I
107TH CONGRESS
2D SESSION
H. R. 3818
To protect investors by enhancing regulation of public auditors, improving
corporate governance, overhauling corporate disclosure made pursuant
to the securities laws, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 28, 2002
Mr. LAFALCE (for himself, Mr. GEPHARDT, Ms. PELOSI, Ms. DELAURO, Mr.
CONYERS, Mr. WAXMAN, Mr. FRANK, Mr. KANJORSKI, Mrs. MALONEY
of New York, Mr. GUTIERREZ, Ms. CARSON of Indiana, Mr. MEEKS of
New York, Ms. SCHAKOWSKY, Mr. GONZALEZ, Mrs. JONES of Ohio, Mr.
CLAY, Mr. FORD, Mr. ISRAEL, Mr. HINCHEY, Ms. SLAUGHTER, Mr. LI-
PINSKI, and Mr. STUPAK) introduced the following bill; which was re-
ferred to the Committee on Financial Services
A BILL
To protect investors by enhancing regulation of public audi-
tors, improving corporate governance, overhauling cor-
porate disclosure made pursuant to the securities laws,
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives 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
‘‘Comprehensive Investor Protection Act of 2002’’.
(b) TABLE OF CONTENTS.—
Sec. 1. Short title; table of contents.
Sec. 2. Auditor independence.
Sec. 3. Improper influence on conduct of audits.
Sec. 4. Public Accounting Regulatory Board.
Sec. 5. Study on the improvement of corporate governance.
Sec. 6. Insider trades during pension fund blackout periods prohibited.
Sec. 7. Improvements in financial reporting.
Sec. 8. Creation of current disclosure reporting system.
Sec. 9. Enhanced oversight of periodic disclosures by issuers.
Sec. 10. Reauthorization of appropriations of the Securities and Exchange
Commission.
Sec. 11. Electronic disclosure of affiliate transactions.
Sec. 12. Restoration of joint and several liability.
Sec. 13. Credit rating agencies.
Sec. 14. Restoration of aiding and abetting liability.
Sec. 15. Destruction of records.
Sec. 16. Analyst conflicts of interest.
Sec. 17. Definition of securities laws.
SEC. 2. AUDITOR INDEPENDENCE.
(a) AUDITOR INDEPENDENCE REQUIREMENTS.—The
Securities Exchange Act of 1934 is amended by inserting
after section 10A (15 U.S.C. 78j–1) the following new sec-
tion:
‘‘SEC. 10B. AUDITOR INDEPENDENCE.
‘‘(a) PERMITTED SERVICES FOR AUDIT CLIENTS.—
‘‘(1) NONAUDIT SERVICES FOR AUDIT CLIENTS
PROHIBITED.—
‘‘(A) PROHIBITION.—An accountant shall
not be considered to be independent for pur-
poses of certifying the financial statements or
other documents of an issuer required to be
filed with the Commission under the securities
laws for any fiscal year of the issuer if the ac-
countant performs prohibited nonaudit services
for such issuer or an affiliate of such issuer
during such fiscal year.
‘‘(B) PERIODIC
REVIEW
OF
PROHIBITED
NONAUDIT
SERVICES.—The Commission shall
periodically review the impact on the independ-
ence of auditors of the scope of services pro-
vided by auditors to audit clients in order to de-
termine whether additional services should be
added to the list of prohibited nonaudit services
under subsection (e)(11). In conducting such
periodic reviews, the Commission shall consider
the impact of the provision of a service on an
auditor’s independence where provision of the
service—
‘‘(i) creates a mutual or conflicting in-
terest with the audit client;
‘‘(ii) results in the accounting firm
auditing its own work;
‘‘(iii) results in an accountant or ac-
counting firm functioning as management
or an employee of the audit client; or
‘‘(iv) results in the accounting firm
acting as an advocate for the audit client.
‘‘(C) TRANSITION.—Until one year after
the date of enactment of this section, providing
prohibited nonaudit services to an audit client
or an affiliate of an audit client will not impair
an accountant’s independence with respect to
the audit client if—
‘‘(i) the prohibited nonaudit services
are performed pursuant to a written con-
tract in effect on or before such date of en-
actment; and
‘‘(ii) performing those services did not
impair the auditor’s independence under
requirements of the Commission, the Inde-
pendence Standards Board, or the account-
ing profession in the United States in ef-
fect on such date of enactment.
