S 2004 IS
107th CONGRESS
2d Session
S. 2004
To improve quality
and transparency in financial reporting and independent audits and accounting
services, to designate an Independent Public Accounting Board, to enhance the
standard setting process for accounting practices, to improve Securities and
Exchange Commission resources and oversight, and for other purposes.
IN THE SENATE OF THE UNITED
STATES
March 8, 2002
Mr. DODD (for himself, Mr.
CORZINE, Ms. STABENOW, Mr. JOHNSON, and Mrs. BOXER) introduced the following
bill; which was read twice and referred to the Committee on Banking, Housing,
and Urban Affairs
A BILL
To improve quality
and transparency in financial reporting and independent audits and accounting
services, to designate an Independent Public Accounting Board, to enhance the
standard setting process for accounting practices, 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 `Investor Confidence in Public Accounting Act of 2002'.
(b) TABLE OF CONTENTS- The
table of contents for this Act is as follows:
Sec. 1. Short title; table
of contents.
TITLE I--INDEPENDENT PUBLIC
ACCOUNTING BOARD
Sec. 101. Designation of
Independent Public Accounting Board.
Sec. 102. Administrative
rules of the Board.
Sec. 103. Duties of the
Board.
Sec. 104. Securities and
Exchange Commission oversight of the Board.
TITLE II--ACCOUNTING AND
AUDIT STANDARDS
Sec. 201. Auditor independence.
Sec. 202. Registration
of public accounting firms.
Sec. 203. Investigations
and disciplinary proceedings.
Sec. 204. Accounting standards.
Sec. 205. Misrepresentations
to auditors.
Sec. 206. Commission rules
and enforcement.
Sec. 207. Enhanced Commission
oversight.
TITLE III--OTHER INVESTOR
SAFEGUARDS
Sec. 301. Improved financial
disclosures.
Sec. 302. Commission recommendations
on treatment of stock options.
Sec. 303. Commission recommendations
on treatment of special purpose entities.
Sec. 304. Review of corporate
governance practices.
Sec. 305. Study of mandatory
rotation of registered independent public accounting firms.
SEC. 2. PURPOSES.
The purposes of this Act
are--
(1) to designate an independent
regulatory organization, subject to Commission oversight, with adequate authority
and resources--
(A) to register public
accounting firms that prepare or issue audit reports with respect to financial
statements, reports, or other documents required to be filed with the Commission
under the securities laws;
(B) to promulgate and
enforce compliance with quality control and auditing standards designed
to improve the quality of audits conducted by such firms;
(C) to administer a continuing
program of review of the accounting and auditing practices of registered
independent public accounting firms; and
(D) to investigate and
discipline appropriately such firms, and persons associated with such firms,
who violate this Act, the securities laws, the rules and regulations thereunder,
the rules of the Board, or professional standards;
(2) to establish an independent
funding source for any accounting standard setting body that is recognized
by and subject to oversight by the Commission, in accordance with this Act;
(3) to ensure greater independence
of public audits; and
(4) to increase funding
and staff resources to improve the oversight responsibilities of the Commission
in the area of accounting.
SEC. 3. DEFINITIONS.
In this Act, the following
definitions shall apply:
(1) APPROPRIATE STATE REGULATORY
AUTHORITY- With respect to a registered independent public accounting firm
or associated person thereof, 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 having jurisdiction
over the firm or associated person.
(2) AUDIT COMMITTEE- The
term `audit committee' means--
(A) a committee (or equivalent
body) established by 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.
(3) AUDIT REPORT- The term
`audit report' means a document or other record--
(A) prepared in connection
with auditing services performed for purposes of compliance by an issuer
with the requirements of the securities laws; and
(B) in which a registered
independent public accounting firm--
(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.
(4) BOARD- The term `Board'
means the entity designated as the Independent Public Accounting Board pursuant
to section 101.
(5) COMMISSION- The term
`Commission' means the Securities and Exchange Commission.
(6) GAAP- The term `generally
accepted accounting principles' means any accounting standards and principles--
(A) recognized by the
Commission as being established by a standard setting body in accordance
with section 204; and
(B) established by rule,
regulation, or order of the 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 the Securities and Exchange Act of 1934 (15 U.S.C. 78l).
(8) NON-AUDIT SERVICES-
The term `non-audit services' means any professional services provided to
an issuer by a registered independent public accounting firm, other than those
provided to an issuer in connection with the preparation or issuance of an
audit report or a review of the financial statements of an issuer in accordance
with professional standards.
(9) PERSON ASSOCIATED WITH
A PUBLIC ACCOUNTING FIRM- The terms `person associated with a public accounting
firm' and `associated person of a public accounting firm' mean any individual
proprietor, partner, shareholder, principal, or professional employee of that
firm, or any other natural person or other entity associated with that firm,
that--
(A) shares in the profits
of that firm; or
(B) engages in any conduct
or practice by that firm in connection with the preparation or issuance
of any audit report.
(10) PROFESSIONAL STANDARDS-
The term `professional standards' means generally accepted accounting principles
established by a standard setting body described in section 204(a), generally
accepted auditing standards, generally accepted standards for attestation
engagements, generally accepted quality control policies and procedures, and
any other standards that the Board or the Commission determines, by rule--
(A) relate to the preparation
or issuance of financial statements or audit reports, or to auditor ethics
and independence; and
(B) are promulgated as
rules of the Commission, the Board, or by a standard setting body generally
recognized or endorsed by the Board, subject to the approval of the Commission.
(11) PUBLIC ACCOUNTING
FIRM- The term `public accounting firm' means--
(A) a sole proprietorship,
incorporated association, partnership, 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 an entity
described in subparagraph (A).
(12) REGISTERED INDEPENDENT
PUBLIC ACCOUNTING FIRM- The term `registered independent public accounting
firm' means a firm registered with the Board in accordance with this Act.
(13) RULES OF THE BOARD-
The term `rules of the Board' means the bylaws, rules, stated policies, standards,
practices, interpretations, and other instruments of the Board that the Commission,
by rule, may determine to be necessary or appropriate in the public interest
or for the protection of investors to be deemed to be rules of the Board.
(14) SECURITIES- The term
`securities' 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' has the same meaning as in section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)).
(16) SELF-REGULATORY ORGANIZATION-
The term `self-regulatory organization' has the same meaning as in section
3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
(17) 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.
TITLE I--INDEPENDENT PUBLIC
ACCOUNTING BOARD
SEC. 101. DESIGNATION OF
INDEPENDENT PUBLIC ACCOUNTING BOARD.
