In the Senate of the United States,
July 15, 2002.
Resolved, That the bill from the House of Representa-
tives (H.R. 3763) entitled ‘‘An Act to protect investors by
improving the accuracy and reliability of corporate disclosures
made pursuant to the securities laws, and for other pur-
poses.’’, do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Public Company Accounting Reform and Investor Protec-
tion Act of 2002’’.
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(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Commission rules and enforcement.
TITLE I—PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
Sec. 101. Establishment; administrative provisions.
Sec. 102. Registration with the Board.
Sec. 103. Auditing, quality control, and independence standards and rules.
Sec. 104. Inspections of registered public accounting firms.
Sec. 105. Investigations and disciplinary proceedings.
Sec. 106. Foreign public accounting firms.
Sec. 107. Commission oversight of the Board.
Sec. 108. Accounting standards.
Sec. 109. Funding.
TITLE II—AUDITOR INDEPENDENCE
Sec. 201. Services outside the scope of practice of auditors.
Sec. 202. Preapproval requirements.
Sec. 203. Audit partner rotation.
Sec. 204. Auditor reports to audit committees.
Sec. 205. Conforming amendments.
Sec. 206. Conflicts of interest.
Sec. 207. Study of mandatory rotation of registered public accounting firms.
Sec. 208. Commission authority.
Sec. 209. Considerations by appropriate State regulatory authorities.
TITLE III—CORPORATE RESPONSIBILITY
Sec. 301. Public company audit committees.
Sec. 302. Corporate responsibility for financial reports.
Sec. 303. Improper influence on conduct of audits.
Sec. 304. Forfeiture of certain bonuses and profits.
Sec. 305. Officer and director bars and penalties.
Sec. 306. Insider trades during pension fund blackout periods prohibited.
TITLE IV—ENHANCED FINANCIAL DISCLOSURES
Sec. 401. Disclosures in periodic reports.
Sec. 402. Enhanced conflict of interest provisions.
Sec. 403. Disclosures of transactions involving management and principal stock-
holders.
Sec. 404. Management assessment of internal controls.
Sec. 405. Exemption.
Sec. 406. Code of ethics for senior financial officers.
Sec. 407. Disclosure of audit committee financial expert.
TITLE V—ANALYST CONFLICTS OF INTEREST
Sec. 501. Treatment of securities analysts by registered securities associations.
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TITLE VI—COMMISSION RESOURCES AND AUTHORITY
Sec. 601. Authorization of appropriations.
Sec. 602. Appearance and practice before the Commission.
Sec. 603. Federal court authority to impose penny stock bars.
Sec. 604. Qualifications of associated persons of brokers and dealers.
TITLE VII—STUDIES AND REPORTS
Sec. 701. GAO study and report regarding consolidation of public accounting
firms.
Sec. 702. Commission study and report regarding credit rating agencies.
TITLE VIII—CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
Sec. 801. Short title.
Sec. 802. Criminal penalties for altering documents.
Sec. 803. Debts nondischargeable if incurred in violation of securities fraud laws.
Sec. 804. Statute of limitations for securities fraud.
Sec. 805. Review of Federal sentencing guidelines for obstruction of justice and
extensive criminal fraud.
Sec. 806. Protection for employees of publicly traded companies who provide evi-
dence of fraud.
Sec. 807. Criminal penalties for defrauding shareholders of publicly traded com-
panies.
TITLE IX—WHITE-COLLAR CRIME PENALTY ENHANCEMENTS
Sec. 901. Short title.
Sec. 902. Criminal penalties for conspiracy to commit offense or to defraud the
United States.
Sec. 903. Criminal penalties for mail and wire fraud.
Sec. 904. Criminal penalties for violations of the Employee Retirement Income
Security Act of 1974.
Sec. 905. Amendment to sentencing guidelines relating to certain white-collar of-
fenses.
Sec. 906. Corporate responsibility for financial reports.
Sec. 907. Higher maximum penalties for mail and wire fraud.
Sec. 908. Tampering with a record or otherwise impeding an official proceeding.
Sec. 909. Temporary freeze authority for the Securities and Exchange Commis-
sion.
Sec. 910. Amendment to the Federal sentencing guidelines.
Sec. 911. Authority of the Commission to prohibit persons from serving as officers
or directors.
TITLE X—CORPORATE TAX RETURNS
Sec. 1001. Sense of the Senate regarding the signing of corporate tax returns by
chief executive officers.
SEC. 2. DEFINITIONS.
(a) IN GENERAL.—In this Act, the following defini-
tions shall apply:
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(1) APPROPRIATE STATE REGULATORY AUTHOR-
ITY.—The term ‘‘appropriate State regulatory author-
ity’’ means the State agency or other authority re-
sponsible for the licensure or other regulation of the
practice of accounting in the State or States having
jurisdiction over a registered public accounting firm
or associated person thereof, with respect to the mat-
ter in question.
(2) AUDIT.—The term ‘‘audit’’ means an exam-
ination of the financial statements of any issuer by
an independent public accounting firm in accordance
with the rules of the Board or the Commission (or, for
the period preceding the adoption of applicable rules
of the Board under section 103, in accordance with
then-applicable generally accepted auditing and re-
lated standards for such purposes), for the purpose of
expressing an opinion on such statements.
(3) AUDIT COMMITTEE.—The term ‘‘audit com-
mittee’’ means—
(A) a committee (or equivalent body) estab-
lished by and amongst the board of directors of
an issuer for the purpose of overseeing the ac-
counting and financial reporting processes of the
issuer and audits of the financial statements of
the issuer; and
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(B) if no such committee exists with respect
to an issuer, the entire board of directors of the
issuer.
(4) AUDIT REPORT.—The term ‘‘audit report’’
means a document or other record—
(A) prepared following an audit performed
for purposes of compliance by an issuer with the
requirements of the securities laws; and
(B) in which a public accounting firm
either—
(i) sets forth the opinion of that firm
regarding a financial statement, report, or
other document; or
(ii) asserts that no such opinion can be
expressed.
(5) BOARD.—The term ‘‘Board’’ means the Pub-
lic Company Accounting Oversight Board established
under section 101.
(6) 
COMMISSION.—The 
term 
‘‘Commission’’
means the Securities and Exchange Commission.
(7) ISSUER.—The term ‘‘issuer’’ means an issuer
(as defined in section 3 of the Securities Exchange
Act of 1934 (15 U.S.C. 78c)), the securities of which
are registered under section 12 of that Act (15 U.S.C.
78l), or that is required to file reports pursuant to
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section 15(d) of that Act (15 U.S.C. 78o(d)), or that
will be required to file such reports at the end of a
fiscal year of the issuer in which a registration state-
ment filed by such issuer has become effective pursu-
ant to the Securities Act of 1933 (15 U.S.C. 77a et.
seq.), unless its securities are registered under section
12 of the Securities Exchange Act of 1934 (15 U.S.C.
78c) on or before the end of such fiscal year.
(8) NON-AUDIT SERVICES.—The term ‘‘non-audit
services’’ means any professional services provided to
an issuer by a registered public accounting firm,
other than those provided to an issuer in connection
with an audit or a review of the financial statements
of an issuer.
(9) PERSON
ASSOCIATED
WITH
A
PUBLIC
AC-
COUNTING FIRM.—
(A) IN GENERAL.—The terms ‘‘person asso-
ciated with a public accounting firm’’ (or with
a ‘‘registered public accounting firm’’) and ‘‘as-
sociated person of a public accounting firm’’ (or
of a ‘‘registered public accounting firm’’) mean
any individual proprietor, partner, shareholder,
principal, accountant, or other professional em-
ployee of a public accounting firm, or any other
independent contractor or entity that, in connec-
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tion with the preparation or issuance of any
audit report—
(i) shares in the profits of, or receives
compensation in any other form from, that
firm; or
(ii) participates as agent or otherwise
on behalf of such accounting firm in any
activity of that firm.
(B) EXEMPTION
AUTHORITY.—The Board
may, by rule, exempt persons engaged only in
ministerial tasks from the definition in subpara-
graph (A), to the extent that the Board deter-
mines that any such exemption is consistent with
the purposes of this Act, the public interest, or
the protection of investors.
(10) PROFESSIONAL
STANDARDS.—The term
‘‘professional standards’’ means—
(A) accounting principles that are—
(i) established by the standard setting
body described in section 19(b) of the Secu-
rities Act of 1933, as amended by this Act,
or prescribed by the Commission under sec-
tion 19(a) of that Act (15 U.S.C. 17a(s)) or
section 13(b) of the Securities Exchange Act
of 1934 (15 U.S.C. 78a(m)); and
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(ii) relevant to audit reports for par-
ticular issuers, or dealt with in the quality
control system of a particular registered
public accounting firm; and
(B) auditing standards, standards for attes-
tation engagements, quality control policies and
procedures, ethical and competency standards,
and independence standards (including rules im-
plementing title II) that the Board or the Com-
mission determines—
(i) 
relate 
to 
the 
preparation 
or
issuance of audit reports for issuers; and
(ii) are established or adopted by the
Board under section 103(a), or are promul-
gated as rules of the Commission.
(11) PUBLIC
ACCOUNTING
FIRM.—The term
‘‘public accounting firm’’ means—
(A) a proprietorship, partnership, incor-
porated association, corporation, limited liabil-
ity company, limited liability partnership, or
other legal entity that is engaged in the practice
of public accounting or preparing or issuing
audit reports; and
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(B) to the extent so designated by the rules
of the Board, any associated person of any entity
described in subparagraph (A).
(12) REGISTERED PUBLIC ACCOUNTING FIRM.—
The term ‘‘registered public accounting firm’’ means
a public accounting firm registered with the Board in
accordance with this Act.
(13) RULES OF THE BOARD.—The term ‘‘rules of
the Board’’ means the bylaws and rules of the Board
(as submitted to, and approved, modified, or amended
by the Commission, in accordance with section 107),
and those stated policies, practices, and interpreta-
tions of the Board that the Commission, by rule, may
deem to be rules of the Board, as necessary or appro-
priate in the public interest or for the protection of
investors.
(14) SECURITY.—The term ‘‘security’’ has the
same meaning as in section 3(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)).
(15) SECURITIES
LAWS.—The term ‘‘securities
laws’’ means the provisions of law referred to in sec-
tion 3(a)(47) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(47)), as amended by this Act, and
includes the rules, regulations, and orders issued by
the Commission thereunder.
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(16) STATE.—The term ‘‘State’’ means any
State of the United States, the District of Columbia,
Puerto Rico, the Virgin Islands, or any other terri-
tory or possession of the United States.
(b) CONFORMING AMENDMENT.—Section 3(a)(47) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))
is amended by inserting ‘‘the Public Company Accounting
Reform and Investor Protection Act of 2002,’’ before ‘‘the
Public’’.
SEC. 3. COMMISSION RULES AND ENFORCEMENT.
(a) REGULATORY ACTION.—The Commission shall
promulgate such rules and regulations, as may be necessary
or appropriate in the public interest or for the protection
of investors, and in furtherance of this Act.
(b) ENFORCEMENT.—
(1) IN GENERAL.—A violation by any person of
this Act, any rule or regulation of the Commission
issued under this Act, or any rule of the Board shall
be treated for all purposes in the same manner as a
violation of the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) or the rules and regulations issued
thereunder, consistent with the provisions of this Act,
and any such person shall be subject to the same pen-
alties, and to the same extent, as for a violation of
that Act or such rules or regulations.
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(2) INVESTIGATIONS, INJUNCTIONS, AND
PROS-
ECUTION OF OFFENSES.—Section 21 of the Securities
Exchange Act of 1934 (15 U.S.C. 78u) is amended
(A) in subsection (a)(1), by inserting ‘‘the
rules of the Public Company Accounting Over-
sight Board, of which such person is a registered
public accounting firm or a person associated
with such a firm,’’ after ‘‘is a participant,’’;
(B) in subsection (d)(1), by inserting ‘‘the
rules of the Public Company Accounting Over-
sight Board, of which such person is a registered
public accounting firm or a person associated
with such a firm,’’ after ‘‘is a participant,’’;
(C) in subsection (e), by inserting ‘‘the rules
of the Public Company Accounting Oversight
Board, of which such person is a registered pub-
lic accounting firm or a person associated with
such a firm,’’ after ‘‘is a participant,’’; and
(D) in subsection (f), by inserting ‘‘or the
Public Company Accounting Oversight Board’’
after ‘‘self-regulatory organization’’ each place
that term appears.
(3) CEASE-AND-DESIST
PROCEEDINGS.—Section
21C(c)(2) of the Securities Exchange Act of 1934 (15
U.S.C. 78u–3(c)(2)) is amended by inserting ‘‘reg-
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istered public accounting firm (as defined in section
2 of the Public Company Accounting Reform and In-
vestor Protection Act of 2002),’’ after ‘‘government se-
curities dealer,’’.
(c) EFFECT ON COMMISSION AUTHORITY.—Nothing in
this Act or the rules of the Board shall be construed to im-
pair or limit—
(1) the authority of the Commission to regulate
the accounting profession, accounting firms, or per-
sons associated with such firms for purposes of en-
forcement of the securities laws;
(2) the authority of the Commission to set stand-
ards for accounting or auditing practices or auditor
independence, derived from other provisions of the se-
curities laws or the rules or regulations thereunder,
for purposes of the preparation and issuance of any
audit report, or otherwise under applicable law; or
(3) the ability of the Commission to take, on the
initiative of the Commission, legal, administrative, or
disciplinary action against any registered public ac-
counting firm or any associated person thereof.
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TITLE I—PUBLIC COMPANY AC-
COUNTING 
OVERSIGHT
BOARD
SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.
(a) ESTABLISHMENT OF BOARD.—There is established
the Public Company Accounting Oversight Board, to oversee
the audit of public companies that are subject to the securi-
ties laws, and related matters, in order to protect the inter-
ests of investors and further the public interest in the prepa-
ration of informative, accurate, and independent audit re-
ports for companies the securities of which are sold to, and
held by and for, public investors. The Board shall be a body
corporate, operate as a nonprofit corporation, and have suc-
cession until dissolved by an Act of Congress.
(b) STATUS.—The Board shall not be an agency or es-
tablishment of the United States Government, and, except
as otherwise provided in this Act, shall be subject to, and
have all the powers conferred upon a nonprofit corporation
by, the District of Columbia Nonprofit Corporation Act. No
member or person employed by, or agent for, the Board shall
be deemed to be an officer or employee of or agent for the
Federal Government by reason of such service.
(c) DUTIES OF THE BOARD.—The Board shall, subject
to action by the Commission under section 107, and once
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(6) enforce compliance with this Act, the rules of
the Board, professional standards, and the securities
laws relating to the preparation and issuance of audit
reports and the obligations and liabilities of account-
ants with respect thereto, by registered public ac-
counting firms and associated persons thereof; and
(7) set the budget and manage the operations of
the Board and the staff of the Board.
(d) COMMISSION DETERMINATION.—The members of
the Board shall take such action (including hiring of staff,
proposal of rules, and adoption of initial and transitional
auditing and other professional standards) as may be nec-
essary or appropriate to enable the Commission to deter-
mine, not later than 270 days after the date of enactment
of this Act, that the Board is so organized and has the ca-
pacity to carry out the requirements of this title, and to
enforce compliance with this title by registered public ac-
counting firms and associated persons thereof.
(e) BOARD MEMBERSHIP.—
(1) COMPOSITION.—The Board shall have 5
members, appointed from among prominent individ-
uals of integrity and reputation who have a dem-
onstrated commitment to the interests of investors and
the public, and an understanding of the responsibil-
ities for and nature of the financial disclosures re-
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quired of issuers under the securities laws and the ob-
ligations of accountants with respect to the prepara-
tion and issuance of audit reports with respect to
such disclosures.
(2) LIMITATION.—Two members, and only 2
members, of the Board shall be or have been certified
public accountants pursuant to the laws of 1 or more
States, provided that, if 1 of those 2 members is the
chairperson, he or she may not have been a practicing
certified public accountant for at least 5 years prior
to his or her appointment to the Board.
(3) FULL-TIME
INDEPENDENT
SERVICE.—Each
member of the Board shall serve on a full-time basis,
and may not, concurrent with service on the Board,
be employed by any other person or engage in any
other professional or business activity. No member of
the Board may share in any of the profits of, or re-
ceive payments from, a public accounting firm (or
any other person, as determined by rule of the Com-
mission), other than fixed continuing payments, sub-
ject to such conditions as the Commission may im-
pose, under standard arrangements for the retirement
of members of public accounting firms.
(4) APPOINTMENT OF BOARD MEMBERS.—
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(A) INITIAL
BOARD.—Not later than 90
days after the date of enactment of this Act, the
Commission, after consultation with the Chair-
man of the Board of Governors of the Federal
Reserve System and the Secretary of the Treas-
ury, shall appoint the chairperson and other ini-
tial members of the Board, and shall designate
a term of service for each.
(B) VACANCIES.—A vacancy on the Board
shall not affect the powers of the Board, but shall
be filled in the same manner as provided for ap-
pointments under this section.