‘‘(2) AUDIT COMMITTEE APPROVAL OF TAX-RE-
LATED AND NONAUDIT SERVICES.—An accountant
shall not be considered to be independent for pur-
poses of certifying the financial statements or other
documents of an issuer required to be filed with the
Commission under the securities laws for any fiscal
year of the issuer if, during such fiscal year, the ac-
countant provides any tax-related or nonaudit serv-
ices that are not otherwise prohibited under this sec-
tion, unless the provision of such tax-related or
nonaudit services was approved in advance by the
audit committee or, in the absence of an audit com-
mittee, the equivalent board committee or the entire
board of directors. In approving such services, the
audit committee shall evaluate the impact of the pro-
vision of such services on the independence of the
auditor.
‘‘(b) AUDITOR ROTATION.—
‘‘(1) GENERAL
RULE.—Except as otherwise
provided in this subsection, an accountant shall not
be considered to be independent for purposes of cer-
tifying the financial statements or other documents
of an issuer required to be filed with the Commis-
sion under the securities laws if the accountant has
been engaged to conduct an audit of such statements
for more than 4 consecutive fiscal years of such
issuer.
‘‘(2) 4-YEAR EXTENSION.—The accountant of
the issuer may, notwithstanding paragraph (1), be
engaged to conduct an audit for 4 additional con-
secutive fiscal years if the Public Auditing Regu-
latory Board finds pursuant to section 13A(f)(4)
that the accountant may be considered to be inde-
pendent notwithstanding the extension of the en-
gagement by the issuer on the basis of a satisfactory
review by the Board of the accountant’s audit with
respect to such issuer during the preceding engage-
ment under paragraph (1).
‘‘(3) AUDIT
PARTNER
ROTATION.—Any ac-
countant that receives an extension of an engage-
ment under paragraph (2) shall not designate the
partner or officer who supervised or managed the
audit during the initial period under paragraph (1)
to supervise or manage the audit during any such
extension, unless that partner or officer has super-
vised or managed the audit for 2 years or less dur-
ing that initial period. In no event shall a partner
or officer supervise or manage an audit of an issuer
for more than 4 consecutive years.
‘‘(4) TREATMENT
OF
AUDIT
ENGAGEMENTS
PRIOR TO ENACTMENT.—No fiscal year of an issuer
that began before the date of enactment of this sec-
tion shall be counted towards the 4 consecutive fiscal
year limitation contained in paragraph (1).
‘‘(c) 
AUDITOR/ISSUER
EMPLOYMENT
RESTRIC-
TIONS.—Beginning on the date that is two years after the
date of enactment of this section, an accountant shall not
be considered to be independent for the purposes of certi-
fying the financial statement or other documents of an
issuer required to be filed with the Commission under the
securities laws if—
‘‘(1) the issuer employs any person who was
employed by the accountant and was assigned by
such accountant or firm to participate in the audit
of the financial statements of such issuer; or
‘‘(2) the issuer employs any person as a chief
executive officer, chief financial officer, controller,
principal accounting officer, or equivalent position;
during the two years following the date on which such per-
son ceased to be employed by such accountant.
‘‘(d) EXEMPTIONS.—The Commission may, by rule,
exempt from the requirements of this section audits of
issuers that are small companies and accountants that are
small audit firms, to the extent consistent with the public
interest.
‘‘(e) DEFINITION OF PROHIBITED NONAUDIT SERV-
ICES.—For purposes of this section, the term ‘prohibited
nonaudit services’ includes the following:
‘‘(1) BOOKKEEPING OR OTHER SERVICES RE-
LATED
TO
THE
AUDIT
CLIENT’S
ACCOUNTING
RECORDS OR FINANCIAL STATEMENTS.—Any service
involving:
‘‘(A) maintaining or preparing the audit
client’s or an affiliate of the audit client’s ac-
counting records;
‘‘(B) preparing the audit client’s or an af-
filiate of the audit client’s financial statements;
or
‘‘(C) generating financial information to be
disclosed by the audit client or an affiliate of
the audit client to the public.
‘‘(2) FINANCIAL
INFORMATION
SYSTEMS
DE-
SIGN AND IMPLEMENTATION.—Designing or imple-
menting a hardware or software system used to gen-
erate information that is significant to the audit cli-
ent’s financial statements taken as a whole, not in-
cluding services an accountant performs in connec-
tion with the assessment, design, and implementa-
tion of internal accounting controls and risk man-
agement controls.
‘‘(3) APPRAISAL
OR
VALUATION
SERVICES,
FAIRNESS OPINIONS, OR CONTRIBUTION-IN-KIND RE-
PORTS.—Any appraisal or valuation service for an
audit client or an affiliate of an audit client, or any
service involving a fairness opinion or contribution-
in-kind report where it is reasonably likely that, in
performing an audit in accordance with generally ac-
cepted auditing standards, the results will be audited
by the accountant.