(a) DESIGNATION OF THE BOARD-
Not later than 180 days after the date of enactment of this Act, the Commission
shall designate an entity that meets the requirements of this Act and the rules
of the Commission issued under this Act as the Independent Public Accounting
Board, which shall be a independent regulatory entity, subject to the oversight
of the Commission, as provided in this Act and applicable law.
(b) PRIVATE STATUS OF THE
BOARD- The Board, as designated under this section, shall not, for any purpose,
be an agency or instrumentality of the Federal Government, and no officer, employee,
member of the Board, or other person associated with the Board shall be, for
any purpose, an officer or employee of the Federal Government.
(c) DESIGNATION PROCEDURES-
Application by any entity or organization for designation under subsection (a)
shall be in such form and subject to such procedures as the Commission may require,
as necessary or appropriate in the public interest or for the protection of
investors.
SEC. 102. ADMINISTRATIVE
RULES OF THE BOARD.
(1) APPOINTMENTS- The Board
shall be comprised of 5 members, except during a reasonable time period to
fill any vacancies, appointed from among prominent individuals of integrity
and reputation who have a demonstrated commitment to the interests of investors
and the public.
(2) LIMITATION- Not more
than 2 members of the Board may be, on or before the date of appointment,
or at any time during service on the Board, certified public accountants pursuant
to the laws of any State.
(3) EXCLUSIONS- No member
of the Board may--
(A) concurrent with service
on the Board, be engaged in the public practice of accounting;
(B) during the 3-year
period preceding the date of appointment to the Board, be an associated
person of a public accounting firm; or
(C) share in any of the
profits of, or receive payments from, a public accounting firm.
(4) 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 entity, except as authorized
by the Commission.
(A) IN GENERAL- Each
term of service of a member of the Board shall be for 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, as determined by the Commission at the time of designation
of the Board under section 4, resulting in--
(I) 1 term expiring
1 year after the initial date of appointment;
(II) 1 term expiring
2 years after the initial date of appointment;
(III) 1 term expiring
3 years after the initial date of appointment; and
(IV) 1 term expiring
4 years after 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 for more than 2 terms.
(6) APPOINTMENT COMMITTEE-
A 4-person appointment committee, composed of the Chairperson of the Board
(after selection in accordance with paragraph (9)), the Chairman of the Board
of Governors of the Federal Reserve System (or the designee of the Chairman),
the Secretary of the Treasury (or the designee of the Secretary), and the
Chairman of the Commission (or the designee of the Chairman), shall appoint
new members to the Board for each vacancy arising after the initial designation
of the Board.
(7) REMOVAL FROM OFFICE-
A member of the Board may be removed from office for cause before the expiration
of the term of that member--
(A) by a majority vote
of the other members of the Board, subject to the rules of the Board and
the approval of the Commission; or
(B) by the Commission
under section 104(f)(3).
(8) VACANCIES- A vacancy
on the Board shall not affect its powers, but shall be filled in the same
manner as provided for appointments under this section.
(9) CHAIRPERSON OF THE
BOARD- The Chairperson of the Board--
(A) shall be selected
by the Chairman of the Board of Governors of the Federal Reserve System
(or the designee of the Chairman), the Secretary of the Treasury (or the
designee of the Secretary), and the Chairman of the Commission (or the designee
of the Chairman), from among the members of the Board who were not, on or
before the date of appointment to the Board, or at any time during service
on the Board, certified public accountants; and
(B) shall serve in such
capacity for not longer than a 5-year term.
(b) 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, including the appointment of members and
the Chairperson of the Board, as required by subsection (a);
(2) provide for the appointment
and compensation of such accountants, attorneys, employees, and consultants
as may be necessary or appropriate to carry out the functions of the Board
in accordance with this Act;
(3) establish procedures
for the registration of public accounting firms in accordance with this Act;
(4) establish procedures
for the Board to enter into contracts, incur expenses, and take such other
actions as may be necessary or appropriate for the Board to perform its duties
under this Act;
(5) establish the compensation
of members of the Board at a level comparable to similar professional positions
in the private sector, subject to annual review and approval by the Commission;
and
(6) provide as otherwise
required by this Act.
(1) SUBMISSION TO THE COMMISSION-
The Board shall submit an annual report and proposed budget to the Commission
for review and approval, at such times and in such form as the Commission
may reasonably require.
(2) CONTENTS- Each report
required by paragraph (1) shall include a detailed description of the activities
of the Board, its audited financial statements, and such other matters as
the Board, with the concurrence of the Commission, considers appropriate.
(3) TRANSMITTAL TO CONGRESS-
The Commission shall transmit each report received under this subsection to
Congress.
SEC. 103. DUTIES OF THE
BOARD.
(a) ESTABLISHMENT OF QUALITY
CONTROL AND AUDITING STANDARDS- The rules of the Board shall establish, and
provide for the enforcement of, such standards of auditor quality control and
auditing standards to be used by each registered independent public accounting
firm in the preparation and issuance of any audit report, as required by this
Act and the rules of the Commission, and as may be necessary or appropriate
in the public interest or for the protection of investors.
(1) IN GENERAL- The rules
of the Board shall require the Board to conduct a continuing program of inspections
of each registered independent public accounting firm, to assess compliance
by that firm, and by associated persons of that firm, with this Act, the rules
of the Board and the Commission, and professional standards.
(2) INSPECTION FREQUENCY-
Inspections required by this subsection shall be conducted--
(A) annually with respect
to each registered independent public accounting firm that regularly provides
audit reports for more than 100 issuers; and
(B) not less frequently
than once every 2 years with respect to each registered independent public
accounting firm that regularly provides audit reports for not more than
100 issuers.
(3) PROCEDURE- The Board
shall, with respect to each inspection required by this subsection--
(A) identify any act
or practice, or omission to act, by the registered independent public accounting
firm, or by any associated person thereof, that the Board determines may
be in violation of this Act, the rules of the Board or the Commission, or
professional standards;
(B) report any such act,
practice, or omission to the Commission, the Attorney General of the United
States, and the appropriate State regulatory authority for appropriate referral
and investigation; and
(C) take any disciplinary
action in accordance with this Act and the rules of the Board, as the Board
determines appropriate.
(4) CONDUCT OF INSPECTIONS-
In conducting inspections under this subsection, the Board shall--
(A) review selected audit
and review engagements of the registered independent public accounting firm,
performed at various offices and by various associated persons of the firm;
(B) evaluate the sufficiency
of the quality control system in place at the registered independent public
accounting firm;
(C) determine whether
the policies and procedures of the registered independent public accounting
firm have been adequately documented and communicated to its employees and
other associated persons of the firm;
(D) assess whether the
level of compliance with the policies and procedures of the registered independent
public accounting firm is sufficient to reasonably assure conformity with
professional standards; and
(E) determine compliance
by the registered independent public accounting firm with professional accounting,
auditing, independence, and ethics standards.