(5) TERM OF SERVICE.—
(A) IN GENERAL.—The term of service of
each Board member shall be 5 years, and until
a successor is appointed, except that—
(i) the terms of office of the initial
Board members (other than the chairperson)
shall expire in annual increments, 1 on
each of the first 4 anniversaries of the ini-
tial date of appointment; and
(ii) any Board member appointed to
fill a vacancy occurring before the expira-
tion of the term for which the predecessor
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was appointed shall be appointed only for
the remainder of that term.
(B) TERM
LIMITATION.—No person may
serve as a member of the Board, or as chair-
person of the Board, for more than 2 terms,
whether or not such terms of service are consecu-
tive.
(6) REMOVAL FROM OFFICE.—A member of the
Board may be removed by the Commission from of-
fice, in accordance with section 107(d)(3), for good
cause shown before the expiration of the term of that
member.
(f) POWERS OF THE BOARD.—In addition to any au-
thority granted to the Board otherwise in this Act, the
Board shall have the power, subject to section 107—
(1) to sue and be sued, complain and defend, in
its corporate name and through its own counsel, with
the approval of the Commission, in any Federal,
State, or other court;
(2) to conduct its operations and maintain of-
fices, and to exercise all other rights and powers au-
thorized by this Act, in any State, without regard to
any qualification, licensing, or other provision of law
in effect in such State (or a political subdivision
thereof);
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(3) to lease, purchase, accept gifts or donations
of or otherwise acquire, improve, use, sell, exchange,
or convey, all of or an interest in any property, wher-
ever situated;
(4) to appoint such employees, accountants, at-
torneys, and other agents as may be necessary or ap-
propriate, and to determine their qualifications, de-
fine their duties, and fix their salaries or other com-
pensation (at a level that is comparable to private
sector self-regulatory, accounting, technical, super-
visory, or other staff or management positions);
(5) to allocate, assess, and collect accounting
support fees established pursuant to section 109, for
the Board, and other fees and charges imposed under
this title; and
(6) to enter into contracts, execute instruments,
incur liabilities, and do any and all other acts and
things necessary, appropriate, or incidental to the
conduct of its operations and the exercise of its obliga-
tions, rights, and powers imposed or granted by this
title.
(g) RULES OF THE BOARD.—The rules of the Board
shall, subject to the approval of the Commission—
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(1) provide for the operation and administration
of the Board, the exercise of its authority, and the
performance of its responsibilities under this Act;
(2) permit, as the Board determines necessary or
appropriate, delegation by the Board of any of its
functions to an individual member or employee of the
Board, or to a division of the Board, including func-
tions with respect to hearing, determining, ordering,
certifying, reporting, or otherwise acting as to any
matter, except that—
(A) the Board shall retain a discretionary
right to review any action pursuant to any such
delegated function, upon its own motion;
(B) a person shall be entitled to a review by
the Board with respect to any matter so dele-
gated, and the decision of the Board upon such
review shall be deemed to be the action of the
Board for all purposes (including appeal or re-
view thereof); and
(C) if the right to exercise a review de-
scribed in subparagraph (A) is declined, or if no
such review is sought within the time stated in
the rules of the Board, then the action taken by
the holder of such delegation shall for all pur-
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poses, including appeal or review thereof, be
deemed to be the action of the Board;
(3) establish ethics rules and standards of con-
duct for Board members and staff, including a bar on
practice before the Board (and the Commission, with
respect to Board-related matters) of 1 year for former
members of the Board, and appropriate periods (not
to exceed 1 year) for former staff of the Board; and
(4) provide as otherwise required by this Act.
(h) ANNUAL REPORT
TO
THE COMMISSION.—The
Board shall submit an annual report (including its audited
financial statements) to the Commission, and the Commis-
sion shall transmit a copy of that report to the Committee
on Banking, Housing, and Urban Affairs of the Senate, and
the Committee on Financial Services of the House of Rep-
resentatives, not later than 30 days after the date of receipt
of that report by the Commission.
SEC. 102. REGISTRATION WITH THE BOARD.
(a) MANDATORY REGISTRATION.—Beginning 180 days
after the date of the determination of the Commission under
section 101(d), it shall be unlawful for any person that is
not a registered public accounting firm to prepare or issue,
or to participate in the preparation or issuance of, any
audit report with respect to any issuer.
(b) APPLICATIONS FOR REGISTRATION.—
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(1) FORM OF APPLICATION.—A public account-
ing firm shall use such form as the Board may pre-
scribe, by rule, to apply for registration under this
section.
(2) CONTENTS OF APPLICATIONS.—Each public
accounting firm shall submit, as part of its applica-
tion for registration, in such detail as the Board shall
specify—
(A) the names of all issuers for which the
firm prepared or issued audit reports during the
immediately preceding calendar year, and for
which the firm expects to prepare or issue audit
reports during the current calendar year;
(B) the annual fees received by the firm
from each such issuer for audit services, other ac-
counting services, and non-audit services, respec-
tively;
(C) such other current financial informa-
tion for the most recently completed fiscal year
of the firm as the Board may reasonably request;
(D) a statement of the quality control poli-
cies of the firm for its accounting and auditing
practices;
(E) a list of all accountants associated with
the firm who participate in or contribute to the
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preparation of audit reports, stating the license
or certification number of each such person, as
well as the State license numbers of the firm
itself;
(F) information relating to criminal, civil,
or administrative actions or disciplinary pro-
ceedings pending against the firm or any associ-
ated person of the firm in connection with any
audit report;
(G) copies of any periodic or annual disclo-
sure filed by an issuer with the Commission dur-
ing the immediately preceding calendar year
which discloses accounting disagreements between
such issuer and the firm in connection with an
audit report furnished or prepared by the firm
for such issuer; and
(H) such other information as the rules of
the Board or the Commission shall specify as
necessary or appropriate in the public interest or
for the protection of investors.
(3) CONSENTS.—Each application for registra-
tion under this subsection shall include—
(A) a consent executed by the public ac-
counting firm to cooperation in and compliance
with any request for testimony or the production
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of documents made by the Board in the further-
ance of its authority and responsibilities under
this title (and an agreement to secure and en-
force similar consents from each of the associated
persons of the public accounting firm as a condi-
tion of their continued employment by or other
association with such firm); and
(B) a statement that such firm understands
and agrees that cooperation and compliance, as
described in the consent required by subpara-
graph (A), and the securing and enforcement of
such consents from its associated persons, in ac-
cordance with the rules of the Board, shall be a
condition to the continuing effectiveness of the
registration of the firm with the Board.
(c) ACTION ON APPLICATIONS.—
(1) TIMING.—The Board shall approve a com-
pleted application for registration not later than 45
days after the date of receipt of the application, in ac-
cordance with the rules of the Board, unless the
Board, prior to such date, issues a written notice of
disapproval to, or requests more information from,
the prospective registrant.
(2) TREATMENT.—A written notice of dis-
approval of a completed application under paragraph
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(1) for registration shall be treated as a disciplinary
sanction for purposes of sections 105(d) and 107(c).
(d) PERIODIC REPORTS.—Each registered public ac-
counting firm shall submit an annual report to the Board,
and may be required to report more frequently, as necessary
to update the information contained in its application for
registration under this section, and to provide to the Board
such additional information as the Board or the Commis-
sion may specify, in accordance with subsection (b)(2).
(e) PUBLIC AVAILABILITY.—Registration applications
and annual reports required by this subsection, or such por-
tions of such applications or reports as may be designated
under rules of the Board, shall be made available for public
inspection, subject to rules of the Board or the Commission,
and to applicable laws relating to the confidentiality of pro-
prietary, personal, or other information contained in such
applications or reports, provided that, in all events, the
Board shall protect from public disclosure information rea-
sonably identified by the subject accounting firm as propri-
etary information.
(f) REGISTRATION AND ANNUAL FEES.—The Board
shall assess and collect a registration fee and an annual
fee from each registered public accounting firm, in amounts
that are sufficient to recover the costs of processing and re-
viewing applications and annual reports.
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SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPEND-
ENCE STANDARDS AND RULES.
(a) AUDITING, QUALITY
CONTROL, 
AND
ETHICS
STANDARDS.—
‘‘(1) IN GENERAL.—The Board shall, by rule, es-
tablish, including, to the extent it determines appro-
priate, through adoption of standards proposed by 1
or more professional groups of accountants designated
pursuant to paragraph (3)(A) or advisory groups
convened pursuant to paragraph (4), and amend or
otherwise modify or alter, such auditing and related
attestation standards, such quality control standards,
and such ethics standards to be used by registered
public accounting firms in the preparation and
issuance of audit reports, as required by this Act or
the rules of the Commission, or as may be necessary
or appropriate in the public interest or for the protec-
tion of investors.
(2) RULE
REQUIREMENTS.—In carrying out
paragraph (1), the Board—
(A) shall include in the auditing standards
that it adopts, requirements that each registered
public accounting firm shall—
(i) prepare, and maintain for a period
of not less than 7 years, audit work papers,
and other information related to any audit
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report, in sufficient detail to support the
conclusions reached in such report;
(ii) provide a concurring or second
partner review and approval of such audit
report (and other related information), and
concurring approval in its issuance, by a
qualified person (as prescribed by the
Board) associated with the public account-
ing firm, other than the person in charge of
the audit, or by an independent reviewer
(as prescribed by the Board); and
(iii) describe the scope of the auditor’s
testing of the system of internal accounting
controls of the issuer required by section
13(b)(2) of the Securities Exchange Act of
1934 (15 U.S.C. 78m(b)(2)), and present
(in such report or in a separate report)—
(I) the findings of the auditor
from such testing;
(II) an evaluation of whether such
system 
of 
internal 
accounting
controls—
(aa) complies with the re-
quirements 
of 
that 
section
13(b)(2); and
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(bb) provides reasonable as-
surance that receipts and expendi-
tures of the issuer comply with
applicable law, and are being
made in accordance with proper
authorizations of the management
and directors of the issuer; and
(III) a description of significant
defects in such internal controls, and of
any material noncompliance, of which
the auditor should know on the basis of
such testing; and
(B) shall include, in the quality control
standards that it adopts with respect to the
issuance of audit reports, requirements for every
registered public accounting firm relating to—
(i) monitoring of professional ethics
and independence from issuers on behalf of
which the firm issues audit reports;
(ii) consultation within such firm on
accounting and auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional development,
and advancement of personnel;
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(v) the acceptance and continuation of
engagements;
(vi) internal inspection; and
(vii) such other requirements as the
Board may prescribe, subject to subsection
(a)(1).
(3) AUTHORITY TO ADOPT OTHER STANDARDS.—
(A) IN GENERAL.—In carrying out this sub-
section, the Board—
(i) may adopt as its rules, subject to
the terms of section 107, any portion of any
statement of auditing standards or other
professional standards that the Board deter-
mines satisfy the requirements of paragraph
(1), and that were proposed by 1 or more
professional groups of accountants that shall
be designated or recognized by the Board, by
rule, for such purpose, pursuant to this
paragraph or 1 or more advisory groups
convened pursuant to paragraph (4); and
(ii) notwithstanding clause (i), shall
retain full authority to modify, supplement,
revise, or subsequently amend, modify, or
repeal, in whole or in part, any portion of
any statement described in clause (i).
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(B) INITIAL
AND
TRANSITIONAL
STAND-
ARDS.—The Board shall adopt standards de-
scribed in subparagraph (A)(i) as initial or
transitional standards, to the extent the Board
determines necessary, prior to a determination of
the Commission under section 101(d), and such
standards shall be separately approved by the
Commission at the time of that determination,
without regard to the procedures required by sec-
tion 107 that otherwise would apply to the ap-
proval of rules of the Board.
(4) ADVISORY GROUPS.—The Board shall con-
vene, or authorize its staff to convene, such expert ad-
visory groups as may be appropriate, which may in-
clude practicing accountants and other experts, as
well as representatives of other interested groups, sub-
ject to such rules as the Board may prescribe to pre-
vent conflicts of interest, to make recommendations
concerning the content (including proposed drafts) of
auditing, quality control, ethics, independence, or
other standards required to be established under this
section.
(b) INDEPENDENCE STANDARDS
AND RULES.—The
Board shall establish such rules as may be necessary or ap-
propriate in the public interest or for the protection of in-
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vestors, to implement, or as authorized under, title II of
this Act.
(c) COOPERATION WITH DESIGNATED PROFESSIONAL
GROUPS OF ACCOUNTANTS AND ADVISORY GROUPS.—
(1) IN GENERAL.—The Board shall cooperate on
an ongoing basis with professional groups of account-
ants designated under subsection (a)(3)(A) and advi-
sory groups convened under subsection (a)(4) in the
examination of the need for changes in any standards
subject to its authority under subsection (a), rec-
ommend issues for inclusion on the agendas of such
designated professional groups of accountants or advi-
sory groups, and take such other steps as it deems ap-
propriate to increase the effectiveness of the standard
setting process.
(2) BOARD
RESPONSES.—The Board shall re-
spond in a timely fashion to requests from designated
professional groups of accountants and advisory
groups referred to in paragraph (1) for any changes
in standards over which the Board has authority.
(d) EVALUATION OF STANDARD SETTING PROCESS.—
The Board shall include in the annual report required by
section 101(h) the results of its standard setting responsibil-
ities during the period to which the report relates, including
a discussion of the work of the Board with any designated
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professional groups of accountants and advisory groups de-
scribed in paragraphs (3)(A) and (4) of subsection (a), and
its pending issues agenda for future standard setting
projects.
SEC. 104. INSPECTIONS OF REGISTERED PUBLIC ACCOUNT-
ING FIRMS.
(a) IN GENERAL.—The Board shall conduct a con-
tinuing program of inspections to assess the degree of com-
pliance of each registered public accounting firm and asso-
ciated persons of that firm with this Act, the rules of the
Board, the rules of the Commission, or professional stand-
ards, in connection with its performance of audits, issuance
of audit reports, and related matters involving issuers.
(b) INSPECTION FREQUENCY.—
(1) IN GENERAL.—Subject to paragraph (2), in-
spections required by this section shall be conducted—
(A) annually with respect to each registered
public accounting firm that regularly provides
audit reports for more than 100 issuers; and
(B) not less frequently than once every 3
years with respect to each registered public ac-
counting firm that regularly provides audit re-
ports for 100 or fewer issuers.
(2) ADJUSTMENTS TO SCHEDULES.—The Board
may, by rule, adjust the inspection schedules set
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under paragraph (1) if the Board finds that different
inspection schedules are consistent with the purposes
of this Act, the public interest, and the protection of
investors.
(c) PROCEDURES.—The Board shall, in each inspec-
tion under this section, and in accordance with its rules
for such inspections—
(1) identify any act or practice or omission to
act by the registered public accounting firm, or by
any associated person thereof, revealed by such inspec-
tion that may be in violation of this Act, the rules of
the Board, the rules of the Commission, the firm’s
own quality control policies, or professional stand-
ards;
(2) report any such act, practice, or omission, if
appropriate, to the Commission and each appropriate
State regulatory authority; and
(3) begin a formal investigation or take appro-
priate disciplinary action, if any, with respect to any
such violation, in accordance with this Act and the
rules of the Board.
(d) CONDUCT OF INSPECTIONS.—In conducting an in-
spection of a registered public accounting firm under this
section, the Board shall—
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(1) inspect and review selected audit and review
engagements of the firm (which may include audit en-
gagements that are the subject of ongoing litigation or
other controversy between the firm and 1 or more
third parties), performed at various offices and by
various associated persons of the firm, as selected by
the Board;
(2) evaluate the sufficiency of the quality control
system of the firm, and the manner of the documenta-
tion and communication of that system by the firm;
and
(3) perform such other testing of the audit, su-
pervisory, and quality control procedures of the firm
as are necessary or appropriate in light of the pur-
pose of the inspection and the responsibilities of the
Board.
(e) RECORD RETENTION.—The rules of the Board may
require the retention by registered public accounting firms
for inspection purposes of records whose retention is not oth-
erwise required by section 103 or the rules issued there-
under.
(f) PROCEDURES
FOR REVIEW.—The rules of the
Board shall provide a procedure for the review of and re-
sponse to a draft inspection report by the registered public
accounting firm under inspection. The Board shall take
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such action with respect to such response as it considers
appropriate (including revising the draft report or con-
tinuing or supplementing its inspection activities before
issuing a final report), but the text of any such response,
appropriately redacted to protect information reasonably
identified by the accounting firm as confidential, shall be
attached to and made part of the inspection report.
(g) REPORT.—A written report of the findings of the
Board for each inspection under this section, subject to sub-
section (h), shall be—
(1) transmitted, in appropriate detail, to the
Commission and each appropriate State regulatory
authority, accompanied by any letter or comments by
the Board or the inspector, and any letter of response
from the registered public accounting firm; and
(2) made available in appropriate detail to the
public (subject to section 105(b)(5)(A), and to the pro-
tection of such confidential and proprietary informa-
tion as the Board may determine to be appropriate,
or as may be required by law), except that no por-
tions of the inspection report that deal with criticisms
of or potential defects in the quality control systems
of the firm under inspection shall be made public if
those criticisms or defects are addressed by the firm,
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to the satisfaction of the Board, not later than 12
months after the date of the inspection report.