‘‘(4) ACTUARIAL SERVICES.—Any advisory serv-
ice involving the determination of policy reserves and
related accounts for the audit client or an affiliate
of an audit client, unless the audit client or its affil-
iate uses its own actuaries or third-party actuaries
to provide management with the primary actuarial
capabilities.
‘‘(5) INTERNAL AUDIT OUTSOURCING.—Internal
audit services for an audit client or an affiliate of an
audit client, not including nonrecurring evaluations
of discrete items or programs and operational inter-
nal audits unrelated to the internal accounting con-
trols, financial systems, or financial statements.
‘‘(6) MANAGEMENT FUNCTIONS.—Acting, tem-
porarily or permanently, as a director, officer, or
employee of an audit client or an affiliate of an
audit client, or performing any decision-making, su-
pervisory, or ongoing monitoring function for the
audit client or affiliate of the audit client.
‘‘(7) HUMAN RESOURCES.—Recruiting, hiring,
or designing compensation packages for officers, di-
rectors, or managers of the audit client or an affil-
iate of the audit client; advising about the audit cli-
ent’s or affiliate of the audit client’s management or
organizational structure; developing employee eval-
uation programs; or conducting psychological or
other formal testing of employees.
‘‘(8) BROKER-DEALER, INVESTMENT ADVISER,
OR INVESTMENT BANKING SERVICES.—Acting as a
securities professional, such as a broker-dealer, pro-
moter, underwriter, analyst of the audit client’s or
an affiliate of the audit client’s securities, invest-
ment adviser, or in any capacity recommending the
purchase or sale of an audit client’s or an affiliate
of an audit client’s securities, or designing the audit
client or an affiliate of the audit client’s system to
comply with broker-dealer or investment adviser reg-
ulations.
‘‘(9) LEGAL SERVICES.—Providing any service
to an audit client or an affiliate of an audit client
that, in the jurisdiction in which the service is pro-
vided, could be provided only by someone licensed to
practice law.
‘‘(10) EXPERT SERVICES.—Rendering or sup-
porting expert opinions for an audit client or an af-
filiate of an audit client in legal, administrative, or
regulatory filings or proceedings.
‘‘(11) ADDITIONS BY RULE.—Any other service
that the Commission identifies by rule, consistent
with the protection of investors and the public inter-
est, to be a nonaudit service.’’.
(b) NATIONAL SECURITIES EXCHANGE ENFORCE-
MENT
OF
AUDIT
COMMITTEE
GOVERNANCE
PRAC-
TICES.—Section 6(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78f(b)) is amended by adding at the end
the following new paragraph:
‘‘(10) The qualitative listing standards con-
cerning corporate governance of the exchange re-
quire that—
‘‘(A) an issuer’s auditor is appointed by
and reports directly to the audit committee of
the board of directors or, in the absence of an
audit committee, the board committee per-
forming equivalent functions or the entire board
of directors;
‘‘(B) the audit committee meet with the
accountants engaged to perform such audit on
a regular basis, at least quarterly;
‘‘(C) the audit committee provides the op-
portunity to meet without the attendance at
such meetings of any officer, director, or other
member of the issuer’s senior management;
‘‘(D) no director of an issuer may provide
consulting or expert services to the board of di-
rectors of the issuer or to the issuer if such di-
rector receives compensation for such services;
and
‘‘(E) the issuer shall not provide charitable
or other contributions to any group affiliated
with any director while such director is serving
on the board of directors of the issuer.’’.
(c) STUDY
OF ADDITIONAL INDEPENDENCE RE-
QUIREMENTS.—
(1) STUDY REQUIRED.—The Securities and Ex-
change Commission shall conduct a study of the effi-
cacy of imposing additional independence restrictions
relating to the provision of tax-related services by an
accountant or an affiliate of an accountant. In par-
ticular, the Commission shall study the effect on
independence of providing tax advisory work relating
to the treatment of tax-advantaged structures, secu-
rities, or other arrangements which are substantially
designed by the auditor or an affiliate of an auditor.
The Commission shall also study the effect on, or
the impairment of, an accountant’s independence re-
lating to tax advice provided to an audit client by its
auditor to determine the tax or accounting treat-
ment of a proposed structure, security, or account-
ing item that the auditor did not provide substantial
assistance in designing.
(2) REPORT
REQUIRED.—The Commission
shall submit a report on the analysis required under
paragraph (1) to the Committee on Financial Serv-
ices of the House of Representatives and the Com-
mittee on Banking, Housing, and Urban Affairs of
the Senate no later than 180 days after the date of
enactment of this Act.