(5) RECORD RETENTION- To
facilitate inspections required under this section, the rules of the Board
shall address the retention of records by registered independent public accounting
firms, including--
(A) which records are
to be created and retained;
(B) the required retention
period for each record identified under subparagraph (A); and
(C) the physical location
where such records shall be stored.
(6) REPORT- The Board shall
prepare a written report of its findings for each inspection under this subsection,
which report shall be--
(A) accompanied by any
letter or comments by the Board or the inspector, and any letter of response
from the registered independent public accounting firm under review;
(B) transmitted to the
Commission;
(C) transmitted to the
appropriate State regulatory authority; and
(D) made available to
the public.
(c) PENALTIES- The rules
of the Board shall--
(1) provide for disciplinary
actions for registered independent public accounting firms and associated
persons thereof, in accordance with rules required by section 203, for violations
of this Act, the rules of the Board or the Commission, or professional standards;
and
(2) establish procedures
for notification of any such disciplinary action to the Commission, the Attorney
General of the United States, and the appropriate State regulatory authority
for appropriate referral and action.
(d) OTHER DUTIES- The Board
shall perform such other duties or functions as the Commission determines are
necessary or appropriate in the public interest or for the protection of investors,
and to carry out the purposes of this Act.
SEC. 104. SECURITIES AND
EXCHANGE 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.
(1) DEFINITION- In this
section, the term `proposed rule' means any proposed rule of the Board, and
any change to, modification of, addition to, or deletion from any rule of
the Board.
(2) PRIOR APPROVAL REQUIRED-
No rule of the Board shall become effective without approval of the Commission
in accordance with the requirements of this section, except as specifically
authorized in this section.
(3) FILING WITH THE COMMISSION-
The Board shall file with the Commission, in accordance with such rules as
the Commission may prescribe, and before the effective date of any proposed
rule, copies of the proposed rule, accompanied by a concise general statement
of the basis and purpose of the proposed rule.
(4) PUBLICATION OF NOTICE-
The Commission shall publish a public notice of each proposed rule, together
with the terms and substance of the proposed rule or a description of the
subjects and issues involved, in the Federal Register--
(A) not later than 30
days after the date of receipt of a filing of the proposed rule under paragraph
(3); or
(B) not later than 60
days after the date of such receipt, if the Commission finds such longer
period appropriate and publishes its reasons therefore, as to which the
Board consents.
(5) OPPORTUNITY FOR COMMENT-
The Commission shall provide to interested persons an opportunity to submit
written data, views, and arguments concerning any proposed rule of the Board.
(6) COMMISSION CONSIDERATION-
No proposed rule may take effect unless approved by the Commission, or otherwise
permitted in accordance with the provisions of this section.
(A) INITIAL COMMISSION
DECISION- Not later than 30 days after the date of publication of notice
of a proposed rule in accordance with paragraph (4), the Commission shall--
(i) by order, approve
the proposed rule; or
(ii) institute proceedings
under paragraph (9) to determine whether the proposed rule should be disapproved.
(B) AUTHORITY TO EXTEND
PERIOD- The 30-day period referred to in subparagraph (A) may be extended
by the Commission to not more than 90 days after the date of publication
of notice under paragraph (4), upon consent of the Board or upon a finding
of the Commission that such longer period is necessary or appropriate, and
publication of its reasons for that finding.
(8) CRITERIA FOR COMMISSION
DETERMINATION- The Commission shall--
(A) approve a proposed
rule, if the Commission finds that the proposed 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; and
(B) disapprove a proposed
rule if it does not make a finding described in subparagraph (A), in accordance
with paragraph (9).
(9) DISAPPROVAL PROCEDURES-
(A) NOTICE AND HEARING-
If the Commission institutes proceedings under paragraph (7)(A)(ii), the
Commission shall--
(i) notify the Board
and other interested parties of the grounds for disapproval of the proposed
rule;
(ii) provide to the
Board and other interested parties an opportunity for hearing; and
(iii) not later than
180 days after the date of publication of notice under paragraph (4),
conclude the proceedings and, by order published in the Federal Register,
approve or disapprove the proposed rule, except that the Commission may
extend such time period for up to 60 days if it finds good cause for such
extension and publishes its reasons for that finding, or for such longer
period as to which the Board consents.
(A) IN GENERAL- A proposed
rule approved by the Commission under this subsection shall take effect
not earlier than 30 days after the date of publication of notice under paragraph
(4), unless the Commission finds good cause for an earlier effective date
and publishes its reasons for that finding.
(B) EXPEDITED APPLICABILITY-
(i) RULE EFFECTIVE
UPON FILING- Notwithstanding subparagraph (A), a proposed rule may take
effect upon the date of receipt of a filing with the Commission
under paragraph (3), if
the Board designates the proposed rule as--
(I) constituting
a stated policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule of the Board;
(II) establishing
or changing a fee or other charge imposed by the Board; or
(III) concerned solely
with the administration of the Board or other matters which the Commission,
by rule, consistent with the public interest and the purposes of this
Act, may exempt from the requirements of subparagraph (A).
(ii) PROTECTION OF
INVESTORS- Notwithstanding any other provision of this subsection, a proposed
rule may be put into effect immediately if the Commission determines,
after consultation with the Board, or the Board determines, after consultation
with the Commission, that such action is necessary for the protection
of investors. A proposed rule subject to treatment under this subparagraph
shall be filed with the Commission promptly in accordance with paragraph
(3).
(iii) RULE ENFORCEMENT-
Any proposed rule that has taken effect under this subparagraph shall
be enforced by the Board to the extent that it is not inconsistent with
this Act, the securities laws, the rules of the Commission, and other
applicable Federal law.
(A) GENERAL AUTHORITY-
Notwithstanding any other provision of this section, or any other provision
of law, during the 60-day period following the date of receipt of the filing
of a proposed rule under paragraph (3), the Commission may abrogate any
proposed rule and require that the proposed rule be refiled in accordance
with paragraph (3), if the Commission determines that such action is 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.
(B) PROCEDURE- Commission
action under this subparagraph--
(i) shall not affect
the validity or force of the subject rule during any period for which
it was in effect;
(ii) shall not be reviewable
under section 25 of the Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.); and
(iii) shall not be
a final agency action for purposes of section 704 of title 5, United States
Code.
