) the aggregate amount of all such non-
audit services provided to the issuer
constitutes not more than 5 percent of the
total amount of revenues paid by the issuer to
its auditor;
``(ii) such services were not recognized by
the issuer at the time of the engagement to be
non-audit services; and
``(iii) such services are promptly brought
to the attention of the audit committee of the
issuer and approved by the audit committee
prior to the completion of the audit, by 1 or
more members of the audit committee who are
members of the board of directors to whom
authority to grant such approvals has been
delegated by the audit committee.
``(2) Disclosure to investors.--Approval by an audit
committee of an issuer under this subsection of a non-audit
service to be performed by the auditor of the issuer shall be
disclosed to investors in periodic reports required by section
13(a).
``(3) Delegation authority.--The audit committee of an
issuer may delegate to 1 or more designated members of the
audit committee who are independent directors of the board of
directors, the authority to grant preapprovals required by this
subsection. The decisions of any member to whom authority is
delegated under this paragraph to preapprove an activity under
this subsection shall be presented to the full audit committee
at each of its scheduled meetings.
``(4) Approval of audit services for other purposes.--In
carrying out its duties under subsection (m)(2), if the audit
committee of an issuer approves an audit service within the
scope of the engagement of the auditor, such audit service
shall be deemed to have been preapproved for purposes of this
subsection.''.
SEC. 203. AUDIT PARTNER ROTATION.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
``(j) Audit Partner Rotation.--It shall be unlawful for a
registered public accounting firm to provide audit services to an
issuer if the lead audit partner (having primary responsibility for the
audit) or the audit partner responsible for reviewing the audit that is
assigned to perform those audit services has performed audit services
for that issuer in each of the 5 previous fiscal years of that
issuer.''.
SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
``(k) Reports to Audit Committees.--Each registered public
accounting firm that performs for any issuer any audit required by this
title shall timely report to the audit committee of the issuer--
``(1) all critical accounting policies and practices to be
used;
``(2) all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed with management officials of the issuer,
ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the registered
public accounting firm; and
``(3) other material written communications between the
registered public accounting firm and the management of the
issuer, such as any management letter or schedule of unadjusted
differences.''.
SEC. 205. CONFORMING AMENDMENTS.
(a) Definitions.--Section 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following:
``(58) Audit committee.--The term `audit committee' means--
``(A) a committee (or equivalent body) established
by and amongst the board of directors of an issuer for
the purpose of overseeing the accounting and financial
reporting processes of the issuer and audits of the
financial statements of the issuer; and
``(B) if no such committee exists with respect to
an issuer, the entire board of directors of the issuer.
``(59) Registered public accounting firm.--The term
`registered public accounting firm' has the same meaning as in
section 3 of the Public Company Accounting Reform and Investor
Protection Act of 2002.''.
(b) Auditor Requirements.--Section 10A of the Securities Exchange
Act of 1934 (15 U.S.C. 78j-1) is amended--
(1) by striking ``an independent public accountant'' each
place that term appears and inserting ``a registered public
accounting firm'';
(2) by striking ``the independent public accountant'' each
place that term appears and inserting ``the registered public
accounting firm'';
(3) in subsection (c), by striking ``No independent public
accountant'' and inserting ``No registered public accounting
firm''; and
(4) in subsection (b)--
(A) by striking ``the accountant'' each place that
term appears and inserting ``the firm'';
(B) by striking ``such accountant'' each place that
term appears and inserting ``such firm''; and
(C) in paragraph (4), by striking ``the
accountant's report'' and inserting ``the report of the
firm''.
(c) Other References.--The Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) is amended--
(1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by striking
``independent public accountants'' each place that term appears
and inserting ``a registered public accounting firm''; and
(2) in subsections (e) and (i) of section 17 (15 U.S.C.
78q), by striking ``an independent public accountant'' each
place that term appears and inserting ``a registered public
accounting firm''.
SEC. 206. CONFLICTS OF INTEREST.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the
following:
``(l) Conflicts of Interest.--It shall be unlawful for a registered
public accounting firm to perform for an issuer any audit service
required by this title, if a chief executive officer, controller, chief
financial officer, chief accounting officer or any person serving in an
equivalent position for the issuer was employed by that registered
independent public accounting firm and participated in any capacity in
the audit of that issuer during the 1-year period preceding the date of
the initiation of the audit.''.
SEC. 207. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC ACCOUNTING
FIRMS.
(a) Study and Review Required.--The Comptroller General of the
United States shall conduct a study and review of the potential effects
of requiring the mandatory rotation of registered public accounting
firms.
(b) Report Required.--Not later than 1 year after the date of
enactment of this Act, the Comptroller General shall submit a report to
the Committee on Banking, Housing, and Urban Affairs of the Senate and
the Committee on Financial Services of the House of Representatives on
the results of the study and review required by this section.
(c) Definition.--For purposes of this section, the term ``mandatory
rotation'' refers to the imposition of a limit on the period of years
in which a particular registered public accounting firm may be the
auditor of record for a particular issuer.
SEC. 208. COMMISSION AUTHORITY.