SEC. 3. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
Section 9 of the Securities Exchange Act of 1934 (15
U.S.C. 78i) is amended by adding at the end the following
new subsection:
‘‘(j) IMPROPER INFLUENCE ON CONDUCT OF AU-
DITS.—It shall be unlawful in contravention of such rules
and regulations as the Commission shall prescribe as nec-
essary and appropriate in the public interest or for the
protection of investors for any officer, director, or affili-
ated person of an issuer to take any action to unduly or
improperly influence, coerce, manipulate, or mislead any
independent public or certified accountant engaged in the
performance of an audit of the financial statements of
such issuer.’’.
SEC. 4. PUBLIC ACCOUNTING REGULATORY BOARD.
The Securities Exchange Act of 1934 is amended by
inserting immediately after section 13 (15 U.S.C. 78m)
the following new section:
‘‘SEC. 13A. PUBLIC ACCOUNTING REGULATORY BOARD.
‘‘(a) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
‘‘(1) PUBLIC
ACCOUNTING
FIRM.—The term
‘public accounting firm’ means a sole proprietorship,
unincorporated association, partnership, corporation,
or other legal entity that is engaged in the practice
of public accounting.
‘‘(2) BOARD.—The term ‘Board’ means the
Public Accounting Regulatory Board established by
the Commission pursuant to subsection (b).
‘‘(3) ACCOUNTANT’S REPORT.—The term ‘ac-
countant’s report’ means a document in which a
public accounting firm identifies a financial state-
ment, report, or other document and sets forth the
firm’s opinion regarding such financial statement,
report, or other document, or an assertion that an
opinion cannot be expressed.
‘‘(4) PERSON ASSOCIATED WITH A PUBLIC AC-
COUNTING FIRM.—The term ‘person associated with
a public accounting firm’ means a natural person
who—
‘‘(A) is a partner, shareholder, employee,
or individual proprietor of a public accounting
firm, or who shares in the profits of a public
accounting firm; and
‘‘(B) engages in any conduct or practice in
connection with the preparation of an account-
ant’s report on any financial statement, report,
or other document required to be filed with the
Commission under any securities law.
‘‘(5) PROFESSIONAL
STANDARDS.—The term
‘professional standards’ means generally accepted
auditing standards, generally accepted accounting
principles, generally accepted standards for attesta-
tion engagements, and any other standards related
to the preparation of financial statements or ac-
countant’s reports promulgated by the Commission
or a standard-setting body recognized by the Board.
‘‘(b) ESTABLISHMENT OF BOARD.—Not later than
90 days after the date of enactment of this section, the
Commission shall establish a Public Accounting Regu-
latory Board to perform the duties set forth in this sec-
tion.
‘‘(c) MEMBERSHIP OF BOARD.—
‘‘(1) CHAIRMAN.—The Chairman of the Board
shall be appointed jointly by the Commission and the
Comptroller General of the United States for a term
of five years.
‘‘(2) APPOINTMENT
OF
BOARD
MEMBERS.—
There shall be 6 additional Board members, who
shall be selected by an Appointment Committee com-
prised of the Chairman of the Board, the Chairman
of the Commission, and the Comptroller General of
the United States. Board members shall serve as
representatives of institutional investors and pension
funds.
‘‘(3) ACCOUNTANT
MEMBERS.—Two of the
members may be present or former certified public
accountants, provided such members—
‘‘(A) are not currently in public practices;
‘‘(B) have not been associated with a pub-
lic accounting firm for a period of at least 3
years; and
‘‘(C) agree to not be associated with or to
receive consulting fees from a public accounting
firm for a period of five years after leaving the
Board.
‘‘(4) NOMINATIONS.—In making appointments
of members, the Appointment Committee shall con-
sult with, and make appointments from nominations
received from—
‘‘(A) institutional investors;
‘‘(B) public employee pension plans;
‘‘(C) pension plans organized pursuant to
the Employee Retirement Income Security Act
of 1974; and
‘‘(D) pension plans organized pursuant to
the Taft-Hartley Act.
‘‘(5) TERMS.—The members of the Board ap-
pointed by the Appointment Committee shall have
terms of 4 years, except that the members of the
Appointing Committee shall adopt procedures for
staggering the initial terms of the members first so
appointed to provide for a reasonable overlapping of
the terms of office of subsequently elected members.
‘‘(6) FULL-TIME BASIS.—The members of the
Board shall serve on a full-time basis, severing all
business ties with former firms or employers prior to
beginning service on the Board.