(c) POWER OF THE COMMISSION
TO AMEND RULES OF THE BOARD-
(1) IN GENERAL- The Commission,
by rule or order, may amend the rules of the Board (including the abrogation,
addition to, or deletion from such rules), as the Commission determines necessary
or appropriate to--
(A) assure the fair administration
of the Board;
(B) conform the rules
promulgated by the Board to the requirements of this Act, and the securities
laws; and
(C) otherwise further
the purposes of this Act or the securities laws.
(2) NOTICE- The Commission
shall notify the Board and publish notice of a proposed rulemaking under this
subsection in the Federal Register, which notice shall include the text of
the proposed amendment to the rules of the Board and a statement of the reasons
of the Commission, including the pertinent facts, for commencing such proposed
rulemaking.
(3) HEARING- The Commission,
at its discretion, may give interested persons an opportunity for the oral
presentation of data, views, and arguments, in addition to an opportunity
to make written submissions, with respect to an action under this subsection.
A transcript shall be kept of any such oral presentation.
(4) STATEMENT OF BASIS
AND PURPOSE- A rule adopted under this subsection shall incorporate the text
of the amendment to the rules of the Board and a statement by the Commission
on its basis for and purpose in so amending such rules, including an identification
of any facts on which the Commission considers its determination to amend
the rules of the Board to be based, including the reasons for the conclusions
of the Commission as to any facts that were disputed in the rulemaking.
(A) NOT ON THE RECORD-
Except as provided in paragraphs (1) through (4), rulemaking under this
subsection shall be in accordance with the procedures specified in section
553 of title 5, United States Code, for rulemaking not on the record.
(B) NO IMPACT ON COMMISSION
RULEMAKING AUTHORITY- Nothing in this subsection shall be construed to impair
or limit the authority of the Commission to make, modify, or alter the procedures
that the Commission may follow in making rules and regulations under any
other authority under this Act or the securities laws.
(C) EFFECT OF COMMISSION
AMENDMENTS TO BOARD RULES- Any amendment to the rules of the Board made
by the Commission under this subsection shall be considered for all purposes
of this Act and the securities laws to be part of the rules of the Board,
and shall not be considered to be a rule of the Commission.
(d) COMMISSION REVIEW OF
DISCIPLINARY ACTION TAKEN BY THE BOARD-
(1) NOTICE OF SANCTION-
If the Board imposes any final disciplinary or remedial sanction on any registered
independent public accounting firm or on any associated person of a registered
independent public accounting firm, the Board shall promptly file notice thereof
with the Commission, in such form and containing such information as the Commission,
by rule, may prescribe as necessary or appropriate in furtherance of the purposes
of this Act and the securities laws.
(A) IN GENERAL- Any sanction
described in paragraph (1) shall be subject to review by the Commission,
on its own motion, or upon application by any person aggrieved thereby.
(B) APPLICATION FOR REVIEW-
An application for review of a sanction described in paragraph (1) shall
be filed not later than 30 days after the date on which the aggrieved person
was notified of the sanction by the Board, or within such longer period
as the Commission may determine appropriate.
(C) REVIEW DOES NOT SUSPEND
SANCTION- An application to the Commission for review of a sanction described
in paragraph (1), or the institution of review by the Commission on its
own motion, shall not operate as a stay of the sanction, unless the Commission
otherwise orders, summarily or after notice and opportunity for hearing
on the question of a stay. Such hearing may consist solely of the submission
of affidavits or presentation of oral arguments. The Commission shall establish
an expedited procedure, in appropriate cases, for consideration and determination
of the question of a stay.
(e) DISPOSITION OF REVIEW;
NOTICE AND HEARING; AFFIRMATION; MODIFICATION OR CANCELLATION OF SANCTION-
(1) NOTICE AND HEARING-
In any proceeding to review a final disciplinary or remedial sanction imposed
by the Board on a registered independent public accounting firm or an associated
person thereof, the firm or person shall be provided with notice and an opportunity
for hearing. The hearing may consist solely of consideration of the record
before the Board and an opportunity to present supporting reasons to affirm,
modify, or set aside the sanction.
(2) AFFIRMATION- The Commission
shall, by order, affirm a sanction imposed by the Board, if the Commission
finds that--
(A) the sanctioned registered
independent public accounting firm or associated person has engaged in such
acts or practices, or has omitted to act, as the Board has found that person
to have engaged in or omitted;
(B) such acts or practices,
or omissions to act, are in violation of any provision of this Act, the
securities laws, the rules of the Board, or professional standards, as have
been specified in the determination of the Board; and
(C) such provisions,
laws, rules, or standards were applied with respect to the registered independent
public accounting firm or associated person in a manner consistent with
the purposes of this Act and the securities laws.
(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 independent
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 the purposes of this Act or the securities
laws; or
(B) is excessive or oppressive.
(4) CANCELLATION- If the
Commission does not take any action under paragraph (2) or (3), it shall,
by order, set aside the sanction imposed by the Board and, if appropriate,
remand to the Board for further proceedings.
(f) BOARD COMPLIANCE AND
ENFORCEMENT-
(1) COMPLIANCE- The Board
shall comply with this Act, the securities laws, the rules of the Commission,
and the rules of the Board.
(2) ENFORCEMENT- Absent
reasonable justification or excuse, the Board shall enforce compliance with
this Act, the rules of the Board or the Commission, and professional standards
by registered independent public accounting firms and associated persons thereof.
(g) 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 purposes of this Act and the securities laws,
may relieve the Board of any responsibility under this Act to enforce compliance
with any provision of this Act, the securities laws, the rules of the Board
or the Commission, or professional standards by any registered independent
public accounting firm or associated person thereof, or any class of such
firms or persons associated with such firms.
(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 securities laws, or
the rules of the Board; 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 independent
public accounting firm or an associated person thereof.
(3) CENSURE OF BOARD MEMBERS;
REMOVAL FROM OFFICE- If the Commission determines that an activity is 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,
the Commission may 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 securities laws, or the rules of the Board;
(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 independent
public accounting firm or any associated person thereof.
TITLE II--ACCOUNTING AND
AUDIT STANDARDS
SEC. 201. AUDITOR INDEPENDENCE.
