I
107TH CONGRESS
2D SESSION
H. R. 3763
To protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 14, 2002
Mr. OXLEY (for himself, Mr. BAKER, Mr. BOEHNER, Mrs. ROUKEMA, Mr. BE-
REUTER, Mr. BACHUS, Mrs. KELLY, Mr. CASTLE, Mr. ROYCE, Mr. NEY,
Mr. GILLMOR, Mr. COX, Mr. LATOURETTE, Mr. MANZULLO, Mr. JONES
of North Carolina, Mr. OSE, Mr. GREEN of Wisconsin, Mr. TOOMEY, Mr.
SHADEGG, Mr. FOSSELLA, Mr. CANTOR, Ms. HART, Mr. FERGUSON, Mr.
ROGERS of Michigan, and Mr. TIBERI) introduced the following bill;
which was referred to the Committee on Financial Servcies
A BILL
To protect investors by improving the accuracy and reliability
of corporate disclosures made pursuant to the securities
laws, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Corporate and Audit-
ing Accountability, Responsibility, and Transparency Act
of 2002’’.
SEC. 2. AUDITOR OVERSIGHT.
(a) CERTIFIED FINANCIAL STATEMENT REQUIRE-
MENTS.—If a financial statement is required by the secu-
rities laws or any rule or regulation thereunder to be cer-
tified by an independent public or certified accountant,
such accountant shall not be considered to be qualified to
certify such financial statement, and the Securities and
Exchange Commission shall not accept a financial state-
ment 
certified 
by 
such 
accountant, 
unless 
such
accountant—
(1) is subject to a system of review by a public
regulatory organization that complies with the re-
quirements of this section and the rules prescribed
by the Commission under this section; and
(2) has not been determined in the most recent
review completed under such system to be not quali-
fied to certify such a statement.
(b) ESTABLISHMENT
OF PRO.—The Commission
shall by rule establish the criteria by which a public regu-
latory organization may be recognized for purposes of this
section. Such criteria shall include the following require-
ments:
(1) The board of such organization shall be
comprised of both members of the accounting profes-
sion and public members who are not members of
the accounting profession, and such public members
shall comprise at least two-thirds of the board of
such organization.
(2) Such organization is so organized and has
the capacity—
(A) to be able to carry out the purposes of
this section and to comply, and to enforce com-
pliance by accountants and persons associated
with accountants, with the provisions of this
Act, the securities laws, the rules and regula-
tions thereunder, and the rules of the organiza-
tion;
(B) to perform a review of the work prod-
uct (including the quality thereof) of an ac-
countant or a person associated with an ac-
countant; and
(C) to perform a review of any potential
conflicts of interest between an accountant (or
a person associated with an accountant) and
the issuer, the issuer’s board of directors and
committees thereof, officers, and affiliates of
such issuer, that may result in an impairment
of auditor independence.
(3) Such organization shall have the authority
to impose sanctions, including a determination that
an accountant is not qualified to certify a financial
statement, or any categories of financial statements,
required by the securities laws, or that a person as-
sociated with an accountant is not qualified to par-
ticipate in such certification, if, after conducting a
review and providing an opportunity for a hearing,
the organization finds that—
(A) such accountant or person associated
with an accountant has violated the standards
of independence, ethics, or competency in the
profession;
(B) such accountant or person associated
with an accountant has violated the securities
laws or a rule or regulation thereunder;
(C) an audit conducted by such accountant
or any person associated with an accountant
has been materially affected by an impairment
of auditor independence;
(D) such accountant or person associated
with an accountant has performed both audit-
ing services and consulting services in violation
of the rules prescribed by the Commission pur-
suant to subsection (c); and
(E) such accountant or any person associ-
ated with an accountant has impeded, ob-
structed, or otherwise not cooperated in such
review.
(4) Any such organization shall disclose pub-
licly, and make available for public comment, pro-
posed procedures and methods for conducting such
reviews.
(5) Any such organization shall have in place
procedures to minimize and deter conflicts of inter-
est involving the public members of such organiza-
tion, and have in place procedures to resolve such
conflicts.