‘‘(7) RULES.—Following selection of the initial
members of the Board, the Board shall propose and
adopt rules, which shall provide for—
‘‘(A) the operation and administration of
the Board, including the compensation of the
members of the Board, which shall be at a level
comparable to similar, professional positions in
the private sector;
‘‘(B) the appointment and compensation of
such employees, attorneys, and consultants as
may be necessary or appropriate to carry out
the Board’s functions under this title;
‘‘(C) the registration of public accounting
firms with the Board pursuant to subsections
(d) and (e); and
‘‘(D) the matters described in subsections
(f) and (g).
‘‘(8) ADMINISTRATIVE PROCEDURES ACT APPLI-
CABILITY.—Chapter 5 of title 5, United States
Code, shall apply to the proceedings of the Board,
including proceedings to prescribe or amend rules of
the Board.
‘‘(d) FUNDING OF THE BOARD.—
‘‘(1) SELF-FINANCING.—The Board shall estab-
lish rules for the assessment and collection of fees
sufficient to recover the costs and expenses of the
Board and to permit the Board to operate on a self-
financing basis.
‘‘(2) ASSESSMENT AND COLLECTION.—The fees
shall be assessed on issuers that file any financial
statements, reports, or other documents with the
Commission under the securities laws that must be
certified by a public accounting firm. The fees shall
be collected through the public accounting firm that
certifies such statement, report, or document.
‘‘(3) PAYMENT
A
CONDITION
OF
REGISTRA-
TION.—The Board shall terminate or suspend the
registration under subsection (e) of any public ac-
counting firm that fails to collect and transmit a fee
assessed under this subsection.
‘‘(e) REGISTRATION WITH BOARD.—
‘‘(1) REGISTRATION REQUIRED.—Beginning 1
year after the date on which all initial members of
the Board have been selected in accordance with
subsection (c), it shall be unlawful for a public ac-
counting firm to furnish an accountant’s report on
any financial statement, report, or other document
required to be filed with the Commission under any
Federal securities law, unless such firm is registered
with the Board.
‘‘(2) APPLICATION
FOR
REGISTRATION.—A
public accounting firm may be registered under this
subsection by filing with the Board an application
for registration in such form and containing such in-
formation as the Board, by rule, may prescribe.
Each application shall include—
‘‘(A) the names of all clients of the public
accounting firm for which the firm furnishes ac-
countant’s reports on financial statements, re-
ports, or other documents filed with the Com-
mission;
‘‘(B) financial information of the public ac-
counting firm for its most recent fiscal year, in-
cluding its annual revenues from accounting
and auditing services, its assets and its liabil-
ities;
‘‘(C) a statement of the public accounting
firm’s policies and procedures with respect to
quality control of its accounting and auditing
practice;
‘‘(D) information relating to criminal, civil,
or administrative actions or formal disciplinary
proceedings pending against such firm, or any
person associated with such firm, in connection
with an accountant’s report furnished by such
firm;
‘‘(E) a list of persons associated with the
public accounting firm who are certified public
accountants, including any State professional li-
cense or certification number for each such per-
son; and
‘‘(F) such other information that is reason-
ably related to the Board’s responsibilities as
the Board considers necessary or appropriate.
‘‘(3) PERIODIC REPORTS.—Once in each year,
or more frequently as the Board, by rule, may pre-
scribe, each public accounting firm registered with
the Board shall submit reports to the Board updat-
ing the information contained in its application for
registration and containing such additional informa-
tion that is reasonably related to the Board’s re-
sponsibilities as the Board, by rule, may prescribe.
‘‘(4) EXEMPTIONS.—The Commission, by rule
or order, upon its own motion or upon application,
may conditionally or unconditionally exempt any
public accounting firm or any accountant’s report,
or any class of public accounting firms or any class
of accountant’s reports, from any provisions of this
section or the rules or regulations issued hereunder,
if the Commission finds that such exemption is con-
sistent with the public interest, the protection of in-
vestors, and the purposes of this section.
‘‘(5) CONFIDENTIALITY.—The Board may, by
rule, designate portions of the filings required pursu-
ant to paragraphs (2) and (3) as privileged and con-
fidential.
‘‘(f) DUTIES REGARDING QUALITY CONTROL.—
‘‘(1) OBJECTIVES; ATTAINMENT.—The Board
shall seek to promote a high level of professional
conduct among public accounting firms registered
with the Board, to improve the quality of audit serv-
ices provided by such firms, and, in general, to pro-
tect investors and promote the public interest. The
Board shall attain these objectives—
‘‘(A) by establishing standards regarding
the performance of financial audits in accord-
ance with the requirements of paragraph (2);
‘‘(B) by the direct performance of quality
reviews and inspections of audits in accordance
with the requirements of paragraph (3); and
‘‘(C) if the Board make the determination
required by paragraph (4)(A), by the super-
vision and oversight of peer review organiza-
tions in accordance with the requirements of
paragraph (4).