(a) Commission Regulations.--Not later than 180 days after the date
of enactment of this Act, the Commission shall issue final regulations
to carry out each of subsections (g) through (l) of section 10A of the
Securities Exchange Act of 1934, as added by this title.
(b) Auditor Independence.--It shall be unlawful for any registered
public accounting firm (or an associated person thereof, as applicable)
to prepare or issue any audit report with respect to any issuer, if the
firm or associated person engages in any activity with respect to that
issuer prohibited by any of subsections (g) through (l) of section 10A
of the Securities Exchange Act of 1934, as added by this title, or any
rule or regulation of the Commission or of the Board issued thereunder.
SEC. 209. CONSIDERATIONS BY APPROPRIATE STATE REGULATORY AUTHORITIES.
It is the intention of this Act that, in supervising nonregistered
public accounting firms and their associated persons, appropriate State
regulatory authorities should make an independent determination of the
proper standards applicable, particularly taking into consideration the
size and nature of the business of the accounting firms they supervise.
The standards applied by the Board under this Act should not be
presumed to be applicable for purposes of this section for small- and
medium-sized nonregistered public accounting firms.
TITLE III--CORPORATE RESPONSIBILITY
SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78f)
is amended by adding at the end the following:
``(m) Standards Relating to Audit Committees.--
``(1) Commission rules.--
``(A) In general.--Effective not later than 270
days after the date of enactment of this subsection,
the Commission shall, by rule, direct the national
securities exchanges and national securities
associations to prohibit the listing of any security of
an issuer that is not in compliance with the
requirements of any portion of paragraphs (2) through
(6).
``(B) Opportunity to cure defects.--The rules of
the Commission under subparagraph (A) shall provide for
appropriate procedures for an issuer to have an
opportunity to cure any defects that would be the basis
for a prohibition under subparagraph (A), before the
imposition of such prohibition.
``(2) Responsibilities relating to registered public
accounting firms.--The audit committee of each issuer, in its
capacity as a committee of the board of directors, shall be
directly responsible for the appointment, compensation, and
oversight of the work of any registered public accounting firm
employed by that issuer (including resolution of disagreements
between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit
report or related work, and each such registered public
accounting firm shall report directly to the audit committee.
``(3) Independence.--
``(A) In general.--Each member of the audit
committee of the issuer shall be a member of the board
of directors of the issuer, and shall otherwise be
independent.
``(B) Criteria.--In order to be considered to be
independent for purposes of this paragraph, a member of
an audit committee of an issuer may not, other than in
his or her capacity as a member of the audit committee,
the board of directors, or any other board committee--
``(i) accept any consulting, advisory, or
other compensatory fee from the issuer; or
``(ii) be an affiliated person of the
issuer or any subsidiary thereof.
``(C) Exemption authority.--The Commission may
exempt from the requirements of subparagraph (B) a
particular relationship with respect to audit committee
members, as the Commission determines appropriate in
light of the circumstances.
``(4) Complaints.--Each audit committee shall establish
procedures for--
``(A) the receipt, retention, and treatment of
complaints received by the issuer regarding accounting,
internal accounting controls, or auditing matters; and
``(B) the confidential, anonymous submission by
employees of the issuer of concerns regarding
questionable accounting or auditing matters.
``(5) Authority to engage advisers.--Each audit committee
shall have the authority to engage independent counsel and
other advisers, as it determines necessary to carry out its
duties.
``(6) Funding.--Each issuer shall provide for appropriate
funding, as determined by the audit committee, in its capacity
as a committee of the board of directors, for payment of
compensation--
``(A) to the registered public accounting firm
employed by the issuer for the purpose of rendering or
issuing an audit report; and
``(B) to any advisers employed by the audit
committee under paragraph (5).''.
SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) Certification of Periodic Reports.--Each periodic report
containing financial statements filed by an issuer with the Commission
pursuant to section 13(a) or 15(d) of the Securities Exchange Act of
1934, shall be accompanied by a written statement by the chief
executive officer and chief financial officer (or the equivalent
thereof) of the issuer.
(b) Content.--The statement required by subsection (a) shall
certify the appropriateness of the financial statements and disclosures
contained in the periodic report, and that those financial statements
and disclosures fairly present, in all material respects, the
operations and financial condition of the issuer.
SEC. 303. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
(a) Rules To Prohibit.--It shall be unlawful, in contravention of
such rules or regulations as the Commission shall prescribe as
necessary and appropriate in the public interest or for the protection
of investors, for any officer or director of an issuer, or any other
person acting under the direction thereof, to take any action to
fraudulently influence, coerce, manipulate, or mislead any independent
public or certified accountant engaged in the performance of an audit
of the financial statements of that issuer for the purpose of rendering
such financial statements materially misleading.
(b) Enforcement.--In any civil proceeding, the Commission shall
have exclusive authority to enforce this section and any rule or
regulation issued under this section.
(c) No Preemption of Other Law.--The provisions of subsection (a)
shall be in addition to, and shall not supersede or preempt, any other
provision of law or any rule or regulation issued thereunder.
