A bill to ensure the independence of accounting firms that provide auditing services to publicly traded companies and of executives, audit committees, and financial compensation committees of such companies, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Integrity in Auditing Act of 2002''.

SEC. 2. PROHIBITION ON CONTEMPORANEOUS PERFORMANCE OF AUDIT AND NON-
              AUDIT SERVICES.

    (a) 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) Auditor Independence.--
            ``(1) Prohibited activities.--An independent public 
        accountant, and any affiliated person thereof, may not provide 
        to any covered issuer, during the same calendar year in which 
        it provides any auditing or related service required by this 
        title for that issuer--
                    ``(A) any management consulting service;
                    ``(B) any other service that is not related to the 
                audit, except as provided in paragraph (4); or
                    ``(C) any other service that could result in a 
                potential conflict of interest or otherwise impair the 
                independence of the auditor, as determined by the 
                Commission.
            ``(2) Auditor rotation.--No independent public accountant, 
        or any affiliated person thereof, may provide auditing or 
        related services required by this title for any one covered 
        issuer in any year for more than 7 consecutive years.
            ``(3) Conflicts of interest.--No independent public 
        accountant, or affiliated person thereof, may become employed 
        in a management or other policymaking position, as determined 
        by the Commission, by any covered issuer for which that 
        accountant or affiliated person provided auditing services 
        required by this title in any capacity during the one-year 
        period preceding the date of employment.
            ``(4) Tax consulting exception.--Paragraph (1) does not 
        prohibit the provision of tax consulting services to a covered 
        issuer by an independent public accountant or affiliated person 
        thereof contemporaneously with any auditing or related service, 
        with the prior written approval of the audit committee of that 
        issuer, or its equivalent.
            ``(5) Covered issuers.--In this subsection, the term 
        `covered issuer' means an issuer, the securities of which are 
        registered under section 12.''.
    (b) Commission Regulations.--Not later than 90 days after the date 
of enactment of this Act, the Securities and Exchange Commission shall 
issue final regulations to carry out subsection (g) of section 10A of 
the Securities Exchange Act of 1934, as added by this section, 
including, consistent with that subsection--
            (1) a definition of the term ``management consulting 
        service'' that includes consulting relating to--
                    (A) information technology infrastructure design 
                and implementation;
                    (B) organizational behavior;
                    (C) marketing; and
                    (D) business strategy;
            (2) the identification of other non-audit services 
        prohibited by paragraph (1) of that subsection; and
            (3) a determination of management and other policymaking 
        positions prohibited by paragraph (3) of that subsection.
    (c) Effective Date.--The amendments made by this section shall 
become effective on the date of final issuance of regulations under 
subsection (b).

SEC. 3. DISCLOSURE OF AND LIMITS ON CORPORATE RELATIONSHIPS.

    (a) Regulations Required.--Not later than 90 days after the date of 
enactment of this Act, the Commission shall issue final regulations to 
require that--
            (1) together with each financial statement or other report 
        required to be filed with the Commission pursuant to the 
        securities laws, each covered issuer shall disclose the nature, 
duration, and extent of each relationship described in subsection (b); 
and
            (2) the audit committee and compensation committee of each 
        covered issuer shall consist solely of independent directors.
    (b) Relationships.--For purposes of subsection (a)(1), a 
relationship described in this subsection is--
            (1) a relationship--
                    (A) by blood, marriage, or adoption, not more 
                remote than first cousin;
                    (B) of any professional nature; and
                    (C) of any financial nature; and
            (2) a relationship between--
                    (A) any director, director nominee, an immediate 
                family member of such director or director nominee, or 
                any organization in which such director, director 
                nominee, or immediate family member has an interest; 
                and
                    (B) the covered issuer, any other director or 
                director nominee, any executive officer or executive 
                officer nominee, an immediate family member of such 
                other director, director nominee, executive officer, or 
                executive officer nominee, or any organization in which 
                such other director, director nominee, executive 
                officer nominee, or immediate family member has an 
                interest;
    (c) Definitions.--As used in this section--
            (1) the term ``audit committee'' means a committee of the 
        board of directors of a covered issuer responsible for 
        reviewing--
                    (A) the financial reports and other financial 
                information provided by that issuer to any governmental 
                body or the public;
                    (B) the systems of that issuer of internal controls 
                regarding finance, accounting, legal compliance, and 
                ethics that management and the board of directors have 
                established; and
                    (C) the auditing, accounting, and financial 
                reporting processes of that issuer generally;
            (2) the term ``Commission'' means the Securities and 
        Exchange Commission;
            (3) the term ``compensation committee'' means a committee 
        of the board of directors of a covered issuer responsible for 
        reviewing and setting the compensation of certain executive 
        officers of the issuer;
            (4) the term ``covered issuer'' means an issuer, as defined 
        in section 3 of the Securities Exchange Age of 1934 (15 U.S.C. 
        78c), the securities of which are registered pursuant to 
        section 12 of that Act (15 U.S.C. 78l);
            (5) the terms ``director'' and ``affiliated person'' have 
        the same meanings as in section 3 of the Securities Exchange 
        Age of 1934 (15 U.S.C. 78c); and
            (6) the term ``independent director'' means an individual 
        director of a covered issuer who is not, or in the 5 years 
        preceding the date of commencement of service as a director, 
        has not been--
                    (A) employed by that issuer or an affiliated person 
                thereof in an executive capacity;
                    (B) an employee or owner of a firm or other entity 
                that is a paid adviser or consultant to that issuer or 
                an affiliated person thereof;
                    (C) employed by a significant customer or supplier 
                of that issuer or an affiliated person thereof;
                    (D) a party to a personal services contract with 
                that issuer, its chairman, or other executive, officer, 
                or affiliated person thereof;
                    (E) an employee, officer, or director of a 
                foundation, university, or other nonprofit organization 
                that receives significant grants or endowments from 
                that issuer or any affiliated person thereof;
                    (F) a relative of an executive of that issuer or 
                any affiliated person thereof; and
                    (G) part of an interlocking directorate in which 
                any executive officer of that issuer serves on the 
                board of another corporation that employs the director.

SEC. 4. SENSE OF THE SENATE REGARDING ENFORCEMENT.

    It is the sense of the Senate that--
            (1) tough enforcement, including criminal prosecution 
        whenever possible, is the most effective deterrent to 
        fraudulent activity; and
            (2) the Commission should take a firm, swift approach to 
        wrongdoers.

Summary: Integrity in Auditing Act of 2002 - Amends the Securities Exchange Act of 1934 to prohibit an independent public accountant from providing: (1) management consulting or any other non-audit-related services during the same calendar year in which it provides auditing services. (2) any service that could either result in a potential conflict of interest, or impair auditor independence. Or (3) auditing or related services for an issuer for more than seven consecutive years. Bars an independent public accountant from employment in a management or other policymaking position for an issuer for whom that accountant has provided auditing services during the one-year period preceding the date of employment. Permits the performance, however, of tax consulting services contemporaneously with any auditing or related service. Directs the Securities and Exchange Commission to require: (1) issuer disclosure of the nature, extent, and duration of interrelationships between the issuer and the board of directors, senior officers of the corporation, and immediate family members. And (2) the audit committee and compensation committee of an issuer to consist solely of independent directors. Expresses the sense of the Senate that: (1) tough enforcement, including criminal prosecution whenever possible, is the most effective deterrent to fraudulent activity. And (2) the Commission should take a firm, swift approach to wrongdoers.