(6) Any such organization shall have in place
procedures for notifying the boards of accountancy
of the States of the results of reviews, including any
findings under paragraphs (2) and (3).
(7) Any such organization shall have in place
procedures for notifying the Commission of any find-
ings of such reviews, including any findings regard-
ing suspected violations of the securities laws.
(8) Any such organization shall consult with
boards of accountancy of the States.
(9) Any such organization shall have in place a
mechanism to allow the organization to operate on
a self-funded basis. Such funding mechanism shall
ensure that such organization is not solely depend-
ent upon members of the accounting profession for
such funding and operations.
(c) PROHIBITION ON THE OFFER OF BOTH AUDIT
AND CONSULTING SERVICES.—
(1) 
MODIFICATION
OF
REGULATIONS
RE-
QUIRED.—The Commission shall revise its regula-
tions pertaining to auditor independence to require
that an accountant shall not be considered inde-
pendent with respect to an audit client if the ac-
countant provides to the client the following non-
audit services (as such term is defined in such regu-
lations as in effect on the date of enactment of this
Act)—
(A) financial information system design or
implementation; or
(B) internal audit services.
(2) DEADLINE FOR RULEMAKING.—The Com-
mission shall prescribe the revisions to its regula-
tions required by paragraph (1) within 180 days
after the date of enactment of this Act.
(d) PRO ACCOUNTANT REVIEW PROCEEDINGS.—
(1) REVIEW PROCEEDING FINDINGS.—Any ac-
countant review conducted under this section shall
include any finding that a financial statement au-
dited by such accountant and submitted to the Com-
mission may have been materially affected by an im-
pairment of independence, or by a violation of the
securities laws or a rule or regulation thereunder.
Such findings shall be submitted to the Commission.
The Commission shall immediately notify an issuer
of any such finding that relates to the financial
statements of such issuer.
(2) 
CONFIDENTIAL
TREATMENT
OF
PRO-
CEEDINGS PENDING SEC REVIEW.—Except as other-
wise provided in this section, but notwithstanding
any other provision of law, neither the Commission
nor a recognized public regulatory organization shall
be compelled to disclose any information concerning
any accountant review proceeding and the findings
therein. Nothing in this subsection shall authorize
the Commission to withhold information from Con-
gress, or prevent the Commission from complying
with a request for information from any other Fed-
eral department or agency requesting information
for purposes within the scope of its jurisdiction, or
complying with an order of a court of the United
States in an action brought by the United States or
the Commission. Neither the Commission nor the
recognized public regulatory organization shall dis-
close the results of any such finding until the com-
pletion of any review by the Commission under sub-
sections (d) and (e), or the conclusion of the 30-day
period for seeking review if no motion seeking review
is filed within such period. For purposes of section
552 of title 5, United States Code, this subsection
shall be considered a statute described in subsection
(b)(3)(B) of such section 552.
(e) REVIEW OF SANCTIONS.—
(1) NOTICE.—If any recognized public regu-
latory organization—
(A) makes a finding with respect to or im-
poses any final disciplinary sanction on any ac-
countant;
(B) prohibits or limits any person in re-
spect to access to services offered by such orga-
nization; or
(C) makes a finding with respect to or im-
poses any final disciplinary sanction on any per-
son associated with an accountant or bars any
person from becoming associated with an ac-
countant,
the recognized public regulatory organization shall
promptly submit notice thereof with the Commission.
The notice shall be in such form and contain such
information as the Commission, by rule, may pre-
scribe as necessary or appropriate in furtherance of
the purposes of this section.
(2) REVIEW BY COMMISSION.—Any action with
respect to which a recognized public regulatory orga-
nization is required by paragraph (1) of this sub-
section to submit notice shall be subject to review by
the Commission, on its own motion, or upon applica-
tion by any person aggrieved thereby filed within 30
days after the date such notice was filed with the
Commission and received by such aggrieved person,
or within such longer period as the Commission may
determine. Application to the Commission for review,
or the institution of review by the Commission on its
own motion, shall not operate as a stay of such ac-
tion unless the Commission otherwise 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). The Commission shall establish
for appropriate cases an expedited procedure for
consideration and determination of the question of a
stay.