(a) PROHIBITION ON SERVICES
OUTSIDE THE AUDITOR SCOPE OF PRACTICE-
(1) IN GENERAL- 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 independent public accounting firm that
performs for any issuer any auditing service required by this title, or the
rules of the Commission under this title (and any associated person of that
accountant, to the extent determined appropriate by the Commission), or receives
any general revenues from such issuer, to provide to that issuer, contemporaneously
with the auditing service, any non-audit service, including--
`(1) bookkeeping or other
services related to the accounting records or financial statements of the
issuer;
`(2) financial information
systems design and implementation consulting services (referred to as `information
technology' or `IT' consulting services);
`(3) appraisal or valuation
services, fairness opinions, or contribution-in-kind reports;
`(5) internal audit out
sourcing services;
`(6) any management or
human resources function;
`(7) broker, dealer, investment
adviser, or investment banking services;
`(9) expert services unrelated
to the auditing service;
`(10) any other service
that the Commission determines, by regulation, is outside the scope of the
duties of an auditor; and
`(11) any non-audit service,
including tax services, that is not described in any of paragraphs (1) through
(10), except as approved in advance by the audit committee of the issuer,
based on a determination that the performance of such service would be in
the best interest of investors and would have no adverse effect on the independence
of the accounting firm.'.
(2) 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 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 INDEPENDENT
PUBLIC ACCOUNTING FIRM- The term `registered independent public accounting
firm' has the same meaning as in section 3 of the Investor Confidence in Public
Accounting Act of 2002.'.
(B) AUDITOR REQUIREMENTS-
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1) is
amended--
(i) by striking `an
independent public accountant' each place that term appears and inserting
`a registered independent public accounting firm';
(ii) by striking `the
independent public accountant' each place that term appears and inserting
`the registered independent public accounting firm';
(iii) in subsection
(c), by striking `No independent public accountant' and inserting `No
registered independent public accounting firm'; and
(I) by striking `the
accountant' each place that term appears and inserting `the firm';
(II) by striking
`such accountant' each place that term appears and inserting `such firm';
and
(III) 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--
(i) 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 independent
public accounting firm'; and
(ii) 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
independent public accounting firm'.
(3) COMMISSION REGULATIONS-
(A) IN GENERAL- Not later
than 180 days after the date of enactment of this Act, the Commission shall
issue final regulations to carry out section 10A(g) of the Securities Exchange
Act of 1934, as added by this section.
(B) CONTENTS OF REGULATIONS-
The regulations issued under subparagraph (A), shall be substantially similar
to the scope of practice provisions of the proposed rules issued by the
Commission on July 13, 2000, consistent with the provisions of this Act,
regarding revision of the auditor independence requirements contained in
Parts 210 and 240 of title 17, of the Code of Federal Regulations (RIN 3235-AH91).
(b) AUDITOR 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:
`(h) CONFLICTS OF INTEREST-
It shall be unlawful for a registered independent public accounting firm to
perform for any issuer any auditing service required by this
title, if the comptroller,
principal accounting officer, or principal financial officer of the issuer,
or any other individual serving in a management capacity for the issuer at any
time during the period of such service, was employed by that registered independent
public accounting firm during the 2-year period preceding the initiation of
the auditing services.'.
(c) AUDITOR INDEPENDENCE-
It shall be unlawful for any registered independent 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--
(1) engages in any activity
with respect to that issuer prohibited by section 10A(g) of the Securities
Exchange Act of 1934, as added by this section, or any rule or regulation
of the Commission issued thereunder; or
(2) violates section 10A(h)
of the Securities Exchange Act of 1934, as added by this section, or any rule
or regulation of the Commission issued thereunder with respect to that issuer.
SEC. 202. REGISTRATION
OF PUBLIC ACCOUNTING FIRMS.
(a) MANDATORY REGISTRATION
WITH THE BOARD- Beginning 1 year after the date of the designation of the Board
under section 101, it shall be unlawful for any person to prepare or issue any
audit report with respect to any issuer, unless that person--
(1) is a registered independent
public accounting firm;
(2) is in compliance with
this Act and all applicable rules of the Board and the Commission; and
(3) has paid all applicable
registration and annual fees under this title.
(b) APPLICATION FOR REGISTRATION-
A public accounting firm may become registered under this title upon application
to the Board, in such form and containing such information as the Board, by
rule, may prescribe.
(c) CONTENTS OF APPLICATIONS-
Each application by a public accounting firm for registration under this title
shall include--
(1) the names of all of
the issuers for which the firm prepares or issues audit reports; and
(2) for each such issuer,
the annual fees received by the firm from that issuer relating to--
(A) performance of any
annual audit or quarterly interim review of the financial statements of
the issuer to be filed in an audit report with the Commission under the
securities laws;
(B) other accounting
and auditing services;
(D) information technology
consulting services; and
(E) all other consulting
or advisory services, in such detail as the rules of the Board shall specify;
(3) financial information
of the firm for the most recent fiscal year, including the total annual revenues,
assets, liabilities, and net equity of the firm, and the aggregate revenues
from each of the accounting, auditing, tax, and other professional services
provided to any issuer;
(4) the names of any liability
insurance carrier of the firm;
(5) a copy of the policies
and procedures of the firm with respect to quality control of its accounting
and auditing practices;
(6) a list of all persons
associated with the firm, the license or certification number of each such
person issued by the appropriate State regulatory authority, and a brief statement
of the education and experience of each such person;
(7) 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 prepared or issued by the firm;
(8) a list of issuers for
which the firm has been appointed as a successor auditor in the most recently
completed fiscal year, and where unresolved disagreements exist between the
successor and predecessor auditor on the application of generally accepted
accounting principles, including a detailed description of the nature of any
such disagreement; and
(9) 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.
(d) REGISTRATION AND ANNUAL
FEES-
(1) IN GENERAL- The Board
shall assess and collect a registration fee and annual dues from each registered
independent public accounting firm, subject to annual review and approval
by the Commission.
(A) IN GENERAL- Fees
and dues under paragraph (1) shall be assessed at a level sufficient to
recover the costs and expenses of the Board and to permit the Board to operate
on a self-funding basis.
(B) BASIS OF FEES- The
amount of fees and dues for each registered independent public accounting
firm shall be based upon--
(i) the annual revenues
of that firm from accounting, auditing, and other professional services
provided to issuers for the purpose of preparing or issuing any audit
report;
(ii) the number of
persons associated with the firm that prepare or issue, or assist or otherwise
participate in the preparation or issuance of audit reports;
(iii) the number of
issuers for which the firm prepares or issues any audit report; and
(iv) such other criteria
as the rules of the Board may establish.
(e) SPECIAL FEES- The Board
may prescribe and collect fees that fairly reflect the costs to the Board of
conducting inspections and disciplinary actions in accordance with this Act,
in addition to other fees authorized by this section.
(1) ANNUAL REPORTS- Each
registered independent public accounting firm shall submit an annual report
to the Board to update the information contained in its application for registration
under this section, and to provide to the Board any additional information
that the Board may require, in accordance with the rules of the Board.
(2) UPDATES- Not later
than 15 days after an event that affects any information referred to in paragraph
(7) or (8) of subsection (c), or more frequently as the Board may require,
each registered independent public accounting firm shall provide to the Board
any relevant information with respect to such matters.