(d) Deadline for Rulemaking.--The Commission shall--
(1) propose the rules or regulations required by this
section, not later than 90 days after the date of enactment of
this Act; and
(2) issue final rules or regulations required by this
section, not later than 270 days after that date of enactment.
SEC. 304. FORFEITURE OF CERTAIN BONUSES AND PROFITS.
(a) Additional Compensation Prior to Noncompliance With Commission
Financial Reporting Requirements.--If an issuer is required to prepare
an accounting restatement due to the material noncompliance of the
issuer, as a result of misconduct, with any financial reporting
requirement under the securities laws, the chief executive officer and
chief financial officer of the issuer shall reimburse the issuer for--
(1) any bonus or other incentive-based or equity-based
compensation received by that person from the issuer during the
12-month period following the first public issuance or filing
with the Commission (whichever first occurs) of the financial
document embodying such financial reporting requirement; and
(2) any profits realized from the sale of securities of the
issuer during that 12-month period.
(b) Commission Exemption Authority.--The Commission may exempt any
person from the application of subsection (a), as it deems necessary
and appropriate.
SEC. 305. OFFICER AND DIRECTOR BARS AND PENALTIES.
(a) Unfitness Standard.--
(1) Securities exchange act of 1934.--Section 21(d)(2) of
the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is
amended by striking ``substantial unfitness'' and inserting
``unfitness''.
(2) Securities act of 1933.--Section 20(e) of the
Securities Act of 1933 (15 U.S.C. 77t(e)) is amended by
striking ``substantial unfitness'' and insert ``unfitness''.
(b) Equitable Relief.--Section 21(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78u(d)) is amended--
(1) by redesignating paragraphs (2) through (4) as
paragraphs (3) through (5), respectively; and
(2) by inserting after paragraph (1) the following:
``(2) Equitable relief.--In any action or proceeding brought or
instituted by the Commission under any provision of the securities
laws, the Commission may seek, and any Federal court may grant, any
equitable relief that may be appropriate or necessary for the benefit
of investors.''.
SEC. 306. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS
PROHIBITED.
(a) Prohibition.--It shall be unlawful for any director or
executive officer of an issuer of any equity security (other than an
exempted security), directly or indirectly, to purchase, sell, or
otherwise acquire or transfer any equity security of the issuer (other
than an exempted security), during any blackout period with respect to
such equity security, in accordance with any exception provided by rule
of the Commission pursuant to subsection (d).
(b) Effectiveness.--
(1) Notice requirements.--Except as provided in paragraph
(2), no blackout period may take effect earlier than 30 days
after the date on which written notice of such blackout period
is provided by the plan administrator to the participants or
beneficiaries.
(2) Exception.--The 30-day notice requirement in paragraph
(1) shall not apply, and notice under paragraph (1) shall be
furnished as soon as is reasonably possible, in any case in
which--
(A) a deferral of the blackout period would violate
the requirements of subparagraph (A) or (B) of section
404(a)(1) of the Employment Retirement Income Security
Act of 1974, and a fiduciary of the plan so reasonably
determines in writing; or
(B) the inability to provide the 30-day notice is
due to events that were unforeseeable, or circumstances
beyond the reasonable control of the plan
administrator, and a fiduciary of the plan so
reasonably determines in writing.
(3) Written notice.--The notice required to be provided
under paragraph (1) shall be in writing, except that such
notice may be in electronic form to the extent that such form
is reasonably accessible to the recipient.
(c) Remedy.--
(1) In general.--Any profit realized by a director or
executive officer referred to in subsection (a) from any
purchase, sale, or other acquisition or transfer in violation
of this section shall inure to and be recoverable by the
issuer, irrespective of any intention on the part of such
director or executive officer in entering into the transaction.
(2) Actions to recover profits.--An action to recover
profits in accordance with this section may be instituted at
law or in equity in any court of competent jurisdiction by the
issuer, or by the owner of any security of the issuer in the
name and in behalf of the issuer if the issuer fails or refuses
to bring such action within 60 days after the date of request,
or fails diligently to prosecute the action thereafter, except
that no such suit shall be brought more than 2 years after the
date on which such profit was realized.
(d) Rulemaking Authorized.--The Commission may issue rules to
clarify the application of this subsection, to ensure adequate notice
to all persons affected by this subsection, and to prevent evasion
thereof.
(e) Definitions.--For purposes of this section--
(1) the term ``blackout period'', with respect to the
equity securities of any issuer--
(A) means any period during which the ability of
not fewer than 50 percent of the participants or
beneficiaries under all applicable individual account
plans maintained by the issuer to purchase, sell, or
otherwise acquire or transfer an interest in any equity
of such issuer held in such an individual account plan,
is suspended by the issuer or a fiduciary of the plan;
and
(B) does not include--
(i) a period in which the employees of an
issuer may not allocate their interests in the
individual account plan due to an express
investment restriction--
(I) incorporated into the
individual account plan; and
(II) timely disclosed to employees
before joining the individual account
plan or as a subsequent amendment to
the plan; or
(ii) any suspension described in
subparagraph (A) that is imposed solely in
connection with persons becoming participants
or beneficiaries, or ceasing to be participants
or beneficiaries, in an applicable individual
account plan by reason of a corporate merger,
acquisition, divestiture, or similar
transaction; and
(2) the term ``individual account plan'' has the same
meaning as in section 3(34) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(34)).