(f) CONDUCT OF COMMISSION REVIEW.—
(1) BASIS FOR ACTION.—In any proceeding to
review a final disciplinary sanction imposed by a rec-
ognized public regulatory organization on an ac-
countant or a person associated with such account-
ant, after notice and opportunity for hearing (which
hearing may consist solely of consideration of the
record before the recognized public regulatory orga-
nization and opportunity for the presentation of sup-
porting reasons to affirm, modify, or set aside the
sanction)—
(A) if the Commission finds that such ac-
countant or person associated with an account-
ant has engaged in such acts or practices, or
has omitted such acts, as the recognized public
regulatory organization has found him to have
engaged in or omitted, that such acts or prac-
tices, or omissions to act, are in violation of
such provisions of this section, the securities
laws, the rules or regulations thereunder, or the
rules of the recognized public regulatory organi-
zation, as have been specified in the determina-
tion of the public regulatory organization, and
that such provisions are, and were applied in a
manner, consistent with the purposes of this
section, the Commission, by order, shall so de-
clare and, as appropriate, affirm the sanction
imposed by the recognized public regulatory or-
ing or as to which the recognized public regulatory
organization consents, the Commission shall—
(A) by order approve such proposed rule
change; or
(B) institute proceedings to determine
whether the proposed rule change should be dis-
approved. Such proceedings shall include notice
of the grounds for disapproval under consider-
ation and opportunity for hearing and be con-
cluded within 180 days of the date of publica-
tion of notice of the filing of the proposed rule
change. At the conclusion of such proceedings
the Commission, by order, shall approve or dis-
approve such proposed rule change. The Com-
mission may extend the time for conclusion of
such proceedings for up to 60 days if it finds
good cause for such extension and publishes its
reasons for so finding or for such longer period
as to which the recognized public regulatory or-
ganization consents.
(3) BASIS FOR APPROVAL OR DISAPPROVAL.—
The Commission shall approve a proposed rule
change of a recognized public regulatory organiza-
tion if it finds that such proposed rule change is
consistent with the requirements of this Act and the
rules and regulations thereunder applicable to such
organization. The Commission shall disapprove a
proposed rule change of a recognized public regu-
latory organization if it does not make such finding.
The Commission shall not approve any proposed rule
change prior to the 30th day after the date of publi-
cation of notice of the filing thereof, unless the Com-
mission finds good cause for so doing and publishes
its reasons for so finding.
(4) RULES EFFECTIVE UPON FILING.—
(A) Notwithstanding the provisions of
paragraph (2) of this subsection, a proposed
rule change may take effect upon filing with the
Commission if designated by the recognized
public regulatory organization as (i) consti-
tuting a stated policy, practice, or interpreta-
tion with respect to the meaning, administra-
tion, or enforcement of an existing rule of the
recognized public regulatory organization, (ii)
establishing or changing a due, fee, or other
charge imposed by the recognized public regu-
latory organization, or (iii) concerned solely
with the administration of the recognized public
regulatory organization or other matters which
the Commission, by rule, consistent with the
public interest and the purposes of this sub-
section, may specify as outside the provisions of
such paragraph (2).
(B) Notwithstanding any other provision of
this subsection, a proposed rule change may be
put into effect summarily if it appears to the
Commission that such action is necessary for
the protection of investors, or otherwise in the
public interest. Any proposed rule change so
put into effect shall be filed promptly thereafter
in accordance with the provisions of paragraph
(1) of this subsection.