(h) INTERIM COMMISSION REVIEW.—
(1) REVIEWABLE MATTERS.—A registered public
accounting firm may seek review by the Commission,
pursuant to such rules as the Commission shall pro-
mulgate, if the firm—
(A) has provided the Board with a response,
pursuant to rules issued by the Board under sub-
section (f), to the substance of particular items
in a draft inspection report, and disagrees with
the assessments contained in any final report
prepared by the Board following such response;
or
(B) disagrees with the determination of the
Board that criticisms or defects identified in an
inspection report have not been addressed to the
satisfaction of the Board within 12 months of the
date of the inspection report, for purposes of sub-
section (g)(2).
(2) TREATMENT OF REVIEW.—Any decision of
the Commission with respect to a review under para-
graph (1) shall not be reviewable under section 25 of
the Securities Exchange Act of 1934 (15 U.S.C. 78y),
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or deemed to be ‘‘final agency action’’ for purposes of
section 704 of title 5, United States Code.
(3) TIMING.—Review under paragraph (1) may
be sought during the 30-day period following the date
of the event giving rise to the review under subpara-
graph (A) or (B) of paragraph (1).
SEC. 
105. 
INVESTIGATIONS 
AND 
DISCIPLINARY 
PRO-
CEEDINGS.
(a) IN GENERAL.—The Board shall establish, by rule,
subject to the requirements of this section, fair procedures
for the investigation and disciplining of registered public
accounting firms and associated persons of such firms.
(b) INVESTIGATIONS.—
(1) AUTHORITY.—In accordance with the rules of
the Board, the Board may conduct an investigation
of any act or practice, or omission to act, by a reg-
istered public accounting firm, any associated person
of such firm, or both, that may violate any provision
of this Act, the rules of the Board, the provisions of
the securities laws relating to the preparation and
issuance of audit reports and the obligations and li-
abilities of accountants with respect thereto, including
the rules of the Commission issued under this Act, or
professional standards, regardless of how the act,
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practice, or omission is brought to the attention of the
Board.
(2) TESTIMONY AND DOCUMENT PRODUCTION.—
In addition to such other actions as the Board deter-
mines to be necessary or appropriate, the rules of the
Board may—
(A) require the testimony of the firm or of
any person associated with a registered public
accounting firm, with respect to any matter that
the Board considers relevant or material to an
investigation;
(B) require the production of audit work
papers and any other document or information
in the possession of a registered public account-
ing firm or any associated person thereof, wher-
ever domiciled, that the Board considers relevant
or material to the investigation, and may in-
spect the books and records of such firm or asso-
ciated person to verify the accuracy of any docu-
ments or information supplied;
(C) request the testimony of, and production
of any document in the possession of, any other
person, including any client of a registered pub-
lic accounting firm that the Board considers rel-
evant or material to an investigation under this
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section, with appropriate notice, subject to the
needs of the investigation, as permitted under the
rules of the Board; and
(D) provide for procedures to seek issuance
by the Commission, in a manner established by
the Commission, of a subpoena to require the tes-
timony of, and production of any document in
the possession of, any person, including any cli-
ent of a registered public accounting firm, that
the Board considers relevant or material to an
investigation under this section.
(3) NONCOOPERATION WITH INVESTIGATIONS.—
(A) IN GENERAL.—If a registered public ac-
counting firm or any associated person thereof
refuses to testify, produce documents, or other-
wise cooperate with the Board in connection
with an investigation under this section, the
Board may—
(i) suspend or bar such person from
being associated with a registered public ac-
counting firm, or require the registered pub-
lic accounting firm to end such association;
(ii) suspend or revoke the registration
of the public accounting firm; and
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(iii) invoke such other lesser sanctions
as the Board considers appropriate, and as
specified by rule of the Board.
(B) PROCEDURE.—Any action taken by the
Board under this paragraph shall be subject to
the terms of section 107(c).
(4) REFERRAL.—The Board may refer an inves-
tigation under this section—
(A) to the Commission;
(B) to any other Federal functional regu-
lator (as defined in section 509 of the Gramm-
Leach-Bliley Act (15 U.S.C. 6809)), in the case
of an investigation that concerns an audit report
for an institution that is subject to the jurisdic-
tion of such regulator; and
(C) at the direction of the Commission, to—
(i) the Attorney General of the United
States;
(ii) the attorney general of 1 or more
States; and
(iii) the appropriate State regulatory
authority.
(5) USE OF DOCUMENTS.—
(A) CONFIDENTIALITY.—Except as provided
in subparagraph (B), all documents and infor-
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mation prepared or received by or specifically
for the Board, and deliberations of the Board
and its employees and agents, in connection with
an inspection under section 104 or with an in-
vestigation under this section, shall be confiden-
tial and privileged as an evidentiary matter
(and shall not be subject to civil discovery or
other legal process) in any proceeding in any
Federal or State court or administrative agency,
and shall be exempt from disclosure, in the
hands of an agency or establishment of the Fed-
eral Government, under the Freedom of Informa-
tion Act (5 U.S.C. 552a), or otherwise, unless
and until presented in connection with a public
proceeding or released in accordance with sub-
section (c).
(B) AVAILABILITY TO GOVERNMENT AGEN-
CIES.—All information referred to in subpara-
graph (A) may, in the discretion of the Board,
when determined by the Board to be necessary to
accomplish the purposes of this Act or to protect
investors, and without the loss of its status as
confidential and privileged in the hands of the
Board, be made available to the Commission, the
Attorney General of the United States, to the ap-
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propriate Federal functional regulator (as de-
fined in section 509 of the Gramm-Leach-Bliley
Act (15 U.S.C. 6809)), other than the Commis-
sion, with respect to an audit report for an insti-
tution subject to the jurisdiction of such regu-
lator, to State attorneys general in connection
with any criminal investigation, and to any ap-
propriate State regulatory authority, which shall
maintain such information as confidential and
privileged.
(6) IMMUNITY.—Any employee of the Board en-
gaged 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 Govern-
ment in similar circumstances.
(c) DISCIPLINARY PROCEDURES.—
(1) NOTIFICATION; RECORDKEEPING.—The rules
of the Board shall provide that in any proceeding by
the Board to determine whether a registered public
accounting firm, or an associated person thereof,
should be disciplined, the Board shall—
(A) bring specific charges with respect to
the firm or associated person;
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(B) notify such firm or associated person of,
and provide to the firm or associated person an
opportunity to defend against, such charges; and
(C) keep a record of the proceedings.
(2) PUBLIC
HEARINGS.—Hearings under this
section shall not be public, unless otherwise ordered by
the Board for good cause shown, with the consent of
the parties to such hearing.
(3) SUPPORTING STATEMENT.—A determination
by the Board to impose a sanction under this sub-
section shall be supported by a statement setting
forth—
(A) each act or practice in which the reg-
istered public accounting firm, or associated per-
son, has engaged (or omitted to engage), or that
forms a basis for all or a part of such sanction;
(B) the specific provision of this Act, the se-
curities laws, the rules of the Board, or profes-
sional standards which the Board determines has
been violated; and
(C) the sanction imposed, including a jus-
tification for that sanction.
(4) SANCTIONS.—If the Board finds, based on all
of the facts and circumstances, that a registered pub-
lic accounting firm or associated person thereof has
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engaged in any act or practice, or omitted to act, in
violation of this Act, the rules of the Board, the provi-
sions of the securities laws relating to the preparation
and issuance of audit reports and the obligations and
liabilities of accountants with respect thereto, includ-
ing the rules of the Commission issued under this Act,
or professional standards, the Board may impose such
disciplinary or remedial sanctions as it determines
appropriate, subject to applicable limitations under
paragraph (5), including—
(A) temporary suspension or permanent
revocation of registration under this title;
(B) temporary or permanent suspension or
bar of a person from further association with
any registered public accounting firm;
(C) temporary or permanent limitation on
the activities, functions, or operations of such
firm or person (other than in connection with re-
quired additional professional education or
training);
(D) a civil money penalty for each such vio-
lation, in an amount equal to—
(i) not more than $100,000 for a nat-
ural person or $2,000,000 for any other per-
son; and
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(ii) in any case to which paragraph
(5) applies, not more than $750,000 for a
natural person or $15,000,000 for any other
person;
(E) censure;
(F) required additional professional edu-
cation or training; or
(G) any other appropriate sanction pro-
vided for in the rules of the Board.
(5) INTENTIONAL
OR
OTHER
KNOWING
CON-
DUCT.—The sanctions and penalties described in sub-
paragraphs (A) through (C) and (D)(ii) of paragraph
(4) shall only apply to—
(A) intentional or knowing conduct, includ-
ing reckless conduct, that results in violation of
the applicable statutory, regulatory, or profes-
sional standard; or
(B) repeated instances of negligent conduct,
each resulting in a violation of the applicable
statutory, regulatory, or professional standard.
(6) FAILURE TO SUPERVISE.—
(A) IN GENERAL.—The Board may impose
sanctions under this section on a registered ac-
counting firm or upon the supervisory personnel
of such firm, if the Board finds that—
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(i) the firm has failed reasonably to
supervise an associated person, either as re-
quired by the rules of the Board relating to
auditing or quality control standards, or
otherwise, with a view to preventing viola-
tions of this Act, the rules of the Board, the
provisions of the securities laws relating to
the preparation and issuance of audit re-
ports and the obligations and liabilities of
accountants with respect thereto, including
the rules of the Commission under this Act,
or professional standards; and
(ii) such associated person commits a
violation of this Act, or any of such rules,
laws, or standards.
(B) RULE OF CONSTRUCTION.—No associ-
ated person of a registered public accounting
firm shall be deemed to have failed reasonably to
supervise any other person for purposes of sub-
paragraph (A), if—
(i) there have been established in and
for that firm procedures, and a system for
applying such procedures, that comply with
applicable rules of the Board and that
would reasonably be expected to prevent and
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detect any such violation by such associated
person; and
(ii) such person has reasonably dis-
charged the duties and obligations incum-
bent upon that person by reason of such
procedures and system, and had no reason-
able cause to believe that such procedures
and system were not being complied with.
(7) EFFECT OF SUSPENSION.—
(A) ASSOCIATION WITH A PUBLIC ACCOUNT-
ING FIRM.—It shall be unlawful for any person
that is suspended or barred from being associated
with a registered public accounting firm under
this subsection willfully to become or remain as-
sociated with any registered public accounting
firm, or for any registered public accounting
firm that knew, or, in the exercise of reasonable
care should have known, of the suspension or
bar, to permit such an association, without the
consent of the Board or the Commission.
(B) ASSOCIATION
WITH
AN
ISSUER.—It
shall be unlawful for any person that is sus-
pended or barred from being associated with an
issuer under this subsection willfully to become
or remain associated with any issuer in an ac-
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countancy or a financial management capacity,
and for any issuer that knew, or in the exercise
of reasonable care should have known, of such
suspension or bar, to permit such an association,
without the consent of the Board or the Commis-
sion.
(d) REPORTING OF SANCTIONS.—
(1) RECIPIENTS.—If the Board imposes a dis-
ciplinary sanction, in accordance with this section,
the Board shall report the sanction to—
(A) the Commission;
(B) any appropriate State regulatory au-
thority or any foreign accountancy licensing
board with which such firm or person is licensed
or certified; and
(C) the public (once any stay on the imposi-
tion of such sanction has been lifted).
(2) CONTENTS.—The information reported under
paragraph (1) shall include—
(A) the name of the sanctioned person;
(B) a description of the sanction and the
basis for its imposition; and
(C) such other information as the Board
deems appropriate.
(e) STAY OF SANCTIONS.—
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(1) IN GENERAL.—Application to the Commis-
sion for review, or the institution by the Commission
of review, of any disciplinary action of the Board
shall operate as a stay of any such disciplinary ac-
tion, unless and until the Commission orders (sum-
marily or after notice and opportunity for hearing on
the question of a stay, which hearing may consist
solely of the submission of affidavits or presentation
of oral arguments) that no such stay shall continue
to operate.
(2) EXPEDITED PROCEDURES.—The Commission
shall establish for appropriate cases an expedited pro-
cedure for consideration and determination of the
question of the duration of a stay pending review of
any disciplinary action of the Board under this sub-
section.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) APPLICABILITY TO CERTAIN FOREIGN FIRMS.—
(1) IN GENERAL.—Any foreign public accounting
firm that prepares or furnishes an audit report with
respect to any issuer, shall be subject to this Act and
the rules of the Board and the Commission issued
under this Act, in the same manner and to the same
extent as a public accounting firm that is organized
and operates under the laws of the United States or
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any State, except that registration pursuant to sec-
tion 102 shall not by itself provide a basis for sub-
jecting such a foreign public accounting firm to the
jurisdiction of the Federal or State courts, other than
with respect to controversies between such firms and
the Board.
(2) BOARD
AUTHORITY.—The Board may, by
rule, determine that a foreign public accounting firm
(or a class of such firms) that does not issue audit re-
ports nonetheless plays such a substantial role in the
preparation and furnishing of such reports for par-
ticular issuers, that it is necessary or appropriate, in
light of the purposes of this Act and in the public in-
terest or for the protection of investors, that such firm
(or class of firms) should be treated as a public ac-
counting firm (or firms) for purposes of registration
under, and oversight by the Board in accordance
with, this title.
(b) PRODUCTION OF AUDIT WORKPAPERS.—
(1) CONSENT BY FOREIGN FIRMS.—If a foreign
public accounting firm issues an opinion or otherwise
performs material services upon which a registered
public accounting firm relies in issuing all or part of
any audit report or any opinion contained in an
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audit report, that foreign public accounting firm shall
be deemed to have consented—
(A) to produce its audit workpapers for the
Board or the Commission in connection with
any investigation by either body with respect to
that audit report; and
(B) to be subject to the jurisdiction of the
courts of the United States for purposes of en-
forcement of any request for production of such
workpapers.
(2) CONSENT BY DOMESTIC FIRMS.—A registered
public accounting firm that relies upon the opinion
of a foreign public accounting firm, as described in
paragraph (1), shall be deemed—
(A) to have consented to supplying the
audit workpapers of that foreign public account-
ing firm in response to a request for production
by the Board or the Commission; and
(B) to have secured the agreement of that
foreign public accounting firm to such produc-
tion, as a condition of its reliance on the opinion
of that foreign public accounting firm.
(c) EXEMPTION AUTHORITY.—The Commission, and
the Board, subject to the approval of the Commission, may,
by rule, regulation, or order, and as the Commission (or
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Board) determines necessary or appropriate in the public
interest or for the protection of investors, either uncondi-
tionally or upon specified terms and conditions exempt any
foreign public accounting firm, or any class of such firms,
from any provision of this Act or the rules of the Board
or the Commission issued under this Act.
(d) DEFINITION.—In this section, the term ‘‘foreign
public accounting firm’’ means a public accounting firm
that is organized and operates under the laws of a foreign
government or political subdivision thereof.
SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.
(a) GENERAL
OVERSIGHT
RESPONSIBILITY.—The
Commission shall have oversight and enforcement authority
over the Board, as provided in this Act.
(b) RULES OF THE BOARD.—
(1) DEFINITION.—In this section, the term ‘‘pro-
posed rule’’ means any proposed rule of the Board,
and any modification of any such rule.
(2) PRIOR APPROVAL REQUIRED.—No rule of the
Board shall become effective without prior approval of
the Commission in accordance with this section, other
than as provided in section 103(a)(3)(B) with respect
to initial or transitional standards.
(3) APPROVAL CRITERIA.—The Commission shall
approve a proposed rule, if it finds that the rule is
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consistent with the requirements of this Act and the
securities laws, or is necessary or appropriate in the
public interest or for the protection of investors.
(4) PROPOSED RULE PROCEDURES.—The provi-
sions of paragraphs (1) through (3) of section 19(b)
of the Securities Exchange Act of 1934 (15 U.S.C.
78s(b)) shall govern the proposed rules of the Board,
as fully as if the Board were a ‘‘registered securities
association’’ for purposes of that section 19(b), except
that, for purposes of this paragraph—
(A) the phrase ‘‘consistent with the require-
ments of this title and the rules and regulations
thereunder applicable to such organization’’ in
section 19(b)(2) of that Act shall be deemed to
read ‘‘consistent with the requirements of title I
of the Public Company Accounting Reform and
Investor Protection Act of 2002, and the rules
and regulations issued thereunder applicable to
such organization, or as necessary or appro-
priate in the public interest or for the protection
of investors’’; and
(B) the phrase ‘‘otherwise in furtherance of
the purposes of this title’’ in section 19(b)(3)(C)
of that Act shall be deemed to read ‘‘otherwise in
furtherance of the purposes of title I of the Public
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Company Accounting Reform and Investor Pro-
tection Act of 2002’’.
(5) COMMISSION AUTHORITY TO AMEND RULES
OF THE BOARD.—The provisions of section 19(c) of
the Securities Exchange Act of 1934 (15 U.S.C.