TITLE IV--ENHANCED FINANCIAL DISCLOSURES
SEC. 401. DISCLOSURES IN PERIODIC REPORTS.
(a) Disclosures Required.--Section 13 of the Securities Exchange
Act of 1934 (15 U.S.C. 78m) is amended by adding at the end the
following:
``(i) Accuracy of Financial Reports.--Each financial report that is
required to be prepared in accordance with generally accepted
accounting principles under this title and filed with the Commission
shall reflect all material correcting adjustments that have been
identified by a registered public accounting firm in accordance with
generally accepted accounting principles and the rules and regulations
of the Commission.
``(j) Off-Balance Sheet Transactions.--Not later than 180 days
after the date of enactment of the Public Company Accounting Reform and
Investor Protection Act of 2002, the Commission shall issue final rules
providing that each annual and quarterly financial report required to
be filed with the Commission shall disclose all material off-balance
sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the issuer with unconsolidated
entities or other persons, that may have a material current or future
effect on financial condition, changes in financial condition, results
of operations, liquidity, capital expenditures, capital resources, or
significant components of revenues or expenses.''.
(b) Commission Rules on Pro Forma Figures.--Not later than 180 days
after the date of enactment of this Act, the Commission shall issue
final rules providing that pro forma financial information included in
any periodic or other report filed with the Commission pursuant to the
securities laws, or in any public disclosure or press or other release,
shall be presented in a manner that--
(1) does not contain an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
pro forma financial information, in light of the circumstances
under which it is presented, not misleading; and
(2) reconciles it with the financial condition and results
of operations of the issuer under generally accepted accounting
principles.
SEC. 402. ENHANCED CONFLICT OF INTEREST DISCLOSURES.
Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m),
as amended by this Act, is amended by adding at the end the following:
``(k) Enhanced Disclosures of Loans.--
``(1) In general.--The Commission shall, by rule, require
each issuer of any securities registered pursuant to section 12
to disclose to the Commission, in writing--
``(A) other than as provided in paragraph (2), each
loan by that issuer, or an affiliate thereof, to a
director or executive officer of that issuer, or a loan
guarantee or similar arrangement from that issuer in
favor of another person who lends, or agrees to lend,
money to the director or executive officer of the
issuer, including the amounts loaned and balances owed,
not later than 7 calendar days after the date on which
the loan, guarantee, or other arrangement is made, or
such other time period, as determined appropriate by
the Commission;
``(B) together with each report or other document
required to be filed under this section in the case of
each loan, guarantee, or similar arrangement described
in subparagraph (A), whether--
``(i) the obligation has been forgiven;
``(ii) the issuer or its affiliate makes
payment on the obligation; and
``(iii) any collateral is foreclosed upon
with respect to the obligation; and
``(C) any conflict of interest, as defined by the
Commission, on the part of any partner, officer,
director, or other management official or affiliated
person of the issuer.
``(2) Exceptions.--Paragraph (1)(A) does not require
disclosure by an issuer of any extension of credit under an
open end credit plan (as defined in section 103 of the Truth in
Lending Act (15 U.S.C. 1602)) that is--
``(A) made in the ordinary course of the consumer
credit business of an issuer;
``(B) of a type that is generally made available by
the issuer to the public; and
``(C) made on market terms, or terms that are no
more favorable than those offered by the issuer to the
general public for such loans.
``(3) Form of disclosures.--Disclosures required by this
subsection shall be in such form and subject to such terms and
conditions as the Commission shall specify.''.
SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND
PRINCIPAL STOCKHOLDERS.
Section 16(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78p(a)) is amended--
(1) by striking ``security, shall file,'' and inserting the
following:
``(1) shall file''; and
(2) by striking ``beneficial owner, and'' and all that
follows through the end of the subsection and inserting the
following: ``beneficial owner; and
``(2) if there has been a change in such ownership, or if
such person shall have purchased or sold a security-based swap
agreement (as defined in section 206B of the Gramm-Leach-Bliley
Act) involving such equity security, shall file with the
Commission (and if such security is registered on a national
securities exchange, shall also file with the exchange), a
statement before the end of the second business day following
the day on which the subject transaction has been executed, or
at such other time as the Commission shall establish, by rule,
in any case in which the Commission determines that such 2-day
period is not feasible, indicating ownership by that person at
the date of filing, any such changes in such ownership, and
such purchases and sales of the security-based swap agreements
as have occurred since the most recent such filing under this
paragraph.''.
SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.
(a) Rules Required.--The Commission shall prescribe rules requiring
each annual report required by section 13 of the Securities Exchange
Act of 1934 (15 U.S.C. 78m) to contain an internal control report,
which shall--
(1) state the responsibility of management for establishing
and maintaining an adequate internal control structure and
procedures for financial reporting; and
(2) contain an assessment, as of the end of the most recent
fiscal year of the issuer, of the effectiveness of the internal
control structure and procedures of the issuer for financial
reporting.