(C) Any proposed rule change of a recog-
nized public regulatory organization which has
taken effect pursuant to subparagraph (A) or
(B) of this paragraph may be enforced by such
organization to the extent it is not inconsistent
with the provisions of this Act, the securities
laws, the rules and regulations thereunder, and
applicable Federal and State law. At any time
within 60 days of the date of filing of such a
proposed rule change in accordance with the
provisions of paragraph (1) of this subsection,
the Commission summarily may abrogate the
change in the rules of the recognized public reg-
ulatory organization made thereby and require
that the proposed rule change be refiled in ac-
cordance with the provisions of paragraph (1)
of this subsection and reviewed in accordance
with the provisions of paragraph (2) of this
subsection, if it appears to the Commission that
such action is necessary or appropriate in the
public interest, for the protection of investors,
or otherwise in furtherance of the purposes of
this Act. Commission action pursuant to the
preceding sentence shall not affect the validity
or force of the rule change during the period it
was in effect, shall not be subject to court re-
view, and shall not be deemed to be ‘‘final agen-
cy action’’ for purposes of section 704 of title
5, United States Code.
(h) COMMISSION ACTION TO CHANGE RULES.—The
Commission, by rule, may abrogate, add to, and delete
from (hereinafter in this subsection collectively referred to
as ‘‘amend’’) the rules of a recognized public regulatory
organization as the Commission deems necessary or ap-
propriate to insure the fair administration of the recog-
nized public regulatory organization, to conform its rules
to requirements of this Act, the securities laws, and the
rules and regulations thereunder applicable to such orga-
nization, or otherwise in furtherance of the purposes of
this Act, in the following manner:
(1) The Commission shall notify the recognized
public regulatory organization and publish notice of
the proposed rulemaking in the Federal Register.
The notice shall include the text of the proposed
amendment to the rules of the recognized public reg-
ulatory organization and a statement of the Com-
mission’s reasons, including any pertinent facts, for
commencing such proposed rulemaking.
(2) The Commission shall give interested per-
sons an opportunity for the oral presentation of
data, views, and arguments, in addition to an oppor-
tunity to make written submissions. A transcript
shall be kept of any oral presentation.
(3) A rule adopted pursuant to this subsection
shall incorporate the text of the amendment to the
rules of the recognized public regulatory organiza-
tion and a statement of the Commission’s basis for
and purpose in so amending such rules. This state-
ment shall include an identification of any facts on
which the Commission considers its determination so
to amend the rules of the recognized public regu-
latory agency to be based, including the reasons for
the Commission’s conclusions as to any of such facts
which were disputed in the rulemaking.
(4)(A) Except as provided in paragraphs (1)
through (3) of this subsection, rulemaking under
this subsection shall be in accordance with the pro-
cedures specified in section 553 of title 5, United
States Code, for rulemaking not on the record.
(B) Nothing in this subsection shall be con-
strued to impair or limit the Commission’s power to
make, or to modify or alter the procedures the Com-
mission may follow in making, rules and regulations
pursuant to any other authority under the securities
laws.
(C) Any amendment to the rules of a recog-
nized public regulatory organization made by the
Commission pursuant to this subsection shall be con-
sidered for all purposes to be part of the rules of
such recognized public regulatory organization and
shall not be considered to be a rule of the Commis-
sion.
(i) RULEMAKING DEADLINE.—The Commission shall
prescribe rules to implement this section within 180 days
after the date of enactment of this Act.
(j) EFFECTIVE DATE; TRANSITION PROVISIONS.—
(1) EFFECTIVE DATE.—Except as provided in
paragraph (2), subsection (a) of this section shall be
effective with respect to any certified financial state-
ment for any fiscal year that ends more than one
year after the Commission recognizes a public regu-
latory organization pursuant to this section.
(2) DELAY IN ESTABLISHMENT OF BOARD.—If
the Commission has failed to recognize any public
regulatory organization pursuant to this section
within one year after the date of enactment of this
Act, the Commission shall perform the duties of
such organization with respect to any certified finan-
cial statement for any fiscal year that ends before
one year after any such board is recognized by the
Commission.