(3) PUBLIC AVAILABILITY-
Annual reports required by this subsection, or parts thereof, as designated
by the rules of the Board or the Commission, shall be made available for public
inspection, subject to applicable laws relating to the confidentiality of
information contained in such reports.
(g) COMMISSION EXEMPTION
AUTHORITY- The Commission, by rule or order, upon its own motion or upon application,
may conditionally or unconditionally exempt any public accounting firm or any
audit report, or any class of public accounting firms or any class of audit
reports, from any provision of this Act, if the Commission finds that such exemption
is consistent with the public interest, the protection of investors, and the
purposes of this Act.
SEC. 203. INVESTIGATIONS
AND DISCIPLINARY PROCEEDINGS.
(a) INVESTIGATIONS AND DISCIPLINARY
PROCEEDINGS- The rules of the Board shall establish fair procedures for investigating
and disciplining registered independent public accounting firms and associated
persons thereof for violations of this Act, the securities laws, the rules of
the Board or the Commission, or professional standards.
(b) INVESTIGATION PROCEDURES-
(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 independent public accounting
firm, or by any associated person of a registered independent public accounting
firm, that may violate any provision of this Act, the securities laws, the
rules of the Board or the Commission, or professional standards, regardless
of how the act, practice, or omission is brought to the attention of the Board.
At the discretion of the Board, such an investigation, in light of the circumstances,
may relate to the entire registered independent public accounting firm, to
1 or more persons associated with the firm, or to 1 or more offices, engagements,
or transactions of the firm.
(2) COMPULSION OF TESTIMONY
AND DOCUMENT PRODUCTION- For purposes of an investigation under this section,
and 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 any person associated with a registered independent public accounting
firm, with respect to any matter that the Board considers relevant or material
to the investigation;
(B) require the production
of audit work papers and of any other document or information in the possession
of a registered independent 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; and
(C) require the testimony
of, and production of any document in the possession of, any person, including
any issuer client of a registered independent public accounting firm, that
the Board considers relevant or material to an investigation under this
section.
(3) PENALTIES FOR NONCOMPLIANCE
WITH INVESTIGATION-
(A) IN GENERAL- Any person
who fails to comply with the requirements of this section shall be subject
to the same sanctions as are applicable for any failure to produce information
or testimony to the Commission in the course of a formal investigation.
(B) REFUSAL TO COOPERATE-
If a registered independent 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 an issuer or a registered independent
public accounting firm;
(ii) suspend or revoke
the registration of the public accounting firm; and
(iii) invoke such other
sanctions as the Board considers appropriate.
(4) REFERRAL- The Board
may refer any investigation to the Commission, the Attorney General of the
United States, and the appropriate State regulatory authority, as it determines
appropriate, and each such entity shall evaluate any such referral and take
such action with respect to the matter referred as it determines necessary
or appropriate.
(A) CONFIDENTIALITY-
Except as provided in subparagraph (B), all reports, memoranda, and other
information prepared or received by, and deliberations of the Board and
its employees and agents in connection with an investigation under this
section, shall be confidential and privileged, unless and until presented
in connection with a public proceeding or the public release by the Board
of its report of sanctions under subsection (d).
(B) AVAILABILITY TO GOVERNMENT
AGENCIES- All information referred to in subparagraph (A) shall be--
(i) made available
to the Commission, the Attorney General of the United States, to any other
Federal department or agency, to any appropriate State regulatory authority,
and to Federal and State authorities in connection with any criminal investigation
or proceeding; and
(ii) admissible in
any action brought by the Commission, the Attorney General of the United
States, or any other Federal department or agency, or by any appropriate
State regulatory authority, and in any criminal action.
(6) GOVERNMENT 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 independent 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- All
hearings under this section shall be public, unless otherwise ordered by the
Board on its own motion or after considering the motion of a party.
(3) SANCTIONS- If the Board
finds that a registered independent public accounting firm, or a person associated
with a registered independent public accounting firm, has engaged in any act
or practice, or omitted to act, in violation of this Act, the securities laws,
the rules of the Board or the Commission, or professional standards, the Board
may impose such disciplinary or remedial sanctions as it determines appropriate,
including--
(A) temporary or permanent
revocation or suspension of registration under this title with the Board;
(B) temporary or permanent
limitation of activities, functions, or operations;
(C) civil money penalties;
(E) in the case of an
associated person of a registered independent public accounting firm, temporary
or permanent suspension or bar from being associated with any registered
independent public accounting firm; or
(F) any other appropriate
sanction, subject to the approval of the Commission.
(4) CIVIL MONEY PENALTIES-
(A) BOARD DETERMINATION-
Subject to the approval of the Commission, civil money penalties for a violation
of this Act, the securities laws, the rules of the Board or the Commission,
or professional standards, if any, shall be determined by the Board, based
on the facts and circumstances.
(B) PENALTY LIMITS- For
each violation of this Act, the securities laws, the rules of the Board
or the Commission, or professional standards, the amount of a penalty imposed
under subparagraph (A) may not exceed the greater of--
(i) $100,000 for a
natural person; or
(ii) $2,000,000 for
any person other than a natural person.
(C) FRAUD- Notwithstanding
subparagraph (B), the amount of a penalty for each violation described in
subparagraph (B) that involves fraud, deceit, manipulation, or deliberate
or reckless disregard of the regulatory standard, may not exceed the greater
of--
(i) $750,000 for a
natural person; or
(ii) $15,000,000 for
any person other than a natural person.
(D) USE OF AMOUNTS- Civil
money penalties assessed under this paragraph shall be deposited in the
General Fund of the United States Treasury.
(5) SUPPORTING STATEMENT-
A determination by the Board to impose a disciplinary or remedial sanction
or penalty under this section shall be supported by a statement setting forth--
(A) any prohibited act
or practice in which the registered independent public accounting firm,
or associated person of such firm, has engaged, or any required act or practice
which such firm or person has omitted;
(B) the specific provision
of this Act, the securities laws, the rules of the Board or the Commission,
or professional standards which the Board determines has been violated;
and
(C) the sanction imposed,
including a justification for that sanction.
(6) EFFECT OF SUSPENSION--
(A) ASSOCIATION WITH
A PUBLIC ACCOUNTING FIRM-
(i) SUSPENDED OR BARRED
PERSONS- It shall be unlawful for any person that is suspended or barred
from being associated with a registered independent public accounting
firm in accordance with this section willfully to become or remain associated
with a registered independent public accounting firm without the consent
of the Board or the Commission.