(b) Internal Control Evaluation and Reporting.--With respect to the
internal control assessment required by subsection (a), each registered
public accounting firm that prepares or issues the audit report for the
issuer shall attest to, and report on, the assessment made by the
management of the issuer. An attestation made under this subsection
shall be made in accordance with standards for attestation engagements
issued or adopted by the Board. Any such attestation shall not be the
subject of a separate engagement.
SEC. 405. EXEMPTION.
Nothing in section 401, 402, or 404, the amendments made by those
sections, or the rules of the Commission under those sections shall
apply to any investment company registered under section 8 of the
Investment Company Act of 1940 (15 U.S.C. 80a-8).
SEC. 406. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS.
(a) Code of Ethics Disclosure.--The Commission shall issue rules to
require each issuer, together with periodic reports required pursuant
to sections 13(a) and 15(d) of the Securities Exchange Act of 1934, to
disclose whether or not, and if not, the reason therefor, such issuer
has adopted a code of ethics for senior financial officers, applicable
to its principal financial officer, comptroller or principal accounting
officer, or persons performing similar functions.
(b) Changes in Codes of Ethics.--The Commission shall revise its
regulations concerning matters requiring prompt disclosure on Form 8-K
(or any successor thereto) to require the immediate disclosure, by
means of the filing of such form, dissemination by the Internet or by
other electronic means, by any issuer of any change in or waiver of the
code of ethics of the issuer.
(c) Definition.--In this section, the term ``code of ethics'' means
such standards as are reasonably necessary to promote--
(1) honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest between
personal and professional relationships;
(2) full, fair, accurate, timely, and understandable
disclosure in the periodic reports required to be filed by the
issuer; and
(3) compliance with applicable governmental rules and
regulations.
(d) Deadline for Rulemaking.--The Commission shall--
(1) propose rules to implement this section, not later than
90 days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later
than 180 days after that date of enactment.
SEC. 407. DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT.
(a) Rules Defining ``Financial Expert''.--The Commission shall
issue rules, as necessary or appropriate in the public interest and
consistent with the protection of investors, to require each issuer,
together with periodic reports required pursuant to sections 13(a) and
15(d) of the Securities Exchange Act of 1934, to disclose whether or
not, and if not, the reasons therefor, the audit committee of that
issuer is comprised of at least 1 member who is a financial expert, as
such term is defined by the Commission.
(b) Considerations.--In defining the term ``financial expert'' for
purposes of subsection (a), the Commission shall consider whether a
person has, through education and experience as a public accountant or
auditor or a principal financial officer, comptroller, or principal
accounting officer of an issuer, or from a position involving the
performance of similar functions--
(1) an understanding of generally accepted accounting
principles and financial statements;
(2) experience in--
(A) the preparation or auditing of financial
statements of generally comparable issuers; and
(B) the application of such principles in
connection with the accounting for estimates, accruals,
and reserves;
(3) experience with internal accounting controls; and
(4) an understanding of audit committee functions.
(c) Deadline for Rulemaking.--The Commission shall--
(1) propose rules to implement this section, not later than
90 days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later
than 180 days after that date of enactment.
TITLE V--ANALYST CONFLICTS OF INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED SECURITIES
ASSOCIATIONS.
(a) Rules Regarding Securities Analysts.--Section 15A of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by adding
at the end the following:
``(n) Rules Regarding Securities Analysts.--
``(1) Analyst protections.--The Commission, or upon the
authorization and direction of the Commission, a registered
securities association or national securities exchange, shall
have adopted, not later than 1 year after the date of enactment
of this subsection, rules reasonably designed to address
conflicts of interest that can arise when research analysts
recommend equity securities in research reports and public
appearances, in order to improve the objectivity of research
and provide investors with more useful and reliable
information, including rules designed--
``(A) to foster greater public confidence in
securities research, and to protect the objectivity and
independence of securities analysts, by--
``(i) restricting the prepublication
clearance or approval of research reports by
persons employed by the broker or dealer who
are engaged in investment banking activities,
or persons not directly responsible for
investment research, other than legal or
compliance staff;
``(ii) limiting the supervision and
compensatory evaluation of securities analysts
to officials employed by the broker or dealer
who are not engaged in investment banking
activities; and
``(iii) requiring that a broker or dealer
and persons employed by a broker or dealer who
are involved with investment banking activities
may not, directly or indirectly, retaliate
against or threaten to retaliate against any
securities analyst employed by that broker or
dealer or its affiliates as a result of an
adverse, negative, or otherwise unfavorable
research report that may adversely affect the
present or prospective investment banking
relationship of the broker or dealer with the
issuer that is the subject of the research
report, except that such rules may not limit
the authority of a broker or dealer to
discipline a securities analyst for causes
other than such research report in accordance
with the policies and procedures of the firm;
``(B) to define periods during which brokers or
dealers who have participated, or are to participate,
in a public offering of securities as underwriters or
dealers should not publish or otherwise distribute
research reports relating to such securities or to the
issuer of such securities;
``(C) to establish structural and institutional
safeguards within registered brokers or dealers to
assure that securities analysts are separated by
appropriate informational partitions within the firm
from the review, pressure, or oversight of those whose
involvement in investment banking activities might
potentially bias their judgment or supervision; and
``(D) to address such other issues as the
Commission, or such association or exchange, determines
appropriate.