‘‘(2) AUDIT QUALITY STANDARDS.—
‘‘(A) IN GENERAL.—The Board shall, by
rule, establish quality standards applicable to
the conduct of audit services provided by public
accounting 
firms. 
Such 
standards 
shall
include—
‘‘(i) independence standards;
‘‘(ii) quality control standards;
‘‘(iii) professional and ethical stand-
ards; and
‘‘(iv) such other standards as the
Board determines to be necessary to carry
out the objectives specified in paragraph
(1).
‘‘(B) SPECIFIC
CONTENTS
OF
STAND-
ARDS.—In establishing the quality standards
required by subparagraph (A), the Board shall
also establish—
‘‘(i) procedures for the monitoring by
public accounting firms of their compliance
with professional ethical standards estab-
lished by the Board, including its inde-
pendence from its audit clients;
‘‘(ii) procedures for the assignment of
personnel to audit engagements;
‘‘(iii) procedures for consultation with-
in a public accounting firm or with other
accountants relating to accounting and au-
diting questions;
‘‘(iv) procedures for the supervision of
audit work;
‘‘(v) procedures for the review of deci-
sions to accept and retain audit clients;
‘‘(vi) procedures for the internal in-
spection of the public accounting firms own
compliance with such policies and proce-
dures;
‘‘(vii) requirements for public account-
ing firms to prepare and maintain for a
period of no less than seven years, audit
work papers and other information related
to any audit report, in sufficient detail to
support the conclusions reached in an
audit report issued by a public accounting
firm; and
‘‘(viii) procedures establishing ‘concur-
ring’ or ‘second’ partner review systems for
the evaluation and review of audit work by
a partner that is not in charge of the con-
duct of the audit.
‘‘(3) DIRECT REVIEWS OF PUBLIC ACCOUNTING
FIRMS.—The Board shall, by rule, establish proce-
dures for the conduct of a continuing program of in-
spections of each public accounting firm registered
with the Board to assess compliance by such firm,
and by persons associated with such firm, with ap-
plicable provisions of this Act, the securities laws,
the rules and regulations thereunder, the rules
adopted by the Board, and professional standards.
Except as provided in paragraph (5), the Board
shall annually inspect each public accounting firm
that audits more than one hundred issuers on an on-
going annual basis, to the extent practicable, and all
other public accounting firms no less than at least
once every three years. In conducting such inspec-
tions, the Board shall, among other things, inspect
selected audit and review engagements. The review
shall include evaluations of the firms quality control
procedures and compliance with all legal and ethical
requirements. In connection with each review, the
Board shall prepare a report of its findings and such
report, accompanied by any letter of comments by
the Board or reviewer and any letter of response
from the firm under review, shall be made available
to the public. The Board shall take any appropriate
disciplinary or remedial action based on its findings
after completion of such review.
‘‘(4) QUALITY
REVIEW
OF
INDIVIDUAL
AU-
DITS.—The Board shall, by rule, establish proce-
dures for the conduct of direct inspection and review
of individual audits of issuers and standards under
which it will evaluate audit service quality. The
Board shall further establish the procedures and
standards under which the Board shall approve any
extension of an engagement provided to an account-
ant under section 10B(b)(2) on the basis of a satis-
factory review of the accountant’s audit during the
preceding engagement. A finding by the Board that
an individual audit of an issuer did or did not meet
the standards of the Board with respect to the qual-
ity of the audit shall not be construed in any action
arising out of the securities laws as indicative of
compliance or noncompliance with the securities laws
or with any standard of liability arising thereunder.
‘‘(5) USE OF PROFESSIONAL PEER REVIEW OR-
GANIZATIONS.—
‘‘(A) OPTION
TO
UTILIZE
PEER
REVIEW
ORGANIZATIONS.—The Board may by rule es-
tablish requirements for the use of peer review
organizations for the purposes of conducting
the continuing program of inspections to assess
compliance as required by paragraph (3) of
each public accounting firm registered with the
Board. Such rule shall provide for appropriate
oversight and supervision of such peer review
organization by the Board to ensure that such
inspections meet the requirements of such para-
graph.
‘‘(B) PENALTIES.—If the Board estab-
lishes requirements for the conduct of peer re-
views under subparagraph (A), the violation by
a public accounting firm or a person associated
with such a firm of a rule of the peer review or-
ganization to which the firm belongs shall con-
stitute grounds for—
‘‘(i) the imposition of disciplinary
sanctions by the Board pursuant to sub-
section (g); and
‘‘(ii) denial to the public accounting
firm or person associated with such firm of
the privilege of appearing or practicing be-
fore the Commission.