(ii) REGISTERED INDEPENDENT
PUBLIC ACCOUNTING FIRMS- It shall be unlawful for any registered independent
public accounting firm to permit a person that is suspended or barred
from being associated with any such firm in accordance with this section
to become or remain associated with that firm without the consent of the
Board or the Commission, if the firm knew, or, in the exercise of reasonable
care should have known, of the suspension or bar.
(B) ASSOCIATION WITH
AN ISSUER-
(i) SUSPENDED OR BARRED
PERSONS- It shall be unlawful for any person that is suspended or barred
from being associated with an issuer in accordance with this section willfully
to become or remain associated with such an issuer without the consent
of the Board or the Commission.
(ii) ISSUERS- It shall
be unlawful for any issuer to permit any person that is suspended or barred
from being associated with an issuer in accordance with this section to
become or remain an associated person of that issuer without the consent
of the Board or the Commission, if the issuer knew, or, in the exercise
of reasonable care should have known, of the suspension or bar.
(d) REPORTING OF SANCTIONS-
(1) RECIPIENTS- Whenever
the Board imposes a disciplinary sanction or penalty against a registered
independent public accounting firm, an associated person of a registered independent
public accounting firm, or any other person, in accordance with this section,
the Board shall report the sanction to--
(B) any appropriate State
regulatory authority with which such firm or person is licensed or certified
to practice public accounting;
(C) the Attorney General
of the United States; and
(2) CONTENTS- The information
required to be reported under paragraph (1) shall include--
(A) the name of the registered
independent public accounting firm or other person against whom the sanction
or penalty is imposed;
(B) a description of
the acts or practices, or omissions to act, upon which the sanction or penalty
is based;
(C) the nature of the
sanction; and
(D) such other information
respecting the circumstances of the disciplinary sanction or penalty as
the Board determines appropriate.
SEC. 204. ACCOUNTING STANDARDS.
(a) RECOGNITION OF GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES- For purposes of this Act and the securities
laws, the Commission shall recognize generally accepted accounting principles
established by a United States standard setting body that the Commission determines
is so organized and has such capacity to be capable of meeting the purposes
and requirements of this section.
(b) QUALIFICATIONS- A standard
setting body described in subsection (a) shall--
(2) have, for administrative
and operational purposes, a board of trustees (or equivalent body), the majority
of whom are not, concurrent with such service, and have not been during the
2 years prior to such service, associated with any registered independent
public accounting firm;
(3) propose and adopt rules
establishing and improving standards of financial accounting and reporting
for purposes of compliance with the securities laws, which rules shall, at
a minimum, be designed--
(A) to improve the usefulness
of financial reporting for such purposes by focusing on the primary characteristics
of relevance and reliability and on the qualities of comparability and consistency;
(B) to keep standards
current to reflect changes in methods of doing business and changes in the
economic environment;
(C) to ensure the prompt
consideration of any significant areas of deficiency in financial reporting
that might be improved through the standard setting process;
(D) to promote convergence
on high quality accounting standards and improvements in financial reporting;
and
(E) to improve the common
understanding of the nature and purpose of information contained in financial
reports; and
(A) by fees and charges
assessed against each issuer, as may be necessary or appropriate to defray
the costs and expenses of operations in carrying out this section, subject
to review by the Commission in accordance with this section, which fees
may differentiate between different classes of issuers, as necessary or
appropriate; and
(B) by revenues collected
from the sale of materials and publications produced by that body.
(1) IN GENERAL- A standard
setting body recognized under subsection (a) shall submit an annual report
to the Board, the Commission, and the Congress.
(2) CONTENTS- Each report
required by paragraph (1) shall contain audited financial statements of the
standard setting body recognized under subsection (a) and a detailed explanation
of the fees and charges assessed under subsection (b).
(d) COMMISSION AUTHORITY-
The Commission shall promulgate such rules and regulations to carry out this
section as it deems necessary or appropriate in the public interest or for the
protection of investors.
(e) NO EFFECT ON COMMISSION
POWERS- Nothing in this section shall be construed to impair or limit the authority
of the Commission to regulate the accounting profession, accounting firms, or
persons associated with
such firms, or otherwise
to establish accounting principles or standards, for purposes of enforcement
of the securities laws.
(f) CONFORMING AMENDMENTS
TO SECURITIES ACTS-
(1) SECURITIES EXCHANGE
ACT OF 1934- Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)), as amended by this Act, is amended by adding at the end the following:
`(60) GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES- The term `generally accepted accounting principles'
means any accounting standards and principles--
`(A) recognized by the
Commission as being established by a standard setting body in accordance
with section 204 of the Investor Confidence in Public Accounting Act of
2002; and
`(B) established by rule,
regulation, or order of the Commission.'.
(2) SECURITIES ACT OF 1933-
Section 2(a) of the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended by
adding at the end the following:
`(17) GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES- The term `generally accepted accounting principles'
means any accounting standards and principles--
`(A) recognized by the
Commission as being established by a standard setting body in accordance
with section 204 of the Investor Confidence in Public Accounting Act of
2002; and
`(B) established by rule,
regulation, or order of the Commission.'.
SEC. 205. MISREPRESENTATIONS
TO AUDITORS.
(a) IN GENERAL- It shall
be unlawful, in contravention of such rules and regulations as the Commission
shall prescribe as necessary or appropriate in the public interest or for the
protection of investors, for any officer, director, or affiliated person of
an issuer of any security registered under section 12 of the Securities Exchange
Act of 1934 (15 U.S.C. 78l) to take any action to willfully and improperly
influence, coerce, manipulate, or mislead any registered independent public
accounting firm engaged in the preparation or issuance of an audit report for
the purpose of rendering any such audit report materially misleading.
(b) ENFORCEMENT AUTHORITY-
In any civil proceeding, the Commission shall have exclusive authority to enforce
this section and any rule or regulation hereunder.
SEC. 206. 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, consistent
with this Act.
(b) ENFORCEMENT- A violation
by any person of this title, any rule or regulation of the Commission issued
under this title, 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 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.
(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 auditor 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 independent public accounting
firm or any associated person thereof.
SEC. 207. ENHANCED COMMISSION
OVERSIGHT.
(a) INCREASE IN PROFESSIONALS-
(1) STAFF INCREASES- Not
later than 180 days after the date of enactment of this Act, the Commission
shall employ not fewer than an additional 150 qualified accounting professionals
to provide enhanced oversight of auditors and auditing services required by
the Federal securities laws, and to improve Commission investigative and disciplinary
efforts with respect to such auditors and services.
(2) STATUS- Accounting
professionals described in paragraph (1) shall be appointed and compensated
in the manner authorized for the appointment and compensation of officers
and employees of the Commission under section 4(b) of the Securities Exchange
Act of 1934.