78s(c)) shall govern the abrogation, deletion, or addi-
tion to portions of the rules of the Board by the Com-
mission as fully as if the Board were a ‘‘registered se-
curities association’’ for purposes of that section
19(c), except that the phrase ‘‘to conform its rules to
the requirements of this title and the rules and regu-
lations thereunder applicable to such organization, or
otherwise in furtherance of the purposes of this title’’
in section 19(c) of that Act shall, for purposes of this
paragraph, be deemed to read ‘‘to assure the fair ad-
ministration of the Public Company Accounting
Oversight Board, conform the rules promulgated by
that Board to the requirements of title I of the Public
Company Accounting Reform and Investor Protection
Act of 2002, or otherwise further the purposes of that
Act, the securities laws, and the rules and regulations
thereunder applicable to that Board’’.
(c) COMMISSION REVIEW OF DISCIPLINARY ACTION
TAKEN BY THE BOARD.—
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(1) NOTICE
OF
SANCTION.—The Board shall
promptly file notice with the Commission of any final
sanction on any registered public accounting firm or
on any associated person thereof, in such form and
containing such information as the Commission, by
rule, may prescribe.
(2) REVIEW OF SANCTIONS.—The provisions of
sections 19(d)(2) and 19(e)(1) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78s (d)(2) and (e)(1))
shall govern the review by the Commission of final
disciplinary sanctions imposed by the Board (includ-
ing sanctions imposed under section 105(b)(3) of this
Act for noncooperation in an investigation of the
Board), as fully as if the Board were a self-regulatory
organization and the Commission were the appro-
priate regulatory agency for such organization for
purposes of those sections 19(d)(2) and 19(e)(1), ex-
cept that, for purposes of this paragraph—
(A) section 105(e) of this Act (rather than
that section 19(d)(2)) shall govern the extent to
which application for, or institution by the Com-
mission on its own motion of, review of any dis-
ciplinary action of the Board operates as a stay
of such action;
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(B) references in that section 19(e)(1) to
‘‘members’’ of such an organization shall be
deemed to be references to registered public ac-
counting firms;
(C) the phrase ‘‘consistent with the purposes
of this title’’ in that section 19(e)(1) shall be
deemed to read ‘‘consistent with the purposes of
this title and title I of the Public Company Ac-
counting Reform and Investor Protection Act of
2002’’;
(D) references to rules of the Municipal Se-
curities Rulemaking Board in that section
19(e)(1) shall not apply; and
(E) the reference to section 19(e)(2) of the
Securities Exchange Act of 1934 shall refer in-
stead to section 107(c)(3) of this Act.
(3) COMMISSION
MODIFICATION
AUTHORITY.—
The Commission may enhance, modify, cancel, reduce,
or require the remission of a sanction imposed by the
Board upon a registered public accounting firm or
associated person thereof, if the Commission, having
due regard for the public interest and the protection
of investors, finds, after a proceeding in accordance
with this subsection, that the sanction—
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(A) is not necessary or appropriate in fur-
therance of this Act or the securities laws; or
(B) is excessive, oppressive, inadequate, or
otherwise not appropriate to the finding or the
basis on which the sanction was imposed.
(d) CENSURE OF THE BOARD; OTHER SANCTIONS.—
(1) RESCISSION
OF
BOARD
AUTHORITY.—The
Commission, by rule, consistent with the public inter-
est, the protection of investors, and the other purposes
of this Act and the securities laws, may relieve the
Board of any responsibility to enforce compliance
with any provision of this Act, the securities laws, the
rules of the Board, or professional standards.
(2) CENSURE OF THE BOARD; LIMITATIONS.—
The Commission may, by order, as it determines nec-
essary 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 hear-
ing, that the Board—
(A) has violated or is unable to comply with
any provision of this Act, the rules of the Board,
or the securities laws; or
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(B) without reasonable justification or ex-
cuse, has failed to enforce compliance with any
such provision or rule, or any professional
standard by a registered public accounting firm
or an associated person thereof.
(3) CENSURE
OF
BOARD
MEMBERS; REMOVAL
FROM OFFICE.—The Commission may, as necessary
or appropriate in the public interest, for the protec-
tion of investors, or otherwise in furtherance of the
purposes of this Act or the securities laws, remove
from office or censure any member of the Board, if the
Commission finds, on the record, after notice and op-
portunity for a hearing, that such member—
(A) has willfully violated any provision of
this Act, the rules of the Board, or the securities
laws;
(B) has willfully abused the authority of
that member; or
(C) without reasonable justification or ex-
cuse, has failed to enforce compliance with any
such provision or rule, or any professional
standard by any registered public accounting
firm or any associated person thereof.
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SEC. 108. ACCOUNTING STANDARDS.
(a) AMENDMENT TO SECURITIES ACT OF 1933.—Sec-
tion 19 of the Securities Act of 1933 (15 U.S.C. 77s) is
amended—
(1) by redesignating subsections (b) and (c) as
subsections (c) and (d), respectively; and
(2) by inserting after subsection (a) the fol-
lowing:
‘‘(b) RECOGNITION OF ACCOUNTING STANDARDS.—
‘‘(1) IN GENERAL.—In carrying out its authority
under subsection (a) and under section 13(b) of the
Securities Exchange Act of 1934, the Commission
may recognize, as ‘generally accepted’ for purposes of
the securities laws, any accounting principles estab-
lished by a standard setting body—
‘‘(A) that—
‘‘(i) is organized as a private entity;
‘‘(ii) has, for administrative and oper-
ational purposes, a board of trustees (or
equivalent body) serving in the public inter-
est, the majority of whom are not, concur-
rent with their service on such board, and
have not been during the 2-year period pre-
ceding such service, associated persons of
any registered public accounting firm;
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‘‘(iii) is funded as provided in section
109 of the Public Company Accounting Re-
form and Investor Protection Act of 2002;
‘‘(iv) has adopted procedures to ensure
prompt consideration, by majority vote of
its members, of changes to accounting prin-
ciples necessary to reflect emerging account-
ing issues and changing business practices;
‘‘(v) considers, in adopting accounting
principles, the need to keep standards cur-
rent in order to reflect changes in the busi-
ness environment, the extent to which inter-
national convergence on high quality ac-
counting standards is necessary or appro-
priate in the public interest and for the pro-
tection of investors; and
‘‘(B) that the Commission determines has
the capacity to assist the Commission in ful-
filling the requirements of subsection (a) and sec-
tion 13(b) of the Securities Exchange Act of
1934, because, at a minimum, the standard set-
ting body is capable of improving the accuracy
and effectiveness of financial reporting and the
protection of investors under the securities laws.
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‘‘(2) ANNUAL REPORT.—A standard setting body
described in paragraph (1) shall submit an annual
report to the Commission and the public, containing
audited financial statements of that standard setting
body.’’.
(b) COMMISSION AUTHORITY.—The Commission shall
promulgate such rules and regulations to carry out section
19(b) of the Securities Act of 1933, as added by this section,
as it deems necessary or appropriate in the public interest
or for the protection of investors.
(c) NO EFFECT ON COMMISSION POWERS.—Nothing in
this Act, including this section and the amendment made
by this section, shall be construed to impair or limit the
authority of the Commission to establish accounting prin-
ciples or standards for purposes of enforcement of the securi-
ties laws.
(d) STUDY AND REPORT ON ADOPTING PRINCIPLES-
BASED ACCOUNTING.—
(1) STUDY.—
(A) IN
GENERAL.—The Commission shall
conduct a study on the adoption by the United
States financial reporting system of a principles-
based accounting system.
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(B) STUDY TOPICS.—The study required by
subparagraph (A) shall include an examination
of—
(i) the extent to which principles-based
accounting and financial reporting exists in
the United States;
(ii) the length of time required for
change from a rules-based to a principles-
based financial reporting system;
(iii) the feasibility of and proposed
methods by which a principles-based system
may be implemented; and
(iv) a thorough economic analysis of
the implementation of a principles-based
system.
(2) REPORT.—Not later than 1 year after the
date of enactment of this Act, the Commission shall
submit a report on the results of the study required
by paragraph (1) to the Committee on Banking,
Housing, and Urban Affairs of the Senate and the
Committee on Financial Services of the House of Rep-
resentatives.
SEC. 109. FUNDING.
(a) IN GENERAL.—The Board, and the standard set-
ting body designated pursuant to section 19(b) of the Secu-
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rities Act of 1933, as amended by section 108, shall be fund-
ed as provided in this section.
(b) ANNUAL BUDGETS.—The Board and the standard
setting body referred to in subsection (a) shall each establish
a budget for each fiscal year, which shall be reviewed and
approved according to their respective internal procedures
not less than 1 month prior to the commencement of the
fiscal year to which the budget pertains. The budget of the
Board shall be subject to approval by the Commission.
(c) SOURCES AND USES OF FUNDS.—
(1) RECOVERABLE
BUDGET
EXPENSES.—The
budget of the Board (reduced by any registration or
annual fees received under section 102(e) for the year
preceding the year for which the budget is being com-
puted), and all of the budget of the standard setting
body referred to in subsection (a), for each fiscal year
of each of those 2 entities, shall be payable from an-
nual accounting support fees, in accordance with sub-
sections (d) and (e).
(2) FUNDS GENERATED FROM THE COLLECTION
OF
MONETARY
PENALTIES.—Subject to the avail-
ability in advance in an appropriations Act, and
notwithstanding subsection (h), all funds collected by
the Board as a result of the assessment of monetary
penalties shall be used to fund a merit scholarship
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program for undergraduate and graduate students en-
rolled in accredited accounting degree programs,
which program is to be administered by the Board or
by an entity or agent identified by the Board.
(d) ANNUAL ACCOUNTING SUPPORT FEE FOR THE
BOARD.—
(1) ESTABLISHMENT OF FEE.—The Board shall
establish, with the approval of the Commission, a rea-
sonable annual accounting support fee (or a formula
for the computation thereof), as may be necessary or
appropriate to establish and maintain the Board.
(2) ASSESSMENTS.—The rules of the Board
under paragraph (1) shall provide for the equitable
allocation, assessment, and collection by the Board (or
an agent appointed by the Board) of the fee estab-
lished under paragraph (1), among issuers, in accord-
ance with subsection (f), allowing for differentiation
among classes of issuers, as appropriate.
(e) ANNUAL ACCOUNTING SUPPORT FEE FOR STAND-
ARD SETTING BODY.—The annual accounting support fee
for the standard setting body referred to in subsection (a)—
(1) shall be allocated in accordance with sub-
section (f), and assessed and collected against each
issuer, on behalf of the standard setting body, by 1 or
more appropriate designated collection agents, as may
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be necessary or appropriate to pay for the budget and
provide for the expenses of that standard setting body,
and to provide for an independent, stable source of
funding for such body, subject to review by the Com-
mission; and
(2) may differentiate among different classes of
issuers.
(f) ALLOCATION
OF ACCOUNTING SUPPORT FEES
AMONG ISSUERS.—Any amount due from issuers (or a par-
ticular class of issuers) under this section to fund the budget
of the Board or the standard setting body referred to in
subsection (a) shall be allocated among and payable by each
issuer (or each issuer in a particular class, as applicable)
in an amount equal to the total of such amount, multiplied
by a fraction—
(1) the numerator of which is the average month-
ly equity market capitalization of the issuer for the
12-month period immediately preceding the beginning
of the fiscal year to which such budget relates; and
(2) the denominator of which is the average
monthly equity market capitalization of all such
issuers for such 12-month period.
(g) CONFORMING AMENDMENTS.—Section 13(b)(2) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m(b)(2))
is amended—
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(1) in subparagraph (A), by striking ‘‘and’’ at
the end;
(2) in subparagraph (B), by striking the period
at the end and inserting the following: ‘‘; and
‘‘(C) notwithstanding any other provision of law,
pay the allocable share of such issuer of a reasonable
annual accounting support fee or fees, determined in
accordance with section 109 of the Public Company
Accounting Reform and Investor Protection Act of
2002.’’.
(h) RULE OF CONSTRUCTION.—Nothing in this section
shall be construed to render either the Board, the standard
setting body referred to in subsection (a), or both, subject
to procedures in Congress to authorize or appropriate pub-
lic funds, or to prevent such organization from utilizing
additional sources of revenue for its activities, such as earn-
ings from publication sales, provided that each additional
source of revenue shall not jeopardize, in the judgment of
the Commission, the actual and perceived independence of
such organization.
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TITLE II—AUDITOR
INDEPENDENCE
SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF
AUDITORS.
(a) PROHIBITED ACTIVITIES.—Section 10A of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78j–1) is amended
by adding at the end the following:
‘‘(g) PROHIBITED ACTIVITIES.—It shall be unlawful
for a registered public accounting firm (and any associated
person of that firm, to the extent determined appropriate
by the Commission) that performs for any issuer any audit
required by this title or the rules of the Commission under
this title or, beginning 180 days after the date of commence-
ment of the operations of the Public Company Accounting
Oversight Board established under section 101 of the Public
Company Accounting Reform and Investor Protection Act
of 2002 (in this section referred to as the ‘Board’), the rules
of the Board, to provide to that issuer, contemporaneously
with the audit, any non-audit service, including—
‘‘(1) bookkeeping or other services related to the
accounting records or financial statements of the
audit client;
‘‘(2) financial information systems design and
implementation;
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‘‘(3) appraisal or valuation services, fairness
opinions, or contribution-in-kind reports;
‘‘(4) actuarial services;
‘‘(5) internal audit outsourcing services;
‘‘(6) management functions or human resources;
‘‘(7) broker or dealer, investment adviser, or in-
vestment banking services;
‘‘(8) legal services and expert services unrelated
to the audit; and
‘‘(9) any other service that the Board determines,
by regulation, is impermissible.
‘‘(h) PREAPPROVAL REQUIRED FOR NON-AUDIT SERV-
ICES.—A registered public accounting firm may engage in
any non-audit service, including tax services, that is not
described in any of paragraphs (1) through (9) of subsection
(g) for an audit client, only if the activity is approved in
advance by the audit committee of the issuer, in accordance
with subsection (i).’’.
(b) EXEMPTION AUTHORITY.—The Board may, on a
case by case basis, exempt any person, issuer, public ac-
counting firm, or transaction from the prohibition on the
provision of services under section 10A(g) of the Securities
Exchange Act of 1934 (as added by this section), to the ex-
tent that such exemption is necessary or appropriate in the
public interest and is consistent with the protection of in-
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vestors, and subject to review by the Commission in the
same manner as for rules of the Board under section 107.
SEC. 202. PREAPPROVAL REQUIREMENTS.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78j–1), as amended by this Act, is amended by
adding at the end the following:
‘‘(i) PREAPPROVAL REQUIREMENTS.—
‘‘(1) IN GENERAL.—
‘‘(A) AUDIT COMMITTEE ACTION.—All au-
diting services (which may entail providing com-
fort 
letters 
in 
connection 
with 
securities
underwritings) and non-audit services, other
than as provided in subparagraph (B), provided
to an issuer by the auditor of the issuer shall be
preapproved by the audit committee of the issuer.
‘‘(B) 
DE
MINIMUS
EXCEPTION.—The
preapproval requirement under subparagraph
(A) is waived with respect to the provision of
non-audit services for an issuer, if—
‘‘(i) the aggregate amount of all such
non-audit services provided to the issuer
constitutes not more than 5 percent of the
total amount of revenues paid by the issuer
to its auditor;
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‘‘(ii) such services were not recognized
by the issuer at the time of the engagement
to be non-audit services; and
‘‘(iii) such services are promptly
brought to the attention of the audit com-
mittee of the issuer and approved by the
audit committee prior to the completion of
the audit, by 1 or more members of the
audit committee who are members of the
board of directors to whom authority to
grant such approvals has been delegated by
the audit committee.
‘‘(2) DISCLOSURE TO INVESTORS.—Approval by
an audit committee of an issuer under this subsection
of a non-audit service to be performed by the auditor
of the issuer shall be disclosed to investors in periodic
reports required by section 13(a).
‘‘(3) DELEGATION AUTHORITY.—The audit com-
mittee of an issuer may delegate to 1 or more des-
ignated members of the audit committee who are
independent directors of the board of directors, the au-
thority to grant preapprovals required by this sub-
section. The decisions of any member to whom author-
ity is delegated under this paragraph to preapprove
an activity under this subsection shall be presented to
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the full audit committee at each of its scheduled meet-
ings.
‘‘(4) APPROVAL OF AUDIT SERVICES FOR OTHER
PURPOSES.—In carrying out its duties under sub-
section (m)(2), if the audit committee of an issuer ap-
proves an audit service within the scope of the engage-
ment of the auditor, such audit service shall be
deemed to have been preapproved for purposes of this
subsection.’’.
SEC. 203. AUDIT PARTNER ROTATION.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78j–1), as amended by this Act, is amended by
adding at the end the following:
‘‘(j) AUDIT PARTNER ROTATION.—It shall be unlawful
for a registered public accounting firm to provide audit
services to an issuer if the lead audit partner (having pri-
mary responsibility for the audit) or the audit partner re-
sponsible for reviewing the audit that is assigned to perform
those audit services has performed audit services for that
issuer in each of the 5 previous fiscal years of that issuer.’’.
SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78j–1), as amended by this Act, is amended by
adding at the end the following:
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‘‘(k) REPORTS TO AUDIT COMMITTEES.—Each reg-
istered public accounting firm that performs for any issuer
any audit required by this title shall timely report to the
audit committee of the issuer—
‘‘(1) all critical accounting policies and practices
to be used;
‘‘(2) all alternative treatments of financial infor-
mation within generally accepted accounting prin-
ciples that have been discussed with management offi-
cials of the issuer, ramifications of the use of such al-
ternative disclosures and treatments, and the treat-
ment preferred by the registered public accounting
firm; and
‘‘(3) other material written communications be-
tween the registered public accounting firm and the
management of the issuer, such as any management
letter or schedule of unadjusted differences.’’.
SEC. 205. CONFORMING AMENDMENTS.
(a) DEFINITIONS.—Section 3(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)) is amended by add-
ing at the end the following:
‘‘(58) AUDIT COMMITTEE.—The term ‘audit com-
mittee’ means—
‘‘(A) a committee (or equivalent body) es-
tablished by and amongst the board of directors
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of an issuer for the purpose of overseeing the ac-
counting and financial reporting processes of the
issuer and audits of the financial statements of
the issuer; and
‘‘(B) if no such committee exists with re-
spect to an issuer, the entire board of directors
of the issuer.
‘‘(59) REGISTERED PUBLIC ACCOUNTING FIRM.—
The term ‘registered public accounting firm’ has the
same meaning as in section 3 of the Public Company
Accounting Reform and Investor Protection Act of
2002.’’.
(b) AUDITOR REQUIREMENTS.—Section 10A of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78j–1) is
amended—
(1) by striking ‘‘an independent public account-
ant’’ each place that term appears and inserting ‘‘a
registered public accounting firm’’;
(2) by striking ‘‘the independent public account-
ant’’ each place that term appears and inserting ‘‘the
registered public accounting firm’’;
(3) in subsection (c), by striking ‘‘No inde-
pendent public accountant’’ and inserting ‘‘No reg-
istered public accounting firm’’; and
(4) in subsection (b)—
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(A) by striking ‘‘the accountant’’ each place
that term appears and inserting ‘‘the firm’’;
(B) by striking ‘‘such accountant’’ each
place that term appears and inserting ‘‘such
firm’’; and
(C) in paragraph (4), by striking ‘‘the ac-
countant’s report’’ and inserting ‘‘the report of
the firm’’.
(c) OTHER REFERENCES.—The Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is amended—
(1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by
striking ‘‘independent public accountants’’ each place
that term appears and inserting ‘‘a registered public
accounting firm’’; and
(2) in subsections (e) and (i) of section 17 (15
U.S.C. 78q), by striking ‘‘an independent public ac-
countant’’ each place that term appears and inserting
‘‘a registered public accounting firm’’.
(d) CONFORMING AMENDMENT.—Section 10A(f) of the
Securities Exchange Act of 1934 (15 U.S.C. 78k(f)) is
amended—
(1) by striking ‘‘DEFINITION’’ and inserting
‘‘DEFINITIONS’’; and
(2) by adding at the end the following: ‘‘As used
in this section, the term ‘issuer’ means an issuer (as
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defined in section 3), the securities of which are reg-
istered under section 12, or that is required to file re-
ports pursuant to section 15(d), or that will be re-
quired to file such reports at the end of a fiscal year
of the issuer in which a registration statement filed
by such issuer has become effective pursuant to the
Securities Act of 1933 (15 U.S.C. 77a et. seq.), unless
its securities are registered under section 12 of this
title on or before the end of such fiscal year.’’.
SEC. 206. CONFLICTS OF INTEREST.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78j–1), as amended by this Act, is amended by
adding at the end the following:
‘‘(l) CONFLICTS OF INTEREST.—It shall be unlawful
for a registered public accounting firm to perform for an
issuer any audit service required by this title, if a chief
executive officer, controller, chief financial officer, chief ac-
counting officer or any person serving in an equivalent po-
sition for the issuer was employed by that registered inde-
pendent public accounting firm and participated in any
capacity in the audit of that issuer during the 1-year period
preceding the date of the initiation of the audit.’’.
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SEC. 207. STUDY OF MANDATORY ROTATION OF REG-
ISTERED PUBLIC ACCOUNTING FIRMS.
(a) STUDY AND REVIEW REQUIRED.—The Comptroller
General of the United States shall conduct a study and re-
view of the potential effects of requiring the mandatory ro-
tation of registered public accounting firms.
(b) REPORT REQUIRED.—Not later than 1 year after
the date of enactment of this Act, the Comptroller General
shall submit a report to the Committee on Banking, Hous-
ing, and Urban Affairs of the Senate and the Committee
on Financial Services of the House of Representatives on
the results of the study and review required by this section.
(c) DEFINITION.—For purposes of this section, the
term ‘‘mandatory rotation’’ refers to the imposition of a
limit on the period of years in which a particular registered
public accounting firm may be the auditor of record for
a particular issuer.
SEC. 208. COMMISSION AUTHORITY.
(a) COMMISSION REGULATIONS.—Not later than 180
days after the date of enactment of this Act, the Commission
shall issue final regulations to carry out each of subsections
(g) through (l) of section 10A of the Securities Exchange
Act of 1934, as added by this title.
(b) AUDITOR INDEPENDENCE.—It shall be unlawful
for any registered public accounting firm (or an associated
person thereof, as applicable) to prepare or issue any audit
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report with respect to any issuer, if the firm or associated
person engages in any activity with respect to that issuer
prohibited by any of subsections (g) through (l) of section
10A of the Securities Exchange Act of 1934, as added by
this title, or any rule or regulation of the Commission or
of the Board issued thereunder.
SEC. 209. CONSIDERATIONS BY APPROPRIATE STATE REGU-
LATORY AUTHORITIES.
In supervising nonregistered public accounting firms
and their associated persons, appropriate State regulatory
authorities should make an independent determination of
the proper standards applicable, particularly taking into
consideration the size and nature of the business of the ac-
counting firms they supervise and the size and nature of
the business of the clients of those firms. The standards ap-
plied by the Board under this Act should not be presumed
to be applicable for purposes of this section for small and
medium sized nonregistered public accounting firms.
TITLE III—CORPORATE
RESPONSIBILITY
SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.
Section 10A of the Securities Exchange Act of 1934
(15 U.S.C. 78f) is amended by adding at the end the fol-
lowing:
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‘‘(m) STANDARDS
RELATING
TO
AUDIT
COMMIT-
TEES.—
‘‘(1) COMMISSION RULES.—
‘‘(A) IN GENERAL.—Effective not later than
270 days after the date of enactment of this sub-
section, the Commission shall, by rule, direct the
national securities exchanges and national secu-
rities associations to prohibit the listing of any
security of an issuer that is not in compliance
with the requirements of any portion of para-
graphs (2) through (6).
‘‘(B) OPPORTUNITY TO CURE DEFECTS.—
The rules of the Commission under subparagraph
(A) shall provide for appropriate procedures for
an issuer to have an opportunity to cure any de-
fects that would be the basis for a prohibition
under subparagraph (A), before the imposition of
such prohibition.
‘‘(2) RESPONSIBILITIES
RELATING
TO
REG-
ISTERED
PUBLIC
ACCOUNTING
FIRMS.—The audit
committee of each issuer, in its capacity as a com-
mittee of the board of directors, shall be directly re-
sponsible for the appointment, compensation, and
oversight of the work of any registered public account-
ing firm employed by that issuer (including resolu-
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tion of disagreements between management and the
auditor regarding financial reporting) for the purpose
of preparing or issuing an audit report or related
work, and each such registered public accounting firm
shall report directly to the audit committee.
‘‘(3) INDEPENDENCE.—
‘‘(A) IN
GENERAL.—Each member of the
audit committee of the issuer shall be a member
of the board of directors of the issuer, and shall
otherwise be independent.
‘‘(B) CRITERIA.—In order to be considered
to be independent for purposes of this paragraph,
a member of an audit committee of an issuer
may not, other than in his or her capacity as a
member of the audit committee, the board of di-
rectors, or any other board committee—
‘‘(i) accept any consulting, advisory, or
other compensatory fee from the issuer; or
‘‘(ii) be an affiliated person of the
issuer or any subsidiary thereof.
‘‘(C) EXEMPTION
AUTHORITY.—The Com-
mission may exempt from the requirements of
subparagraph (B) a particular relationship with
respect to audit committee members, as the Com-
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mission determines appropriate in light of the
circumstances.
‘‘(4) COMPLAINTS.—Each audit committee shall
establish procedures for—
‘‘(A) the receipt, retention, and treatment of
complaints received by the issuer regarding ac-
counting, internal accounting controls, or audit-
ing matters; and
‘‘(B) the confidential, anonymous submis-
sion by employees of the issuer of concerns re-
garding questionable accounting or auditing
matters.
‘‘(5) AUTHORITY TO ENGAGE ADVISERS.—Each
audit committee shall have the authority to engage
independent counsel and other advisers, as it deter-
mines necessary to carry out its duties.
‘‘(6) FUNDING.—Each issuer shall provide for
appropriate funding, as determined by the audit com-
mittee, in its capacity as a committee of the board of
directors, for payment of compensation—
‘‘(A) to the registered public accounting
firm employed by the issuer for the purpose of
rendering or issuing an audit report; and
‘‘(B) to any advisers employed by the audit
committee under paragraph (5).’’.
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SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL RE-
PORTS.
(a) CERTIFICATION
OF PERIODIC REPORTS.—Each
periodic report containing financial statements filed by an
issuer with the Commission pursuant to section 13(a) or
15(d) of the Securities Exchange Act of 1934, shall be ac-
companied by a written statement by the chief executive of-
ficer and chief financial officer (or the equivalent thereof)
of the issuer.
(b) CONTENT.—The statement required by subsection
(a) shall certify the appropriateness of the financial state-
ments and disclosures contained in the periodic report, and
that those financial statements and disclosures fairly
present, in all material respects, the operations and finan-
cial condition of the issuer.
(c) FOREIGN
REINCORPORATIONS
HAVE
NO
EF-
FECT.—Nothing in this section 302 shall be interpreted or
applied in any way to allow any issuer to lessen the legal
force of the statement required under this section 302, by
an issuer having reincorporated or having engaged in any
other transaction that resulted in the transfer of the cor-
porate domicile or offices of the issuer from inside the
United States to outside of the United States.
SEC. 303. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
(a) RULES TO PROHIBIT.—It shall be unlawful, in
contravention of such rules or regulations as the Commis-
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sion shall prescribe as necessary and appropriate in the
public interest or for the protection of investors, for any
officer or director of an issuer, or any other person acting
under the direction thereof, to take any action to fraudu-
lently influence, coerce, manipulate, or mislead any inde-
pendent public or certified accountant engaged in the per-
formance of an audit of the financial statements of that
issuer for the purpose of rendering such financial state-
ments materially misleading.
(b) ENFORCEMENT.—In any civil proceeding, the
Commission shall have exclusive authority to enforce this
section and any rule or regulation issued under this section.
(c) NO PREEMPTION OF OTHER LAW.—The provisions
of subsection (a) shall be in addition to, and shall not super-
sede or preempt, any other provision of law or any rule
or regulation issued thereunder.
(d) DEADLINE FOR RULEMAKING.—The Commission
shall—
(1) propose the rules or regulations required by
this section, not later than 90 days after the date of
enactment of this Act; and
(2) issue final rules or regulations required by
this section, not later than 270 days after that date
of enactment.
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SEC. 304. FORFEITURE OF CERTAIN BONUSES AND PROF-
ITS.
(a) ADDITIONAL COMPENSATION PRIOR
TO NON-
COMPLIANCE WITH COMMISSION FINANCIAL REPORTING
REQUIREMENTS.—If an issuer is required to prepare an ac-
counting restatement due to the material noncompliance of
the issuer, as a result of misconduct, with any financial
reporting requirement under the securities laws, the chief
executive officer and chief financial officer of the issuer shall
reimburse the issuer for—
(1) any bonus or other incentive-based or equity-
based compensation received by that person from the
issuer during the 12-month period following the first
public issuance or filing with the Commission (which-
ever first occurs) of the financial document embodying
such financial reporting requirement; and
(2) any profits realized from the sale of securities
of the issuer during that 12-month period.
(b) COMMISSION EXEMPTION AUTHORITY.—The Com-
mission may exempt any person from the application of
subsection (a), as it deems necessary and appropriate.
SEC. 305. OFFICER AND DIRECTOR BARS AND PENALTIES.
(a) UNFITNESS STANDARD.—
(1) SECURITIES EXCHANGE ACT OF 1934.—Sec-
tion 21(d)(2) of the Securities Exchange Act of 1934
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(15 U.S.C. 78u(d)(2)) is amended by striking ‘‘sub-
stantial unfitness’’ and inserting ‘‘unfitness’’.
(2) SECURITIES ACT OF 1933.—Section 20(e) of
the Securities Act of 1933 (15 U.S.C. 77t(e)) is
amended by striking ‘‘substantial unfitness’’ and in-
sert ‘‘unfitness’’.
(b) EQUITABLE RELIEF.—Section 21(d) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended—
(1) by redesignating paragraphs (2) through (4)
as paragraphs (3) through (5), respectively; and
(2) by inserting after paragraph (1) the fol-
lowing:
‘‘(2) EQUITABLE
RELIEF.—In any action or pro-
ceeding brought or instituted by the Commission under any
provision of the securities laws, the Commission may seek,
and any Federal court may grant, any equitable relief that
may be appropriate or necessary for the benefit of inves-
tors.’’.
SEC. 306. INSIDER TRADES DURING PENSION FUND BLACK-
OUT PERIODS PROHIBITED.
(a) PROHIBITION.—It shall be unlawful for any direc-
tor or executive officer of an issuer of any equity security
(other than an exempted security), directly or indirectly,
to purchase, sell, or otherwise acquire or transfer any equity
security of the issuer (other than an exempted security),
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during any blackout period with respect to such equity secu-
rity, in accordance with any exception provided by rule of
the Commission pursuant to subsection (d).
(b) EFFECTIVENESS.—
(1) NOTICE
REQUIREMENTS.—Except as pro-
vided in paragraph (2), no blackout period may take
effect earlier than 30 days after the date on which
written notice of such blackout period is provided by
the plan administrator to the participants or bene-
ficiaries.
(2) EXCEPTION.—The 30-day notice requirement
in paragraph (1) shall not apply, and notice under
paragraph (1) shall be furnished as soon as is reason-
ably possible, in any case in which—
(A) a deferral of the blackout period would
violate the requirements of subparagraph (A) or
(B) of section 404(a)(1) of the Employment Re-
tirement Income Security Act of 1974, and a fi-
duciary of the plan so reasonably determines in
writing; or
(B) the inability to provide the 30-day no-
tice is due to events that were unforeseeable, or
circumstances beyond the reasonable control of
the plan administrator, and a fiduciary of the
plan so reasonably determines in writing.
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(3) WRITTEN NOTICE.—The notice required to be
provided under paragraph (1) shall be in writing, ex-
cept that such notice may be in electronic form to the
extent that such form is reasonably accessible to the
recipient.
(c) REMEDY.—
(1) IN GENERAL.—Any profit realized by a di-
rector or executive officer referred to in subsection (a)
from any purchase, sale, or other acquisition or
transfer in violation of this section shall inure to and
be recoverable by the issuer, irrespective of any inten-
tion on the part of such director or executive officer
in entering into the transaction.
(2) ACTIONS TO RECOVER PROFITS.—An action
to recover profits in accordance with this section may
be instituted at law or in equity in any court of com-
petent jurisdiction by the issuer, or by the owner of
any security of the issuer in the name and in behalf
of the issuer if the issuer fails or refuses to bring such
action within 60 days after the date of request, or
fails diligently to prosecute the action thereafter, ex-
cept that no such suit shall be brought more than 2
years after the date on which such profit was realized.
(d) RULEMAKING
AUTHORIZED.—The Commission
may issue rules to clarify the application of this subsection,
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to ensure adequate notice to all persons affected by this sub-
section, and to prevent evasion thereof.
(e) DEFINITIONS.—For purposes of this section—
(1) the term ‘‘blackout period’’, with respect to
the equity securities of any issuer—
(A) means any period during which the
ability of not fewer than 50 percent of the par-
ticipants or beneficiaries under all applicable in-
dividual account plans maintained by the issuer
to purchase, sell, or otherwise acquire or transfer
an interest in any equity of such issuer held in
such an individual account plan, is suspended
by the issuer or a fiduciary of the plan; and
(B) does not include—
(i) a period in which the employees of
an issuer may not allocate their interests in
the individual account plan due to an ex-
press investment restriction—
(I) incorporated into the indi-
vidual account plan; and
(II) timely disclosed to employees
before joining the individual account
plan or as a subsequent amendment to
the plan; or
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(ii) any suspension described in sub-
paragraph (A) that is imposed solely in
connection with persons becoming partici-
pants or beneficiaries, or ceasing to be par-
ticipants or beneficiaries, in an applicable
individual account plan by reason of a cor-
porate merger, acquisition, divestiture, or
similar transaction; and
(2) the term ‘‘individual account plan’’ has the
same meaning as in section 3(34) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1002(34)).