``(2) Disclosure.--The Commission, or upon the
authorization and direction of the Commission, a registered
securities association or national securities exchange, shall
have adopted, not later than 1 year after the date of enactment
of this subsection, rules reasonably designed to require each
securities analyst to disclose in public appearances, and each
registered broker or dealer to disclose in each research
report, as applicable, conflicts of interest that are known or
should have been known by the securities analyst or the broker
or dealer, to exist at the time of the appearance or the date
of distribution of the report, including--
``(A) the extent to which the securities analyst
has debt or equity investments in the issuer that is
the subject of the appearance or research report;
``(B) whether any compensation has been received by
the registered broker or dealer, or any affiliate
thereof, including the securities analyst, from the
issuer that is the subject of the appearance or
research report, subject to such exemptions as the
Commission may determine appropriate and necessary to
prevent disclosure by virtue of this subparagraph of
material non-public information regarding specific
potential future investment banking transactions of
such issuer, as is appropriate in the public interest
and consistent with the protection of investors;
``(C) whether an issuer, the securities of which
are recommended in the appearance or research report,
currently is, or during the 1-year period preceding the
date of the appearance or date of distribution of the
report has been, a client of the registered broker or
dealer, and if so, stating the types of services
provided to the issuer;
``(D) whether the securities analyst received
compensation with respect to a research report, based
upon (among any other factors) the investment banking
revenues (either generally or specifically earned from
the issuer being analyzed) of the registered broker or
dealer; and
``(E) such other disclosures of conflicts of
interest that are material to investors, research
analysts, or the broker or dealer as the Commission, or
such association or exchange, determines appropriate.
``(3) Definitions.--In this subsection--
``(A) the term `securities analyst' means any
associated person of a registered broker or dealer that
is principally responsible for, and any associated
person who reports directly or indirectly to a
securities analyst in connection with, the preparation
of the substance of a research report, whether or not
any such person has the job title of `securities
analyst'; and
``(B) the term `research report' means a written or
electronic communication that includes an analysis of
equity securities of individual companies or
industries, and that provides information reasonably
sufficient upon which to base an investment
decision.''.
(b) Enforcement.--Section 21B(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78u-2(a)) is amended by inserting ``15A(n),'' before
``15B''.
(c) Commission Authority.--The Commission may promulgate and amend
its regulations, or direct a registered securities association or
national securities exchange to promulgate and amend its rules, to
carry out section 15A(n) of the Securities Exchange Act of 1934, as
added by this section, as is necessary for the protection of investors
and in the public interest.
TITLE VI--COMMISSION RESOURCES AND AUTHORITY
SEC. 601. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 (15 U.S.C. 78kk)
is amended to read as follows:
``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
``In addition to any other funds authorized to be appropriated to
the Commission, there are authorized to be appropriated to carry out
the functions, powers, and duties of the Commission, $776,000,000 for
fiscal year 2003, of which--
``(1) $102,700,000 shall be available to fund additional
compensation, including salaries and benefits, as authorized in
the Investor and Capital Markets Fee Relief Act (Public Law
107-123; 115 Stat. 2390 et seq.);
``(2) $108,400,000 shall be available for information
technology, security enhancements, and recovery and mitigation
activities in light of the terrorist attacks of September 11,
2001; and
``(3) $98,000,000 shall be available to add not fewer than
an additional 200 qualified professionals to provide enhanced
oversight of auditors and audit services required by the
Federal securities laws, and to improve Commission
investigative and disciplinary efforts with respect to such
auditors and services, as well as for additional professional
support staff necessary to strengthen the programs of the
Commission involving Full Disclosure and Prevention and
Suppression of Fraud, risk management, industry technology
review, compliance, inspections, examinations, market
regulation, and investment management.''.
SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by inserting after section 4B the following:
``SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
``(a) Authority To Censure.--The Commission may censure any person,
or deny, temporarily or permanently, to any person the privilege of
appearing or practicing before the Commission in any way, if that
person is found by the Commission, after notice and opportunity for
hearing in the matter--
``(1) not to possess the requisite qualifications to
represent others;
``(2) to be lacking in character or integrity, or to have
engaged in unethical or improper professional conduct; or
``(3) to have willfully violated, or willfully aided and
abetted the violation of, any provision of the securities laws
or the rules and regulations issued thereunder.
``(b) Definition.--With respect to any registered public accounting
firm, for purposes of this section, the term `improper professional
conduct' means--
``(1) intentional or knowing conduct, including reckless
conduct, that results in a violation of applicable professional
standards; and
``(2) negligent conduct in the form of--
``(A) a single instance of highly unreasonable
conduct that results in a violation of applicable
professional standards in circumstances in which the
registered public accounting firm knows, or should
know, that heightened scrutiny is warranted; or
``(B) repeated instances of unreasonable conduct,
each resulting in a violation of applicable
professional standards, that indicate a lack of
competence to practice before the Commission.''.
SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK BARS.
(a) Securities Exchange Act of 1934.--Section 21(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)), as amended by this
Act, is amended by adding at the end the following:
``(7) Authority of a court to prohibit persons from participating
in an offering of penny stock.--
``(A) In general.--In any proceeding under paragraph (1)
against any person participating in, or, at the time of the
alleged misconduct who was participating in, an offering of
penny stock, the court may prohibit that person from
participating in an offering of penny stock, conditionally or
unconditionally, and permanently or for such period of time as
the court shall determine.
``(B) Definition.--For purposes of this paragraph, the term
`person participating in an offering of penny stock' includes
any person engaging in activities with a broker, dealer, or
issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of, any penny stock.
The Commission may, by rule or regulation, define such term to
include other activities, and may, by rule, regulation, or
order, exempt any person or class of persons, in whole or in
part, conditionally or unconditionally, from inclusion in such
term.
(b) Securities Act of 1933.--Section 20 of the Securities Act of
1933 (15 U.S.C. 77t) is amended by adding at the end the following:
``(g) Authority of a Court To Prohibit Persons From Participating
in an Offering of Penny Stock.--
``(1) In general.--In any proceeding under subsection (a)
against any person participating in, or, at the time of the
alleged misconduct, who was participating in, an offering of
penny stock, the court may prohibit that person from
participating in an offering of penny stock, conditionally or
unconditionally, and permanently or for such period of time as
the court shall determine.
``(2) Definition.--For purposes of this subsection, the
term `person participating in an offering of penny stock'
includes any person engaging in activities with a broker,
dealer, or issuer for purposes of issuing, trading, or inducing
or attempting to induce the purchase or sale of, any penny
stock. The Commission may, by rule or regulation, define such
term to include other activities, and may, by rule, regulation,
or order, exempt any person or class of persons, in whole or in
part, conditionally or unconditionally, from inclusion in such
term.''.
SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS AND DEALERS.
(a) Brokers and Dealers.--Section 15(b)(4) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o) is amended--
(1) by striking subparagraph (F) and inserting the
following:
``(F) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a
broker or dealer;''; and
(2) in subparagraph (G), by striking the period at the end
and inserting the following: ``; or
``(H) is subject to any final order of a State securities
commission (or any agency or officer performing like
functions), State authority that supervises or examines banks,
savings associations, or credit unions, State insurance
commission (or any agency or office performing like functions),
an appropriate Federal banking agency (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or
the National Credit Union Administration, that--
``(i) bars such person from association with an
entity regulated by such commission, authority, agency,
or officer, or from engaging in the business of
securities, insurance, banking, savings association
activities, or credit union activities; or
``(ii) constitutes a final order based on
violations of any laws or regulations that prohibit
fraudulent, manipulative, or deceptive conduct.''.
(b) Investment Advisers.--Section 203(e) of the Investment Advisers
Act of 1940 (15 U.S.C. 80b-3(e)) is amended by striking paragraphs (7)
and (8) and inserting the following:
``(7) is subject to any order of the Commission barring or
suspending the right of the person to be associated with an
investment adviser; or
``(8) is subject to any final order of a State securities
commission (or any agency or officer performing like
functions), State authority that supervises or examines banks,
savings associations, or credit unions, State insurance
commission (or any agency or office performing like functions),
an appropriate Federal banking agency (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or
the National Credit Union Administration, that--
``(A) bars such person from association with an
entity regulated by such commission, authority, agency,
or officer, or from engaging in the business of
securities, insurance, banking, savings association
activities, or credit union activities; or
``(B) constitutes a final order based on violations
of any laws or regulations that prohibit fraudulent,
manipulative, or deceptive conduct.''.
(c) Conforming Amendments.--
(1) Securities Exchange Act of 1934.--The Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended--
(A) in section 3(a)(39)(F) (15 U.S.C.
78c(a)(39)(F)), by inserting ``, or is subject to an
order or finding,'' before ``enumerated'';
(B) in each of sections 15(b)(6)(A)(i) (15 U.S.C.
78o(b)(6)(A)(i)), paragraphs (2) and (4) of section
15B(c) (15 U.S.C. 78o-4(c)), and subparagraphs (A) and
(C) of section 15C(c)(1) (15 U.S.C. 78o-5(c)(1)) by
striking ``or omission'' each place that term appears,
and inserting ``, or is subject to an order or
finding,''; and
(C) in each of paragraphs (3)(A) and (4)(C) of
section 17A(c) (15 U.S.C. 78q-1(c)), by inserting ``,
or is subject to an order or finding,'' before
``enumerated'' each place that term appears.
(2) Investment Advisers Act of 1940.--Section 203(f) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-3(f)) is
amended, by inserting ``or (3)'' after ``paragraph (2)''.
TITLE VII--STUDIES AND REPORTS
SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF PUBLIC
ACCOUNTING FIRMS.