(b) AUTHORIZATION OF APPROPRIATIONS-
There are authorized to be appropriated to the Commission such amounts as may
be necessary to carry out this section, which amounts shall be in addition to
amounts otherwise appropriated to the Commission for any purpose, and which
shall remain available until expended.
TITLE III--OTHER INVESTOR
SAFEGUARDS
SEC. 301. IMPROVED FINANCIAL
DISCLOSURES.
(a) IMPROVED TRANSPARENCY
OF FINANCIAL DISCLOSURES-
(1) MODIFICATION OF REGULATIONS
REQUIRED- Notwithstanding any rule, regulation, or order of the Commission
that provides otherwise, the Commission shall issue regulations to require
periodic financial reports and registration statements of issuers required
under the securities laws to include adequate and appropriate disclosure of--
(A) each transaction
and relationship of the issuer with any unconsolidated entity or other person,
that the Commission determines is reasonably likely to--
(i) materially affect
liquidity or the availability of, or requirements for, capital resources,
or otherwise expose the issuer to material current or future possible
liability,
obligations, expenses, or
cash flow changes; or
(ii) affect the recognition
of revenue, carrying value, or potential impairment of assets, credit
ratings, earnings, cash flows, or stock price; and
(B) each relationship
and material transaction with any associated person of the issuer or other
persons or entities that may involve terms that differ materially from any
such relationship or transaction that would likely be negotiated with a
third party, including--
(i) a description of
the elements of the relationship or transaction that are necessary for
an understanding of its business purpose and economic substance;
(ii) the effects of
the relationship or transaction on the financial statements of the issuer;
and
(iii) the special risks
or contingencies arising from the relationship transaction.
(b) ELECTRONIC DISCLOSURES
OF AFFILIATE TRANSACTIONS- Section 16 of the Securities Exchange Act of 1934
(15 U.S.C. 78p) is amended by adding at the end the following:
`(h) ENHANCED DISCLOSURE-
`(1) IN GENERAL- Except
as otherwise specifically provided in this title or the securities laws, and
notwithstanding any other provision of law, any disclosure of the sale of
any security required to be made by any person described in subsection (a)
shall be made available in electronic form--
`(A) to the Commission,
before the end of the calendar day following the calendar day on which the
transaction occurs;
`(B) to the public by
the Commission, to the extent permitted under applicable law, upon receipt,
but in no case later than the end of the business day on which the disclosure
is received under subparagraph (A); and
`(C) in any case in which
the issuer maintains a corporate website that is accessible only internally,
on that internal website, before the end of the calendar day on which the
transaction occurs.
`(2) OTHER FORMATS- The
requirement of disclosures in electronic form under paragraph (1) shall, at
the discretion of the Commission, be in lieu of any other format required
for such disclosures on the day before the date of enactment of this subsection.'.
SEC. 302. COMMISSION RECOMMENDATIONS
ON TREATMENT OF STOCK OPTIONS.
(a) COMMISSION RECOMMENDATIONS-
The Commission shall submit to the accounting standard setting body described
in section 204(a), its recommendations regarding the treatment under such accounting
standards of--
(1) options granted under
an employee stock purchase plan, as defined in section 423(b) of the Internal
Revenue Code of 1996;
(2) incentive stock options,
as defined under section 422(b) of the Internal Revenue Code of 1986; and
(3) any other type of stock
option regularly offered by issuers.
(b) TIMING- The Commission
shall submit its recommendations in accordance with subsection (a) not later
than 60 days after the date on which the Commission first recognizes a standard
setting body under section 204.
(c) EFFECTIVE DATE- The amendments
made by this section shall apply to property transferred and wages provided
on or after the date of enactment of this Act.
SEC. 303. COMMISSION RECOMMENDATIONS
ON TREATMENT OF SPECIAL PURPOSE ENTITIES.
(a) COMMISSION RECOMMENDATIONS-
The Commission shall submit to the accounting standard setting body described
in section 204(a), its recommendations regarding the appropriateness of the
consolidation and disclosure of special purpose entities and similar types of
affiliates or related parties under such accounting standards.
(b) TIMING- The Commission
shall submit its recommendations in accordance with subsection (a) not later
than 60 days after the date on which the Commission first recognizes a standard
setting body under section 204.
SEC. 304. REVIEW OF CORPORATE
GOVERNANCE PRACTICES.
(a) STUDY AND REPORT ON CORPORATE
GOVERNANCE PRACTICES-
(1) STUDY- Each self-regulatory
organization shall conduct a study and review of current corporate governance
standards and practices to determine whether such standards and practices
are serving the best interests of shareholders.
(2) ANALYSIS REQUIRED-
The study and review required by paragraph (1) shall include an analysis of--
(A) whether current standards
and practices promote full disclosure of relevant information to shareholders;
(B) whether corporate
codes of ethics are adequate to protect shareholders, and to what extent
deviations from such codes are tolerated;
(C) to what extent conflicts
of interests are aggressively reviewed, and whether adequate means for redressing
such conflicts exist;
(D) to what extent sufficient
legal protections exist to ensure that any manager who attempts to manipulate
or unduly influence an audit is subject to appropriate sanction and liability;
(E) whether rules, standards,
and practices relating to determining whether independent directors are
in fact independent are adequate;
(F) whether rules, standards,
and practices relating to the independence of directors serving on audit
committees are uniformly applied and adequate to protect investor interests;
(G) whether the duties
and responsibilities of audit committees should be established by the Commission;
and
(H) what further or additional
rules, standards, or practices might best protect investors and promote
the interests of shareholders.
(3) REPORT- Each self-regulatory
organization shall submit a report of its findings under paragraph (1) to
the Commission and to the Congress, not later than 90 days after the date
of enactment of this Act.
SEC. 305. STUDY OF MANDATORY
ROTATION OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRMS.
(a) STUDY AND REVIEW REQUIRED-
The Commission shall conduct a study and review of the potential effects of
requiring the mandatory rotation of registered independent public accounting
firms.
(b) FACTORS TO BE CONSIDERED-
In conducting the study under subsection (a), the Commission shall consider--
(1) the degree, if any,
to which mandatory rotation of registered independent public accounting firms
would lessen the economic dependence of those firms on their larger audit
clients;
(2) the competitive impact,
if any, on registered independent public accounting firms that would result
from mandatory rotation;
(3) whether the goals of
mandatory rotation of registered independent public accounting firms would
be better accomplished through the rotation of individual accountants within
such firms on a particular audit; and
(4) the appropriate length
of a mandatory rotation period, if the Commission determines that mandatory
rotation of registered independent public accounting firm