‘‘(6) CONFIDENTIALITY.—Except as otherwise
provided by this section, all reports, memoranda,
and other information provided to the Board solely
for purposes of paragraph (3) or (4), or to a peer
review organization certified by the Board, shall be
confidential and privileged, unless such confiden-
tiality and privilege are expressly waived by the per-
son or entity that created or provided the informa-
tion.
‘‘(g) DISCIPLINARY DUTIES OF BOARD.—The Board
shall have the following duties and powers:
‘‘(1) INVESTIGATIONS AND DISCIPLINARY PRO-
CEEDINGS.—The Board shall establish fair proce-
dures for investigating and disciplining public ac-
counting firms registered with the Board, and per-
sons associated with such firms, for violations of the
Federal securities laws, the rules or regulations
issued thereunder, the rules adopted by the Board,
or professional standards in connection with the
preparation of an accountant’s report on a financial
statement, report, or other document filed with the
Commission.
‘‘(2) INVESTIGATION PROCEDURES.—
‘‘(A) IN GENERAL.—The Board may con-
duct an investigation of any act, practice, or
omission by a public accounting firm registered
with the Board, or by any person associated
with such firm, in connection with the prepara-
tion of an accountant’s report on a financial
statement, report, or other document filed with
the Commission that may violate any applicable
provision of the Federal securities laws, the
rules and regulations issued thereunder, the
rules adopted by the Board, or professional
standards, whether such act, practice, or omis-
sion is the subject of a criminal, civil, or admin-
istrative action, or a disciplinary proceeding, or
otherwise is brought to the attention of the
Board.
‘‘(B) POWERS OF BOARD.—For purposes
of an investigation under this paragraph, the
Board may, in addition to such other actions as
the Board determines to be necessary or
appropriate—
‘‘(i) require the testimony of any per-
son associated with a public accounting
firm registered with the Board, with re-
spect to any matter which the Board con-
siders relevant or material to the investiga-
tion;
‘‘(ii) require the production of audit
workpapers and any other document or in-
formation in the possession of a public ac-
counting firm registered with the Board, or
any person associated with such firm,
wherever domiciled, that the Board con-
siders relevant or material to the investiga-
tion, and may examine the books and
records of such firm to verify the accuracy
of any documents or information so sup-
plied; and
‘‘(iii) request the testimony of any
person and the production of any docu-
ment in the possession of any person, in-
cluding a client of a public accounting firm
registered with the Board, that the Board
considers relevant or material to the inves-
tigation.
‘‘(C) SUSPENSION
OR
REVOCATION
OF
REGISTRATION FOR NONCOMPLIANCE.—The re-
fusal of any person associated with a public ac-
counting firm registered with the Board to tes-
tify, or the refusal of any such person to
produce documents or otherwise cooperate with
the Board, in connection with an investigation
under this section, shall be cause for sus-
pending or barring such person from associ-
ating with a public accounting firm registered
with the Board, or such other appropriate sanc-
tion as the Board shall determine. The refusal
of any public accounting firm registered with
the Board to produce documents or otherwise
cooperate with the Board, in connection with an
investigation under this section, shall be cause
for the suspension or revocation of the registra-
tion of such firm, or such other appropriate
sanction as the Board shall determine.
‘‘(D) REFERRAL TO COMMISSION.—
‘‘(i) IN
GENERAL.—If the Board is
unable to conduct or complete an inves-
tigation under this section because of the
refusal of any client of a public accounting
firm registered with the Board, or any
other person, to testify, produce docu-
ments, or otherwise cooperate with the
Board in connection with such investiga-
tion, the Board shall report such refusal to
the Commission.
‘‘(ii) INVESTIGATION.—The Commis-
sion may designate the Board or one or
more officers of the Board who shall be
empowered, in accordance with such proce-
dures as the Commission may adopt, to
subpoena witnesses, compel their attend-
ance, and require the production of any
books, 
papers, 
correspondence, 
memo-
randa, or other records relevant to any in-
vestigation by the Board. Attendance of
witnesses and the production of any
records may be required from any place in
the United States or any State at any des-
ignated place of hearing. Enforcement of a
subpoena issued by the Board, or an offi-
cer of the Board, pursuant to this subpara-
graph shall occur in the manner provided
for in section 21(c). Examination of wit-
nesses subpoenaed pursuant to this sub-
paragraph shall be conducted before an of-
ficer authorized to administer oaths by the
laws of the United States or of the place
where the examination is held.
‘‘(iii) REFERRALS TO COMMISSION.—
The Board may refer any investigation to
the Commission, as the Board deems ap-
propriate.