TITLE IV—ENHANCED
FINANCIAL DISCLOSURES
SEC. 401. DISCLOSURES IN PERIODIC REPORTS.
(a) DISCLOSURES REQUIRED.—Section 13 of the Secu-
rities Exchange Act of 1934 (15 U.S.C. 78m) is amended
by adding at the end the following:
‘‘(i) ACCURACY OF FINANCIAL REPORTS.—Each finan-
cial report that is required to be prepared in accordance
with generally accepted accounting principles under this
title and filed with the Commission shall reflect all material
correcting adjustments that have been identified by a reg-
istered public accounting firm in accordance with generally
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accepted accounting principles and the rules and regula-
tions of the Commission.
‘‘(j) OFF-BALANCE SHEET TRANSACTIONS.—Not later
than 180 days after the date of enactment of the Public
Company Accounting Reform and Investor Protection Act
of 2002, the Commission shall issue final rules providing
that each annual and quarterly financial report required
to be filed with the Commission shall disclose all material
off-balance sheet transactions, arrangements, obligations
(including contingent obligations), and other relationships
of the issuer with unconsolidated entities or other persons,
that may have a material current or future effect on finan-
cial condition, changes in financial condition, results of op-
erations, liquidity, capital expenditures, capital resources,
or significant components of revenues or expenses.’’.
(b) COMMISSION RULES ON PRO FORMA FIGURES.—
Not later than 180 days after the date of enactment of this
Act, the Commission shall issue final rules providing that
pro forma financial information included in any periodic
or other report filed with the Commission pursuant to the
securities laws, or in any public disclosure or press or other
release, shall be presented in a manner that—
(1) does not contain an untrue statement of a
material fact or omit to state a material fact nec-
essary in order to make the pro forma financial infor-
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mation, in light of the circumstances under which it
is presented, not misleading; and
(2) reconciles it with the financial condition and
results of operations of the issuer under generally ac-
cepted accounting principles.
(c) STUDY AND REPORT ON SPECIAL PURPOSE ENTI-
TIES.—
(1) STUDY REQUIRED.—The Commission shall,
not later than 1 year after the effective date of adop-
tion of off-balance sheet disclosure rules required by
section 13(j) of the Securities Exchange Act of 1934,
as added by this section, complete a study of filings
by issuers and their disclosures to determine—
(A) the extent of off-balance sheet trans-
actions, including assets, liabilities, leases, losses,
and the use of special purpose entities; and
(B) whether generally accepted accounting
rules result in financial statements of issuers re-
flecting the economics of such off-balance sheet
transactions to investors in a transparent fash-
ion.
(2) REPORT AND RECOMMENDATIONS.—Not later
than 6 months after the date of completion of the
study required by paragraph (1), the Commission
shall submit a report to the President, the Committee
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on Banking, Housing, and Urban Affairs of the Sen-
ate, and the Committee on Financial Services of the
House of Representatives, setting forth—
(A) the amount or an estimate of the
amount of off-balance sheet transactions, includ-
ing assets, liabilities, leases, and losses of, and
the use of special purpose entities by, issuers fil-
ing periodic reports pursuant to section 13 or 15
of the Securities Exchange Act of 1934;
(B) the extent to which special purpose enti-
ties are used to facilitate off-balance sheet trans-
actions;
(C) whether generally accepted accounting
principles or the rules of the Commission result
in financial statements of issuers reflecting the
economics of such transactions to investors in a
transparent fashion;
(D) whether generally accepted accounting
principles specifically result in the consolidation
of special purpose entities sponsored by an issuer
in cases in which the issuer has the majority of
the risks and rewards of the special purpose enti-
ty; and
(E) any recommendations of the Commis-
sion for improving the transparency and quality
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of reporting off-balance sheet transactions in the
financial statements and disclosures required to
be filed by an issuer with the Commission.
SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.
(a) PROHIBITION ON PERSONAL LOANS TO EXECU-
TIVES.—Section 13 of the Securities Exchange Act of 1934
(15 U.S.C. 78m), as amended by this Act, is amended by
adding at the end the following:
‘‘(k) PROHIBITION ON PERSONAL LOANS TO EXECU-
TIVES.—
‘‘(1) IN GENERAL.—It shall be unlawful for any
issuer, directly or indirectly, to extend or maintain
credit, or arrange for the extension of credit, in the
form of a personal loan to or for any director or exec-
utive officer (or equivalent thereof) of that issuer.
‘‘(2) LIMITATION.—Paragraph (1) does not pre-
clude any home improvement and manufactured home
loans (as that term is defined in section 5 of the
Home Owners Loan Act), consumer credit (as defined
in section 103 of the Truth in Lending Act), or any
extension of credit under an open end credit plan (as
defined in section 103 of the Truth in Lending Act
(15 U.S.C. 1602)), that is—
‘‘(A) made in the ordinary course of the
consumer credit business of such issuer;
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‘‘(B) of a type that is generally made avail-
able by such issuer to the public; and
‘‘(C) made by such issuer on market terms,
or terms that are no more favorable than those
offered by the issuer to the general public for
such loans.’’.
SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING
MANAGEMENT 
AND 
PRINCIPAL 
STOCK-
HOLDERS.
Section 16(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78p(a)) is amended—
(1) by striking ‘‘security, shall file,’’ and insert-
ing the following:
‘‘(1) shall file’’; and
(2) by striking ‘‘beneficial owner, and’’ and all
that follows through the end of the subsection and in-
serting the following: ‘‘beneficial owner; and
‘‘(2) if there has been a change in such owner-
ship, or if such person shall have purchased or sold
a security-based swap agreement (as defined in sec-
tion 206B of the Gramm-Leach-Bliley Act) involving
such equity security, shall file with the Commission
(and if such security is registered on a national secu-
rities exchange, shall also file with the exchange), a
statement before the end of the second business day
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following the day on which the subject transaction has
been executed, or at such other time as the Commis-
sion shall establish, by rule, in any case in which the
Commission determines that such 2-day period is not
feasible, indicating ownership by that person at the
date of filing, any such changes in such ownership,
and such purchases and sales of the security-based
swap agreements as have occurred since the most re-
cent such filing under this paragraph.’’.
SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CON-
TROLS.
(a) RULES REQUIRED.—The Commission shall pre-
scribe rules requiring each annual report required by sec-
tion 13 of the Securities Exchange Act of 1934 (15 U.S.C.
78m) to contain an internal control report, which shall—
(1) state the responsibility of management for es-
tablishing and maintaining an adequate internal
control structure and procedures for financial report-
ing; and
(2) contain an assessment, as of the end of the
most recent fiscal year of the issuer, of the effective-
ness of the internal control structure and procedures
of the issuer for financial reporting.
(b) INTERNAL CONTROL EVALUATION AND REPORT-
ING.—With respect to the internal control assessment re-
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quired by subsection (a), each registered public accounting
firm that prepares or issues the audit report for the issuer
shall attest to, and report on, the assessment made by the
management of the issuer. An attestation made under this
subsection shall be made in accordance with standards for
attestation engagements issued or adopted by the Board.
Any such attestation shall not be the subject of a separate
engagement.
SEC. 405. EXEMPTION.
Nothing in section 401, 402, or 404, the amendments
made by those sections, or the rules of the Commission
under those sections shall apply to any investment company
registered under section 8 of the Investment Company Act
of 1940 (15 U.S.C. 80a–8).
SEC. 406. CODE OF ETHICS FOR SENIOR FINANCIAL OFFI-
CERS.
(a) CODE OF ETHICS DISCLOSURE.—The Commission
shall issue rules to require each issuer, together with peri-
odic reports required pursuant to sections 13(a) and 15(d)
of the Securities Exchange Act of 1934, to disclose whether
or not, and if not, the reason therefor, such issuer has adopt-
ed a code of ethics for senior financial officers, applicable
to its principal financial officer, comptroller or principal
accounting officer, or persons performing similar functions.
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(b) CHANGES IN CODES OF ETHICS.—The Commission
shall revise its regulations concerning matters requiring
prompt disclosure on Form 8–K (or any successor thereto)
to require the immediate disclosure, by means of the filing
of such form, dissemination by the Internet or by other elec-
tronic means, by any issuer of any change in or waiver
of the code of ethics of the issuer.
(c) DEFINITION.—In this section, the term ‘‘code of
ethics’’ means such standards as are reasonably necessary
to promote—
(1) honest and ethical conduct, including the eth-
ical handling of actual or apparent conflicts of inter-
est between personal and professional relationships;
(2) full, fair, accurate, timely, and understand-
able disclosure in the periodic reports required to be
filed by the issuer; and
(3) compliance with applicable governmental
rules and regulations.
(d) DEADLINE FOR RULEMAKING.—The Commission
shall—
(1) propose rules to implement this section, not
later than 90 days after the date of enactment of this
Act; and
(2) issue final rules to implement this section,
not later than 180 days after that date of enactment.
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SEC. 407. DISCLOSURE OF AUDIT COMMITTEE FINANCIAL
EXPERT.
(a) RULES DEFINING ‘‘FINANCIAL EXPERT’’.—The
Commission shall issue rules, as necessary or appropriate
in the public interest and consistent with the protection of
investors, to require each issuer, together with periodic re-
ports required pursuant to sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, to disclose whether or not,
and if not, the reasons therefor, the audit committee of that
issuer is comprised of at least 1 member who is a financial
expert, as such term is defined by the Commission.
(b) CONSIDERATIONS.—In defining the term ‘‘finan-
cial expert’’ for purposes of subsection (a), the Commission
shall consider whether a person has, through education and
experience as a public accountant or auditor or a principal
financial officer, comptroller, or principal accounting offi-
cer of an issuer, or from a position involving the perform-
ance of similar functions—
(1) an understanding of generally accepted ac-
counting principles and financial statements;
(2) experience in—
(A) the preparation or auditing of financial
statements of generally comparable issuers; and
(B) the application of such principles in
connection with the accounting for estimates, ac-
cruals, and reserves;
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(3) experience with internal accounting controls;
and
(4) an understanding of audit committee func-
tions.
(c) DEADLINE FOR RULEMAKING.—The Commission
shall—
(1) propose rules to implement this section, not
later than 90 days after the date of enactment of this
Act; and
(2) issue final rules to implement this section,
not later than 180 days after that date of enactment.
TITLE V—ANALYST CONFLICTS
OF INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REG-
ISTERED SECURITIES ASSOCIATIONS.
(a) RULES REGARDING SECURITIES ANALYSTS.—Sec-
tion 15A of the Securities Exchange Act of 1934 (15 U.S.C.
78o–3) is amended by adding at the end the following:
‘‘(n) RULES REGARDING SECURITIES ANALYSTS.—
‘‘(1) ANALYST PROTECTIONS.—The Commission,
or upon the authorization and direction of the Com-
mission, a registered securities association or national
securities exchange, shall have adopted, not later than
1 year after the date of enactment of this subsection,
rules reasonably designed to address conflicts of inter-
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est that can arise when research analysts recommend
equity securities in research reports and public ap-
pearances, in order to improve the objectivity of re-
search and provide investors with more useful and re-
liable information, including rules designed—
‘‘(A) to foster greater public confidence in
securities research, and to protect the objectivity
and independence of securities analysts, by—
‘‘(i) 
restricting 
the 
prepublication
clearance or approval of research reports by
persons employed by the broker or dealer
who are engaged in investment banking ac-
tivities, or persons not directly responsible
for investment research, other than legal or
compliance staff;
‘‘(ii) limiting the supervision and com-
pensatory evaluation of securities analysts
to officials employed by the broker or dealer
who are not engaged in investment banking
activities; and
‘‘(iii) requiring that a broker or dealer
and persons employed by a broker or dealer
who are involved with investment banking
activities may not, directly or indirectly,
retaliate against or threaten to retaliate
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against any securities analyst employed by
that broker or dealer or its affiliates as a re-
sult of an adverse, negative, or otherwise
unfavorable research report that may ad-
versely affect the present or prospective in-
vestment banking relationship of the broker
or dealer with the issuer that is the subject
of the research report, except that such rules
may not limit the authority of a broker or
dealer to discipline a securities analyst for
causes other than such research report in
accordance with the policies and procedures
of the firm;
‘‘(B) to define periods during which brokers
or dealers who have participated, or are to par-
ticipate, in a public offering of securities as un-
derwriters or dealers should not publish or other-
wise distribute research reports relating to such
securities or to the issuer of such securities;
‘‘(C) to establish structural and institu-
tional safeguards within registered brokers or
dealers to assure that securities analysts are sep-
arated by appropriate informational partitions
within the firm from the review, pressure, or
oversight of those whose involvement in invest-
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ment banking activities might potentially bias
their judgment or supervision; and
‘‘(D) to address such other issues as the
Commission, or such association or exchange, de-
termines appropriate.
‘‘(2) DISCLOSURE.—The Commission, or upon
the authorization and direction of the Commission, a
registered securities association or national securities
exchange, shall have adopted, not later than 1 year
after the date of enactment of this subsection, rules
reasonably designed to require each securities analyst
to disclose in public appearances, and each registered
broker or dealer to disclose in each research report, as
applicable, conflicts of interest that are known or
should have been known by the securities analyst or
the broker or dealer, to exist at the time of the ap-
pearance or the date of distribution of the report,
including—
‘‘(A) the extent to which the securities ana-
lyst has debt or equity investments in the issuer
that is the subject of the appearance or research
report;
‘‘(B) whether any compensation has been re-
ceived by the registered broker or dealer, or any
affiliate thereof, including the securities analyst,
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from the issuer that is the subject of the appear-
ance or research report, subject to such exemp-
tions as the Commission may determine appro-
priate and necessary to prevent disclosure by
virtue of this subparagraph of material non-pub-
lic information regarding specific potential fu-
ture investment banking transactions of such
issuer, as is appropriate in the public interest
and consistent with the protection of investors;
‘‘(C) whether an issuer, the securities of
which are recommended in the appearance or re-
search report, currently is, or during the 1-year
period preceding the date of the appearance or
date of distribution of the report has been, a cli-
ent of the registered broker or dealer, and if so,
stating the types of services provided to the
issuer;
‘‘(D) whether the securities analyst received
compensation with respect to a research report,
based upon (among any other factors) the invest-
ment banking revenues (either generally or spe-
cifically earned from the issuer being analyzed)
of the registered broker or dealer; and
‘‘(E) such other disclosures of conflicts of in-
terest that are material to investors, research an-
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alysts, or the broker or dealer as the Commission,
or such association or exchange, determines ap-
propriate.
‘‘(3) DEFINITIONS.—In this subsection—
‘‘(A) the term ‘securities analyst’ means
any associated person of a registered broker or
dealer that is principally responsible for, and
any associated person who reports directly or in-
directly to a securities analyst in connection
with, the preparation of the substance of a re-
search report, whether or not any such person
has the job title of ‘securities analyst’; and
‘‘(B) the term ‘research report’ means a
written or electronic communication that in-
cludes an analysis of equity securities of indi-
vidual companies or industries, and that pro-
vides information reasonably sufficient upon
which to base an investment decision.’’.
(b) ENFORCEMENT.—Section 21B(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u–2(a)) is amended by
inserting ‘‘15A(n),’’ before ‘‘15B’’.
(c) COMMISSION AUTHORITY.—The Commission may
promulgate and amend its regulations, or direct a reg-
istered securities association or national securities exchange
to promulgate and amend its rules, to carry out section
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15A(n) of the Securities Exchange Act of 1934, as added
by this section, as is necessary for the protection of investors
and in the public interest.
TITLE VI—COMMISSION
RESOURCES AND AUTHORITY
SEC. 601. AUTHORIZATION OF APPROPRIATIONS.
Section 35 of the Securities Exchange Act of 1934 (15
U.S.C. 78kk) is amended to read as follows:
‘‘SEC. 35. AUTHORIZATION OF APPROPRIATIONS.
‘‘In addition to any other funds authorized to be ap-
propriated to the Commission, there are authorized to be
appropriated to carry out the functions, powers, and duties
of the Commission, $776,000,000 for fiscal year 2003, of
which—
‘‘(1) $102,700,000 shall be available to fund ad-
ditional compensation, including salaries and bene-
fits, as authorized in the Investor and Capital Mar-
kets Fee Relief Act (Public Law 107–123; 115 Stat.
2390 et seq.);
‘‘(2) $108,400,000 shall be available for informa-
tion technology, security enhancements, and recovery
and mitigation activities in light of the terrorist at-
tacks of September 11, 2001; and
‘‘(3) $98,000,000 shall be available to add not
fewer than an additional 200 qualified professionals
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to provide enhanced oversight of auditors and audit
services required by the Federal securities laws, and
to improve Commission investigative and discipli-
nary efforts with respect to such auditors and serv-
ices, as well as for additional professional support
staff necessary to strengthen the programs of the Com-
mission involving Full Disclosure and Prevention and
Suppression of Fraud, risk management, industry
technology review, compliance, inspections, examina-
tions, market regulation, and investment manage-
ment.’’.
SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COM-
MISSION.