(a) Study Required.--The Comptroller General of the United States
shall conduct a study--
(1) to identify--
(A) the factors that have led to the consolidation
of public accounting firms since 1989 and the
consequent reduction in the number of firms capable of
providing audit services to large national and multi-
national business organizations that are subject to the
securities laws;
(B) the present and future impact of the condition
described in subparagraph (A) on capital formation and
securities markets, both domestic and international;
and
(C) solutions to any problems identified under
subparagraph (B), including ways to increase
competition and the number of firms capable of
providing audit services to large national and
multinational business organizations that are subject
to the securities laws;
(2) of the problems, if any, faced by business
organizations that have resulted from limited competition among
public accounting firms, including--
(A) higher costs;
(B) lower quality of services;
(C) impairment of auditor independence; or
(D) lack of choice; and
(3) whether and to what extent Federal or State regulations
impede competition among public accounting firms.
(b) Consultation.--In planning and conducting the study under this
section, the Comptroller General shall consult with--
(1) the Commission;
(2) the regulatory agencies that perform functions similar
to the Commission within the other member countries of the
Group of Seven Industrialized Nations;
(3) the Department of Justice; and
(4) any other public or private sector organization that
the Comptroller General considers appropriate.
(c) Report Required.--Not later than 1 year after the date of
enactment of this Act, the Comptroller General shall submit a report on
the results of the study required by this section to the Committee on
Banking, Housing, and Urban Affairs of the Senate and the Committee on
Financial Services of the House of Representatives.
SEC. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT RATING AGENCIES.
(a) Study Required.--
(1) In general.--The Commission shall conduct a study of
the role and function of credit rating agencies in the
operation of the securities market.
(2) Areas of consideration.--The study required by this
subsection shall examine--
(A) the role of credit rating agencies in the
evaluation of issuers of securities;
(B) the importance of that role to investors and
the functioning of the securities markets;
(C) any impediments to the accurate appraisal by
credit rating agencies of the financial resources and
risks of issuers of securities;
(D) any barriers to entry into the business of
acting as a credit rating agency, and any measures
needed to remove such barriers;
(E) any measures which may be required to improve
the dissemination of information concerning such
resources and risks when credit rating agencies
announce credit ratings; and
(F) any conflicts of interest in the operation of
credit rating agencies and measures to prevent such
conflicts or ameliorate the consequences of such
conflicts.
(b) Report Required.--The Commission shall submit a report on the
study required by subsection (a) to the President, the Committee on
Financial Services of the House of Representatives, and the Committee
on Banking, Housing, and Urban Affairs of the Senate not later than 180
days after the date of enactment of this Act.
Calendar No. 442
107th CONGRESS
2d Session
S. 2673
_______________________________________________________________________
A BILL
To improve quality and transparency in financial reporting and
independent audits and accounting services for public companies, to
create a Public Company Accounting Oversight Board, to enhance the
standard setting process for accounting practices, to strengthen the
independence of firms that audit public companies, to increase
corporate responsibility and the usefulness of corporate financial
disclosure, to protect the objectivity and independence of securities
analysts, to improve Securities and Exchange Commission resources and
oversight, and for other purposes.
_______________________________________________________________________
June 25, 2002
Read twice and placed on the calendar
Committee on Banking, Housing, and Urban Affairs. Original measure reported to Senate by Senator Sarbanes. Without written report.
Committee on Banking, Housing, and Urban Affairs. Original measure reported to Senate by Senator Sarbanes. Without written report.
Placed on Senate Legislative Calendar under General Orders. Calendar No. 442.
By Senator Sarbanes from Committee on Banking, Housing, and Urban Affairs filed written report under authority of the order of the Senate of 06/26/2002. Report No. 107-205. Additional views filed.
By Senator Sarbanes from Committee on Banking, Housing, and Urban Affairs filed written report under authority of the order of the Senate of 06/26/2002. Report No. 107-205. Additional views filed.
Measure laid before Senate. (consideration: CR S6327-6347)
Considered by Senate. (consideration: CR S6436-6444, S6491-6496)
Considered by Senate. (consideration: CR S6524-6560)
Cloture motion on the bill presented in Senate. (consideration: CR S6559)
Considered by Senate. (consideration: CR S6603-6616, S6617-6633, S6636-6643)
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Motion by Senator McCain to recommit to Senate Committee on Banking, Housing, and Urban Affairs with instructions to report back forthwith with an amendment (SA 4270) made in Senate. (consideration: CR S6625)
Considered by Senate. (consideration: CR S6683-6685, S6687-6700)
Cloture on the bill invoked in Senate by Yea-Nay Vote. 91 - 2. Record Vote Number: 173. (consideration: CR S6685)
Roll Call #173 (Senate)Motion by Senator McCain to recommit to Senate Committee on Aging ruled out of order in Senate. (consideration: CR S6685)
Considered by Senate. (consideration: CR S6734-6779)
Passed/agreed to in Senate: Passed Senate with amendments by Yea-Nay Vote. 97 - 0. Record Vote Number: 176.
Roll Call #176 (Senate)Passed Senate with amendments by Yea-Nay Vote. 97 - 0. Record Vote Number: 176.
Roll Call #176 (Senate)Senate incorporated this measure in H.R. 3763 as an amendment.
Senate vitiated previous passage.
Returned to the Calendar. Calendar No. 442.