‘‘(E) IMMUNITY FROM CIVIL LIABILITY.—
An employee of the Board engaged in carrying
out an investigation or disciplinary proceeding
under this section shall be immune from any
civil liability arising out of such investigation or
disciplinary proceeding in the same manner and
to the same extent as an employee of the Fed-
eral Government in similar circumstances.
‘‘(3) DISCIPLINARY PROCEDURES.—
‘‘(A) DECISION TO DISCIPLINE.—In a pro-
ceeding by the Board to determine whether a
public accounting firm, or a person associated
with such firm, should be disciplined, the Board
shall bring specific charges, notify such firm or
person of the charges, give such firm or person
an opportunity to defend against such charges,
and keep a record of such actions.
‘‘(B) SANCTIONS.—If the Board finds that
a public accounting firm, or a person associated
with such firm, has engaged in any act, prac-
tice, or omission in violation of the Federal se-
curities laws, the rules or regulations issued
thereunder, the rules adopted by the Board, or
professional standards, the Board may impose
such disciplinary sanctions as it deems appro-
priate, including—
‘‘(i) temporary or permanent revoca-
tion or suspension of registration under
this section;
‘‘(ii) limitation of activities, functions,
and operations;
‘‘(iii) fine;
‘‘(iv) censure;
‘‘(v) in the case of a person associated
with a public accounting firm, suspension
or bar from being associated with a public
accounting firm registered with the Board;
and
‘‘(vi) any other disciplinary sanction
or remedial action that the Board deter-
mines to be appropriate to prevent the re-
currence of the violation.
‘‘(C) STATEMENT
REQUIRED.—A deter-
mination by the Board to impose a disciplinary
sanction shall be supported by a written state-
ment by the Board that shall be made available
to the public and that sets forth—
‘‘(i) any act or practice in which the
public accounting firm or person associated
with such firm has been found to have en-
gaged, or which such firm or person has
been found to have omitted;
‘‘(ii) the specific provision of the Fed-
eral securities laws, the rules or regula-
tions issued thereunder, the rules adopted
by the Board, or professional standards
which any such act, practice, or omission is
deemed to violate; and
‘‘(iii) the sanction imposed and the
reasons therefor.
‘‘(D) PROHIBITION
ON
ASSOCIATION.—It
shall be unlawful—
‘‘(i) for any person as to whom a sus-
pension or bar is in effect willfully to be or
to become associated with a public ac-
counting firm registered with the Board, in
connection with the preparation of an ac-
countant’s report on any financial state-
ment, report, or other document filed with
the Commission, without the consent of the
Board or the Commission; and
‘‘(ii) for any public accounting firm
registered with the Board to permit such a
person to become, or remain, associated
with such firm without the consent of the
Board or the Commission, if such firm
knew or, in the exercise of reasonable care
should have known, of such suspension or
bar.
‘‘(4) REPORTING OF SANCTIONS.—If the Board
imposes a disciplinary sanction against a public ac-
counting firm, or a person associated with such firm,
the Board shall report such sanction to the Commis-
sion (in accordance with subsection (h)(3)(A)), to
the appropriate State or foreign licensing board or
boards with which such firm or such person is li-
censed or certified to practice public accounting, and
to the public. The information reported shall
include—
‘‘(A) the name of the public accounting
firm, or person associated with such firm,
against whom the sanction is imposed;
‘‘(B) a description of the acts, practices, or
omissions upon which the sanction is based;
‘‘(C) the nature of the sanction; and
‘‘(D) such other information respecting the
circumstances of the disciplinary action (includ-
ing the name of any client of such firm affected
by such acts, practices, or omissions) as the
Board deems appropriate.
‘‘(5) DISCOVERY AND ADMISSIBILITY OF BOARD
MATERIAL.—
‘‘(A) DISCOVERABILITY.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in subparagraph (C), all reports,
memoranda, and other information pre-
pared, collected, or received by the Board,
and the deliberations and other pro-
ceedings of the Board and its employees
and agents in connection with an investiga-
tion or disciplinary proceeding under this
section shall not be subject to any form of
civil discovery, including demands for pro-
duction of documents and for testimony of
individuals, in connection with any pro-
ceeding in any State or Federal court, or
before any State or Federal administrative
agency. This subparagraph shall not apply
to any information provided to the Board
that would have been subject to discovery
from the person or entity that provided it
to the Board, but is no longer available
from that person or entity.
‘‘(ii) 
EXEMPTION.—Submissions 
to
the Board by or on behalf of a public ac-
counting firm or person associated with
such a firm or on behalf of any other par-
ticipant in a Board proceeding, including
documents generated by the Board itself,
shall be exempt from discovery to the same
extent as the material described in clause
(i), whether in the possession of the Board
or any other person, if such submission—