(a) IN GENERAL.—The Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) is amended by inserting after
section 4B the following:
‘‘SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COM-
MISSION.
‘‘(a) AUTHORITY TO CENSURE.—The Commission
may censure any person, or deny, temporarily or perma-
nently, to any person the privilege of appearing or prac-
ticing before the Commission in any way, if that person
is found by the Commission, after notice and opportunity
for hearing in the matter—
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‘‘(1) not to possess the requisite qualifications to
represent others;
‘‘(2) to be lacking in character or integrity, or
to have engaged in unethical or improper professional
conduct; or
‘‘(3) to have willfully violated, or willfully aided
and abetted the violation of, any provision of the se-
curities laws or the rules and regulations issued there-
under.
‘‘(b) DEFINITION.—With respect to any registered pub-
lic accounting firm, for purposes of this section, the term
‘improper professional conduct’ means—
‘‘(1) intentional or knowing conduct, including
reckless conduct, that results in a violation of appli-
cable professional standards; and
‘‘(2) negligent conduct in the form of—
‘‘(A) a single instance of highly unreason-
able conduct that results in a violation of appli-
cable professional standards in circumstances in
which the registered public accounting firm
knows, or should know, that heightened scrutiny
is warranted; or
‘‘(B) repeated instances of unreasonable
conduct, each resulting in a violation of applica-
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ble professional standards, that indicate a lack of
competence to practice before the Commission.
‘‘(c) STUDY AND REPORT.—(1) The Commission shall
conduct a study to determine based upon information for
the period from January 1, 1998 to December 31, 2001—
‘‘(A) the number of ‘securities professionals’,
which term shall mean public accountants, public ac-
counting firms, investment bankers, investment advis-
ers, brokers, dealers, attorneys, and other securities
professionals practicing before the Commission—
‘‘(i) who have been found to have aided and
abetted a violation of the Federal securities laws,
including rules or regulations promulgated there-
under (hereinafter collectively referred to as ‘Fed-
eral securities laws’), but who have not been
sanctioned, disciplined, or otherwise penalized as
a primary violator in any administrative action
or civil proceeding, including in any settlement
of such actions or proceedings (referred to herein-
after as ‘aiders and abettors’); and
‘‘(ii) who have been found to have been pri-
mary violators of the Federal securities laws;
‘‘(B) a description of the Federal securities laws
violations committed by aiders and abettors and by
primary violators, including—
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‘‘(i) the specific provisions of the Federal se-
curities laws violated;
‘‘(ii) the specific sanctions and penalties
imposed upon, such aiders and abettors and pri-
mary violators, including the amount of any
monetary penalties assessed upon and collected
from such persons;
‘‘(iii) the occurrence of multiple violations
by the same person or persons either as an aider
or abettor or as a primary violator; and
‘‘(iv) whether as to each such violator dis-
ciplinary sanctions have been imposed, including
any censure, suspension, temporary bar, or per-
manent bar to practice before the Commission;
and
‘‘(C) the amount of disgorgement, restitution or
any other fines or payments the Commission has (i)
assessed upon and (ii) collected from, aiders and abet-
tors and from primary violators.
‘‘(2) A report based upon the study conducted pursu-
ant to subsection (c)(1) shall be submitted to the Senate
Committee on Banking, Housing, and Urban Affairs no
later than 6 months after the date of enactment of the ‘Pub-
lic Company Accounting Reform and Investor Protection
Act of 2002’.
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‘‘(d) RULES OF PROFESSIONAL RESPONSIBILITY FOR
ATTORNEYS.—Not later than 180 days after the date of en-
actment of this section, the Commission shall establish rules,
in the public interest and for the protection of investors,
setting forth minimum standards of professional conduct
for attorneys appearing and practicing before the Commis-
sion in any way in the representation of public companies,
including a rule requiring an attorney to report evidence
of a material violation of securities law or breach of fidu-
ciary duty or similar violation by the company or any
agent thereof to the chief legal counsel or the chief executive
officer of the company (or the equivalent thereof) and, if
the counsel or officer does not appropriately respond to the
evidence (adopting, as necessary, appropriate remedial
measures or sanctions with respect to the violation), requir-
ing the attorney to report the evidence to the audit com-
mittee of the board of directors or to another committee of
the board of directors comprised solely of directors not em-
ployed directly or indirectly by the company, or to the
board of directors.’’.
(b) ELECTRONIC FILING.—Notwithstanding the provi-
sions of section 403 of this Act, section 16(a)(2) of the Secu-
rities and Exchange Act of 1934, as added by section 403,
is amended to read as follows:
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‘‘(2) if there has been a change in such owner-
ship, or if such person shall have purchased or sold
a security-based swap agreement (as defined in sec-
tion 206B of the Gramm-Leach-Bliley Act) involving
such equity security, shall file electronically with the
Commission (and if such security is registered on a
national securities exchange, shall also file with the
exchange), a statement before the end of the second
business day following the day on which the subject
transaction has been executed, or at such other times
as the Commission shall establish, by rule, in any
case in which the Commission determines that such 2
day period is not feasible, and the Commission shall
provide that statement on a publicly accessible Inter-
net site not later than the end of the business day fol-
lowing that filing, and the issuer (if the issuer main-
tains a corporate website) shall provide that state-
ment on that corporate website not later than the end
of the business day following that filing (the require-
ments of this paragraph with respect to electronic fil-
ing and providing the statement on a corporate
website shall take effect 1 year after the date of enact-
ment of this paragraph), indicating ownership by
that person at the date of filing, any such changes in
such ownership, and such purchases and sales of the
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security-based swap agreements as have occurred
since the most recent such filing under this para-
graph.’’.
SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY
STOCK BARS.
(a) SECURITIES EXCHANGE ACT OF 1934.—Section
21(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78u(d)), as amended by this Act, is amended by adding at
the end the following:
‘‘(7) AUTHORITY OF A COURT TO PROHIBIT PERSONS
FROM PARTICIPATING IN AN OFFERING OF PENNY STOCK.—
‘‘(A) IN
GENERAL.—In any proceeding under
paragraph (1) against any person participating in,
or, at the time of the alleged misconduct who was
participating in, an offering of penny stock, the court
may prohibit that person from participating in an
offering of penny stock, conditionally or uncondition-
ally, and permanently or for such period of time as
the court shall determine.
‘‘(B) DEFINITION.—For purposes of this para-
graph, the term ‘person participating in an offering
of penny stock’ includes any person engaging in ac-
tivities with a broker, dealer, or issuer for purposes
of issuing, trading, or inducing or attempting to in-
duce the purchase or sale of, any penny stock. The
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Commission may, by rule or regulation, define such
term to include other activities, and may, by rule,
regulation, or order, exempt any person or class of
persons, in whole or in part, conditionally or uncon-
ditionally, from inclusion in such term.
(b) SECURITIES ACT OF 1933.—Section 20 of the Secu-
rities Act of 1933 (15 U.S.C. 77t) is amended by adding
at the end the following:
‘‘(g) AUTHORITY OF A COURT TO PROHIBIT PERSONS
FROM
PARTICIPATING
IN
AN
OFFERING
OF
PENNY
STOCK.—
‘‘(1) IN
GENERAL.—In any proceeding under
subsection (a) against any person participating in,
or, at the time of the alleged misconduct, who was
participating in, an offering of penny stock, the court
may prohibit that person from participating in an
offering of penny stock, conditionally or uncondition-
ally, and permanently or for such period of time as
the court shall determine.
‘‘(2) DEFINITION.—For purposes of this sub-
section, the term ‘person participating in an offering
of penny stock’ includes any person engaging in ac-
tivities with a broker, dealer, or issuer for purposes
of issuing, trading, or inducing or attempting to in-
duce the purchase or sale of, any penny stock. The
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Commission may, by rule or regulation, define such
term to include other activities, and may, by rule,
regulation, or order, exempt any person or class of
persons, in whole or in part, conditionally or uncon-
ditionally, from inclusion in such term.’’.
SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF
BROKERS AND DEALERS.
(a) BROKERS AND DEALERS.—Section 15(b)(4) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o) is
amended—
(1) by striking subparagraph (F) and inserting
the following:
‘‘(F) is subject to any order of the Commission
barring or suspending the right of the person to be as-
sociated with a broker or dealer;’’; and
(2) in subparagraph (G), by striking the period
at the end and inserting the following: ‘‘; or
‘‘(H) is subject to any final order of a State se-
curities commission (or any agency or officer per-
forming like functions), State authority that super-
vises or examines banks, savings associations, or cred-
it unions, State insurance commission (or any agency
or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the
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Federal Deposit Insurance Act (12 U.S.C. 1813(q))),
or the National Credit Union Administration, that—
‘‘(i) bars such person from association with
an entity regulated by such commission, author-
ity, agency, or officer, or from engaging in the
business of securities, insurance, banking, sav-
ings association activities, or credit union activi-
ties; or
‘‘(ii) constitutes a final order based on vio-
lations of any laws or regulations that prohibit
fraudulent, manipulative, or deceptive conduct.’’.
(b) INVESTMENT ADVISERS.—Section 203(e) of the In-
vestment Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is
amended by striking paragraphs (7) and (8) and inserting
the following:
‘‘(7) is subject to any order of the Commission
barring or suspending the right of the person to be as-
sociated with an investment adviser; or
‘‘(8) is subject to any final order of a State secu-
rities commission (or any agency or officer per-
forming like functions), State authority that super-
vises or examines banks, savings associations, or cred-
it unions, State insurance commission (or any agency
or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the
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Federal Deposit Insurance Act (12 U.S.C. 1813(q))),
or the National Credit Union Administration, that—
‘‘(A) bars such person from association with
an entity regulated by such commission, author-
ity, agency, or officer, or from engaging in the
business of securities, insurance, banking, sav-
ings association activities, or credit union activi-
ties; or
‘‘(B) constitutes a final order based on vio-
lations of any laws or regulations that prohibit
fraudulent, manipulative, or deceptive conduct.’’.
(c) CONFORMING AMENDMENTS.—
(1) SECURITIES EXCHANGE ACT OF 1934.—The
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.) is amended—
(A) in section 3(a)(39)(F) (15 U.S.C.
78c(a)(39)(F)), by inserting ‘‘, or is subject to an
order or finding,’’ before ‘‘enumerated’’;
(B) in each of sections 15(b)(6)(A)(i) (15
U.S.C. 78o(b)(6)(A)(i)), paragraphs (2) and (4)
of section 15B(c) (15 U.S.C. 78o–4(c)), and sub-
paragraphs (A) and (C) of section 15C(c)(1) (15
U.S.C. 78o–5(c)(1)) by striking ‘‘or omission’’
each place that term appears, and inserting ‘‘, or
is subject to an order or finding,’’; and
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(C) in each of paragraphs (3)(A) and
(4)(C) of section 17A(c) (15 U.S.C. 78q–1(c)), by
inserting ‘‘, or is subject to an order or finding,’’
before ‘‘enumerated’’ each place that term ap-
pears.
(2) INVESTMENT ADVISERS ACT OF 1940.—Sec-
tion 203(f) of the Investment Advisers Act of 1940 (15
U.S.C. 80b–3(f)) is amended, by inserting ‘‘or (3)’’
after ‘‘paragraph (2)’’.
TITLE VII—STUDIES AND
REPORTS
SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLI-
DATION OF PUBLIC ACCOUNTING FIRMS.
(a) STUDY REQUIRED.—The Comptroller General of
the United States shall conduct a study—
(1) to identify—
(A) the factors that have led to the consoli-
dation of public accounting firms since 1989 and
the consequent reduction in the number of firms
capable of providing audit services to large na-
tional and multi-national business organizations
that are subject to the securities laws;
(B) the present and future impact of the
condition described in subparagraph (A) on cap-
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ital formation and securities markets, both do-
mestic and international; and
(C) solutions to any problems identified
under subparagraph (B), including ways to in-
crease competition and the number of firms ca-
pable of providing audit services to large na-
tional and multinational business organizations
that are subject to the securities laws;
(2) of the problems, if any, faced by business or-
ganizations that have resulted from limited competi-
tion among public accounting firms, including—
(A) higher costs;
(B) lower quality of services;
(C) impairment of auditor independence; or
(D) lack of choice; and
(3) whether and to what extent Federal or State
regulations impede competition among public ac-
counting firms.
(b) CONSULTATION.—In planning and conducting the
study under this section, the Comptroller General shall con-
sult with—
(1) the Commission;
(2) the regulatory agencies that perform func-
tions similar to the Commission within the other
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member countries of the Group of Seven Industri-
alized Nations;
(3) the Department of Justice; and
(4) any other public or private sector organiza-
tion that the Comptroller General considers appro-
priate.
(c) REPORT REQUIRED.—Not later than 1 year after
the date of enactment of this Act, the Comptroller General
shall submit a report on the results of the study required
by this section to the Committee on Banking, Housing, and
Urban Affairs of the Senate and the Committee on Finan-
cial Services of the House of Representatives.
SEC. 702. COMMISSION STUDY AND REPORT REGARDING
CREDIT RATING AGENCIES.
(a) STUDY REQUIRED.—
(1) IN GENERAL.—The Commission shall conduct
a study of the role and function of credit rating agen-
cies in the operation of the securities market.
(2) AREAS OF CONSIDERATION.—The study re-
quired by this subsection shall examine—
(A) the role of credit rating agencies in the
evaluation of issuers of securities;
(B) the importance of that role to investors
and the functioning of the securities markets;
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(C) any impediments to the accurate ap-
praisal by credit rating agencies of the financial
resources and risks of issuers of securities;
(D) any barriers to entry into the business
of acting as a credit rating agency, and any
measures needed to remove such barriers;
(E) any measures which may be required to
improve the dissemination of information con-
cerning such resources and risks when credit rat-
ing agencies announce credit ratings; and
(F) any conflicts of interest in the operation
of credit rating agencies and measures to prevent
such conflicts or ameliorate the consequences of
such conflicts.
(b) REPORT REQUIRED.—The Commission shall sub-
mit a report on the study required by subsection (a) to the
President, the Committee on Financial Services of the
House of Representatives, and the Committee on Banking,
Housing, and Urban Affairs of the Senate not later than
180 days after the date of enactment of this Act.
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TITLE 
VIII—CORPORATE 
AND
CRIMINAL FRAUD ACCOUNT-
ABILITY
SEC. 801. SHORT TITLE.
This title may be cited as the ‘‘Corporate and Crimi-
nal Fraud Accountability Act of 2002’’.
SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCU-
MENTS.
(a) IN GENERAL.—Chapter 73 of title 18, United
States Code, is amended by adding at the end the following:
‘‘§ 1519. Destruction, alteration, or falsification of
records in Federal investigations and
bankruptcy
‘‘Whoever knowingly alters, destroys, mutilates, con-
ceals, covers up, falsifies, or makes a false entry in any
record, document, or tangible object with the intent to im-
pede, obstruct, or influence the investigation or proper ad-
ministration of any matter within the jurisdiction of any
department or agency of the United States or any case filed
under title 11, or in relation to or contemplation of any
such matter or case, shall be fined under this title, impris-
oned not more than 10 years, or both.
‘‘§ 1520. Destruction of corporate audit records
‘‘(a)(1) Any accountant who conducts an audit of an
issuer of securities to which section 10A(a) of the Securities
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Exchange Act of 1934 (15 U.S.C. 78j–1(a)) applies, shall
maintain all audit or review workpapers for a period of
5 years from the end of the fiscal period in which the audit
or review was concluded.
‘‘(2) The Securities and Exchange Commission shall
promulgate, within 180 days, after adequate notice and an
opportunity for comment, such rules and regulations, as are
reasonably necessary, relating to the retention of relevant
records such as workpapers, documents that form the basis
of an audit or review, memoranda, correspondence, commu-
nications, other documents, and records (including elec-
tronic records) which are created, sent, or received in con-
nection with an audit or review and contain conclusions,
opinions, analyses, or financial data relating to such an
audit or review, which is conducted by any accountant who
conducts an audit of an issuer of securities to which section
10A(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78j–1(a)) applies.
‘‘(b) Whoever knowingly and willfully violates sub-
section (a)(1), or any rule or regulation promulgated by
the Securities and Exchange Commission under subsection
(a)(2), shall be fined under this title, imprisoned not more
than 5 years, or both.
‘‘(c) Nothing in this section shall be deemed to dimin-
ish or relieve any person of any other duty or obligation,
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imposed by Federal or State law or regulation, to maintain,
or refrain from destroying, any document.’’.
(b) CLERICAL AMENDMENT.—The table of sections at
the beginning of chapter 73 of title 18, United States Code,
is amended by adding at the end the following new items:
‘‘1519. Destruction, alteration, or falsification of records in Federal investigations
and bankruptcy.
‘‘1520. Destruction of corporate audit records.’’.
SEC. 803. DEBTS NONDISCHARGEABLE IF INCURRED IN VIO-
LATION OF SECURITIES FRAUD LAWS.
Section 523(a) of title 11, United States Code, is
amended—
(1) in paragraph (17), by striking ‘‘or’’ after the
semicolon;
(2) in paragraph (18), by striking the period at
the end and inserting ‘‘; or’’; and
(3) by adding at the end, the following:
‘‘(19) that—
‘‘(A) arises under a claim relating to—
‘‘(i) the violation of any of the Federal
securities laws (as that term is defined in
section 3(a)(47) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(47)), any
State securities laws, or any regulations or
orders issued under such Federal or State
securities laws; or
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‘‘(ii) common law fraud, deceit, or ma-
nipulation in connection with the purchase
or sale of any security; and
‘‘(B) results, in relation to any claim de-
scribed in subparagraph (A), from—
‘‘(i) any judgment, order, consent
order, or decree entered in any Federal or
State judicial or administrative proceeding;
‘‘(ii) any settlement agreement entered
into by the debtor; or
‘‘(iii) any court or administrative
order for any damages, fine, penalty, cita-
tion, restitutionary payment, disgorgement
payment, attorney fee, cost, or other pay-
ment owed by the debtor.’’.
SEC. 804. STATUTE OF LIMITATIONS FOR SECURITIES
FRAUD.
(a) IN GENERAL.—Section 1658 of title 28, United
States Code, is amended—
(1) by inserting ‘‘(a)’’ before ‘‘Except’’; and
(2) by adding at the end the following:
‘‘(b) Notwithstanding subsection (a), a private right
of action that involves a claim of fraud, deceit, manipula-
tion, or contrivance in contravention of a regulatory re-
quirement concerning the securities laws, as defined in sec-
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tion 3(a)(47) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(47)), may be brought not later than the ear-
lier of—
‘‘(1) two years after the discovery of the facts
constituting the violation; or
‘‘(2) five years after such violation.’’.
(b) EFFECTIVE DATE.—The limitations period pro-
vided by section 1658(b) of title 28, United States Code,
as added by this section, shall apply to all proceedings ad-
dressed by this section that are commenced on or after the
date of enactment of this Act.
(c) NO CREATION OF ACTIONS.—Nothing in this sec-
tion shall create a new, private right of action.
SEC. 805. REVIEW OF FEDERAL SENTENCING GUIDELINES
FOR OBSTRUCTION OF JUSTICE AND EXTEN-
SIVE CRIMINAL FRAUD.
Pursuant to section 994 of title 28, United States Code,
and in accordance with this section, the United States Sen-
tencing Commission shall review and amend, as appro-
priate, the Federal Sentencing Guidelines and related pol-
icy statements to ensure that—
(1) the base offense level and existing enhance-
ments contained in United States Sentencing Guide-
line 2J1.2 relating to obstruction of justice are suffi-
cient to deter and punish that activity;
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(2) the enhancements and specific offense charac-
teristics relating to obstruction of justice are adequate
in cases where—
(A) documents and other physical evidence
are actually destroyed, altered, or fabricated;
(B) the destruction, alteration, or fabrica-
tion of evidence involves—
(i) a large amount of evidence, a large
number of participants, or is otherwise ex-
tensive;
(ii) the selection of evidence that is
particularly probative or essential to the in-
vestigation; or
(iii) more than minimal planning; or
(C) the offense involved abuse of a special
skill or a position of trust;
(3) the guideline offense levels and enhancements
for violations of section 1519 or 1520 of title 18,
United States Code, as added by this title, are suffi-
cient to deter and punish that activity;
(4) the guideline offense levels and enhancements
under United States Sentencing Guideline 2B1.1 (as
in effect on the date of enactment of this Act) are suf-
ficient for a fraud offense when the number of victims
adversely involved is significantly greater than 50;
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(5) a specific offense characteristic enhancing
sentencing is provided under United States Sen-
tencing Guideline 2B1.1 (as in effect on the date of
enactment of this Act) for a fraud offense that endan-
gers the solvency or financial security of a substantial
number of victims; and
(6) the guidelines that apply to organizations in
United States Sentencing Guidelines, chapter 8, are
sufficient to deter and punish organizational criminal
misconduct.
SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY
TRADED 
COMPANIES 
WHO 
PROVIDE 
EVI-
DENCE OF FRAUD.
(a) IN GENERAL.—Chapter 73 of title 18, United
States Code, is amended by inserting after section 1514 the
following:
‘‘§ 1514A. Civil action to protect against retaliation in
fraud cases
‘‘(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES
OF PUBLICLY TRADED COMPANIES.—No company with a
class of securities registered under section 12 of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78l), or that is re-
quired to file reports under section 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer,
employee, contractor, subcontractor, or agent of such com-
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pany, may discharge, demote, suspend, threaten, harass, or
in any other manner discriminate against an employee in
the terms and conditions of employment because of any law-
ful act done by the employee—
‘‘(1) to provide information, cause information
to be provided, or otherwise assist in an investigation
regarding any conduct which the employee reasonably
believes constitutes a violation of section 1341, 1343,
1344, or 1348, any rule or regulation of the Securities
and Exchange Commission, or any provision of Fed-
eral law relating to fraud against shareholders, when
the information or assistance is provided to or the in-
vestigation is conducted by—
‘‘(A) a Federal regulatory or law enforce-
ment agency;
‘‘(B) any Member of Congress or any com-
mittee of Congress; or
‘‘(C) a person with supervisory authority
over the employee (or such other person working
for the employer who has the authority to inves-
tigate, discover, or terminate misconduct); or
‘‘(2) to file, cause to be filed, testify, participate
in, or otherwise assist in a proceeding filed or about
to be filed (with any knowledge of the employer) relat-
ing to an alleged violation of section 1341, 1343,
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1344, or 1348, any rule or regulation of the Securities
and Exchange Commission, or any provision of Fed-
eral law relating to fraud against shareholders.
‘‘(b) ENFORCEMENT ACTION.—
‘‘(1) IN GENERAL.—A person who alleges dis-
charge or other discrimination by any person in vio-
lation of subsection (a) may seek relief under sub-
section (c), by—
‘‘(A) filing a complaint with the Secretary
of Labor; or
‘‘(B) if the Secretary has not issued a final
decision within 180 days of the filing of the com-
plaint and there is no showing that such delay
is due to the bad faith of the claimant, bringing
an action at law or equity for de novo review in
the appropriate district court of the United
States, which shall have jurisdiction over such
an action without regard to the amount in con-
troversy.
‘‘(2) PROCEDURE.—
‘‘(A) IN GENERAL.—An action under para-
graph (1)(A) shall be governed under the rules
and procedures set forth in section 42121(b) of
title 49, United States Code.
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‘‘(B) EXCEPTION.—Notification made under
section 42121(b)(1) of title 49, United States
Code, shall be made to the person named in the
complaint and to the employer.
‘‘(C) BURDENS
OF
PROOF.—An action
brought under paragraph (1)(B) shall be gov-
erned by the legal burdens of proof set forth in
section 42121(b) of title 49, United States Code.
‘‘(D) STATUTE OF LIMITATIONS.—An action
under paragraph (1) shall be commenced not
later than 90 days after the date on which the
violation occurs.
‘‘(c) REMEDIES.—
‘‘(1) IN GENERAL.—An employee prevailing in
any action under subsection (b)(1) shall be entitled to
all relief necessary to make the employee whole.
‘‘(2) COMPENSATORY DAMAGES.—Relief for any
action under paragraph (1) shall include—
‘‘(A) reinstatement with the same seniority
status that the employee would have had, but for
the discrimination;
‘‘(B) the amount of back pay, with interest;
and
‘‘(C) compensation for any special damages
sustained as a result of the discrimination, in-
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cluding litigation costs, expert witness fees, and
reasonable attorney fees.
‘‘(d) RIGHTS RETAINED BY EMPLOYEE.—Nothing in
this section shall be deemed to diminish the rights, privi-
leges, or remedies of any employee under any Federal or
State law, or under any collective bargaining agreement.’’.
(b) CLERICAL AMENDMENT.—The table of sections at
the beginning of chapter 73 of title 18, United States Code,
is amended by inserting after the item relating to section
1514 the following new item:
‘‘1514A. Civil action to protect against retaliation in fraud cases.’’.
SEC. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHARE-
HOLDERS OF PUBLICLY TRADED COMPANIES.
(a) IN GENERAL.—Chapter 63 of title 18, United
States Code, is amended by adding at the end the following:
‘‘§ 1348. Securities fraud
‘‘Whoever knowingly executes, or attempts to execute,
a scheme or artifice—
‘‘(1) to defraud any person in connection with
any security of an issuer with a class of securities
registered under section 12 of the Securities Exchange
Act of 1934 (15 U.S.C. 78l) or that is required to file
reports under section 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(d)); or
‘‘(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any money or
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property in connection with the purchase or sale of
any security of an issuer with a class of securities
registered under section 12 of the Securities Exchange
Act of 1934 (15 U.S.C. 78l) or that is required to file
reports under section 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(d));
shall be fined under this title, or imprisoned not more than
10 years, or both.’’.
(b) CLERICAL AMENDMENT.—The table of sections at
the beginning of chapter 63 of title 18, United States Code,
is amended by adding at the end the following new item:
‘‘1348. Securities fraud.’’.
TITLE IX—WHITE-COLLAR CRIME
PENALTY ENHANCEMENTS
SEC. 901. SHORT TITLE.
This title may be cited as the ‘‘White-Collar Crime
Penalty Enhancement Act of 2002’’.
SEC. 902. CRIMINAL PENALTIES FOR CONSPIRACY TO COM-
MIT OFFENSE OR TO DEFRAUD THE UNITED
STATES.
Section 371 of title 18, United States Code, is amended
by striking ‘‘If two or more’’ and all that follows through
‘‘If, however,’’ and inserting the following:
‘‘(a) IN GENERAL.—If 2 or more persons—
‘‘(1) conspire to commit any offense against the
United States, in any manner or for any purpose,
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and 1 or more of such persons do any act to effect the
object of the conspiracy, each person shall be fined or
imprisoned, or both, as set forth in the specific sub-
stantive offense which was the object of the con-
spiracy; or
‘‘(2) conspire to defraud the United States, or
any agency thereof in any manner or for any pur-
pose, and 1 or more of such persons do any act to ef-
fect the object of the conspiracy, each person shall be
fined under this title, or imprisoned not more than 10
years, or both.
‘‘(b) MISDEMEANOR OFFENSE.—If, however,’’.
SEC. 903. CRIMINAL PENALTIES FOR MAIL AND WIRE
FRAUD.
(a) MAIL FRAUD.—Section 1341 of title 18, United
States Code, is amended by striking ‘‘five years’’ and insert-
ing ‘‘10 years’’.
(b) WIRE FRAUD.—Section 1343 of title 18, United
States Code, is amended by striking ‘‘five years’’ and insert-
ing ‘‘10 years’’.
SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE
EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974.
Section 501 of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1131) is amended—
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(1) 
by 
striking 
‘‘$5,000’’ 
and 
inserting
‘‘$100,000’’;
(1) by striking ‘‘one year’’ and inserting ‘‘10
years’’; and
(3) by striking ‘‘$100,000’’ and inserting
‘‘$500,000’’.
SEC. 905. AMENDMENT TO SENTENCING GUIDELINES RE-
LATING 
TO 
CERTAIN 
WHITE-COLLAR 
OF-
FENSES.
(a) DIRECTIVE TO THE UNITED STATES SENTENCING
COMMISSION.—Pursuant to its authority under section
994(p) of title 18, United States Code, and in accordance
with this section, the United States Sentencing Commission
shall review and, as appropriate, amend the Federal Sen-
tencing Guidelines and related policy statements to imple-
ment the provisions of this title.
(b) REQUIREMENTS.—In carrying out this section, the
Sentencing Commission shall—
(1) ensure that the sentencing guidelines and
policy statements reflect the serious nature of the of-
fenses and the penalties set forth in this title, the
growing incidence of serious fraud offenses which are
identified above, and the need to modify the sen-
tencing guidelines and policy statements to deter, pre-
vent, and punish such offenses;
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(2) consider the extent to which the guidelines
and policy statements adequately address—
(A) whether the guideline offense levels and
enhancements for violations of the sections
amended by this title are sufficient to deter and
punish such offenses, and specifically, are ade-
quate in view of the statutory increases in pen-
alties contained in this title; and
(B) whether a specific offense characteristic
should be added in United States Sentencing
Guideline section 2B1.1 in order to provide for
stronger penalties for fraud when the crime is
committed by a corporate officer or director;
(3) assure reasonable consistency with other rel-
evant directives and sentencing guidelines;
(4) account for any additional aggravating or
mitigating circumstances that might justify excep-
tions to the generally applicable sentencing ranges;
(5) make any necessary conforming changes to
the sentencing guidelines; and
(6) assure that the guidelines adequately meet
the purposes of sentencing as set forth in section
3553(a)(2) of title 18, United States Code.
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SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL RE-
PORTS.
(a) IN GENERAL.—Chapter 63 of title 18, United
States Code, is amended by adding at the end the following:
‘‘§ 1348. Failure of corporate officers to certify finan-
cial reports
‘‘(a) CERTIFICATION
OF PERIODIC FINANCIAL RE-
PORTS.—Each periodic report containing financial state-
ments filed by an issuer with the Securities Exchange Com-
mission pursuant to section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall
be accompanied by a written statement by the chairman
of the board, chief executive officer, and chief financial offi-
cer (or equivalent thereof) of the issuer.
‘‘(b) CONTENT.—The statement required under sub-
section (a) shall certify the appropriateness of the financial
statements and disclosures contained in the periodic report
or financial report, and that those financial statements and
disclosures fairly present, in all material respects, the oper-
ations and financial condition of the issuer.
‘‘(c) CRIMINAL
PENALTIES.—Notwithstanding any
other provision of law—
‘‘(1) any person who recklessly and knowingly
violates any provision of this section shall upon con-
viction be fined not more than $500,000, or impris-
oned not more than 5 years, or both; or
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‘‘(2) any person who willfully violates any provi-
sion of this section shall upon conviction be fined not
more than $1,000,000, or imprisoned not more than
10 years, or both.’’.
(b) TECHNICAL AND CONFORMING AMENDMENT.—The
section analysis for chapter 63 of title 18, United States
Code, is amended by adding at the end the following:
‘‘1348. Failure of corporate officers to certify financial reports.’’.
SEC. 907. HIGHER MAXIMUM PENALTIES FOR MAIL AND
WIRE FRAUD.
(a) MAIL FRAUD.—Section 1341 of title 18, United
States Code, is amended by striking ‘‘five’’ and inserting
‘‘ten’’.
(b) WIRE FRAUD.—Section 1343 of title 18, United
States Code, is amended by striking ‘‘five’’ and inserting
‘‘ten’’.
SEC. 908. TAMPERING WITH A RECORD OR OTHERWISE IM-
PEDING AN OFFICIAL PROCEEDING.
Section 1512 of title 18, United States Code, is
amended—
(1) by re-designating subsections (c), (d), (e), (f),
(g), (h), and (i) as subsections (d), (e), (f), (g), (h),
(i) and (j);
(2) by inserting after subsection (b) the following
new subsection:
‘‘(c) Whoever corruptly—
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‘‘(1) alters, destroys, mutilates, or conceals a
record, document, or other object, or attempts to do so,
with the intent to impair the object’s integrity or
availability for use in an official proceeding; or
‘‘(2) otherwise obstructs, influences, or impedes
any official proceeding, or attempts to do so;
shall be fined under this title or imprisoned not more than
10 years, or both.’’.
SEC. 909. TEMPORARY FREEZE AUTHORITY FOR THE SECU-
RITIES AND EXCHANGE COMMISSION.
(a) IN GENERAL.—The Securities Exchange Act of
1934 is amended by inserting after section 21C(c)(2) (15
U.S.C. 78u–3(c)(2)) the following:
‘‘(3) TEMPORARY FREEZE.—(A) Whenever, dur-
ing the course of a lawful investigation involving pos-
sible violations of the Federal securities laws by an
issuer of publicly traded securities or any of its direc-
tors, officers, partners, controlling persons, agents, or
employees, it shall appear to the Commission that it
is likely that the issuer will make extraordinary pay-
ments (whether compensation or otherwise) to any of
the foregoing persons, the Commission may petition a
Federal district court for a temporary order requiring
the issuer to escrow, subject to court supervision, those
payments in an interest-bearing account for 45 days.
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Such an order shall be entered, if the court finds that
the issuer is likely to make such extraordinary pay-
ments, only after notice and opportunity for a hear-
ing, unless the court determines that notice and hear-
ing prior to entry of the order would be impracticable
or contrary to the public interest. A temporary order
shall become effective immediately and shall be served
upon the parties subject to it and, unless set aside,
limited or suspended by court of competent jurisdic-
tion, shall remain effective and enforceable for 45
days. The period of the order may be extended by the
court upon good cause shown for not longer than 45
days, provided that the combined period of the order
not exceed 90 days.
‘‘(B) If the individual affected by such order is
charged with violations of the Federal securities laws
by the expiration of the 45 days (or the expiration of
any extended period), the escrow would continue, sub-
ject to court approval, until the conclusion of any
legal proceedings. The issuer and the affected director,
officer, partner, controlling person, agent or employee
would have the right to petition the court for review
of the order. If the individual affected by such order
is not charged, the escrow will terminate at the expi-
ration of the 45 days (or the expiration of any ex-