SEC. 3. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
It shall be unlawful in contravention of such rules
and regulations as the Commission shall prescribe as nec-
essary and appropriate in the public interest or for the
protection of investors for any officer, director, or affili-
ated person of an issuer of any security registered under
section 12 of the Securities Exchange Act of 1934 (15
U.S.C. 78l) to take any action to willfully and improperly
influence, coerce, manipulate, or mislead any independent
public or certified accountant engaged in the performance
manipulate or unduly influence an audit is subject to
appropriate sanction and liability;
(5) whether rules, standards, and practices re-
lating to determining whether independent directors
are in fact independent are adequate;
(6) whether rules, standards, and practices re-
lating to the independence of directors serving on
audit committees are uniformly applied and ade-
quate to protect investor interests;
(7) whether the duties and responsibilities of
audit committees should be established by the Com-
mission; and
(8) what further or additional practices or
standards might best protect investors and promote
the interests of shareholders.
(b) PARTICIPATION
OF STATE REGULATORS.—In
conducting the study required under subsection (a), the
President’s Working Group on Financial Markets shall
seek the views of, and consult with, the securities and cor-
porate regulators of the various States.
(c) REPORT REQUIRED.—The President’s Working
Group on Financial Markets shall submit a report on the
analysis required under subsection (a) to the Committee
on Financial Services of the House of Representatives and
the Committee on Banking, Housing, and Urban Affairs
of the Senate no later than 180 days after the date of
enactment of this Act.
SEC. 10. STUDY OF ENFORCEMENT ACTIONS.
(a) STUDY REQUIRED.—The Commission shall re-
view and analyze all enforcement actions by the Commis-
sion involving violations of reporting requirements im-
posed under the securities laws, and all restatements of
financial statements, over the last five years to identify
areas of reporting that are most susceptible to fraud, inap-
propriate manipulation, or inappropriate earnings man-
agement, such as revenue recognition and the accounting
treatment of off-balance sheet special purpose entities.
(b) REPORT REQUIRED.—The Commission shall re-
port its findings to the Committee on Financial Services
of the House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate with-
in 180 days of the date of enactment of this Act and shall
use such findings to revise its rules and regulations, as
necessary.
SEC. 11. STUDY OF CREDIT RATING AGENCIES.
(a) STUDY REQUIRED.—The Commission shall con-
duct a study of the role and function of credit rating agen-
cies in the operation of the securities market. Such study
shall examine—
(1) the role of the credit rating agencies in the
evaluation of issuers of securities;
(2) the importance of that role to investors and
the functioning of the securities markets;
(3) any impediments to the accurate appraisal
by credit rating agencies of the financial resources
and risks of issuers of securities;
(4) any barriers to entry into the business of
acting as a credit rating agency, and any measures
needed to remove such barriers;
(5) any measures which may be required to im-
prove the dissemination of information concerning
such resources and risks when credit rating agencies
announce credit ratings; and
(6) any conflicts of interest in the operation of
credit rating agencies and measures to prevent such
conflicts or ameliorate the consequences of such con-
flicts.
(b) REPORT REQUIRED.—The Commission shall sub-
mit a report on the analysis 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 with-
in 180 days after the date of enactment of this Act.
SEC. 12. ENFORCEMENT AUTHORITY.
For the purposes of enforcing and carrying out this
Act, the Commission shall have all of the authorities
granted to the Commission under the securities laws. Ac-
tions of the Commission under this Act, including actions
on rules or regulations, shall be subject to review in the
same manner as actions under the securities laws.
SEC. 13. DEFINITIONS.
As used in this Act:
(1) BLACKOUT PERIOD.—The term ‘‘blackout
period’’ with respect to the equity securities of any
issuer—
(A) means any period during which the
employees of such issuer are precluded from
purchasing (or otherwise acquiring) or selling
(or otherwise transferring) their interest in any
equity security of such issuer held in an indi-
vidual account plan of such issuer; but
(B) does not include a period in which the
employees of an issuer may not allocate their
interests in the individual account plan due to
an express investment restriction—
(i) incorporated into the individual ac-
count plan; and
(ii) timely disclosed to employees be-
fore joining the individual account plan or
as a subsequent amendment to the plan.
(2) 
BOARDS
OF
ACCOUNTANCY
OF
THE
STATES.—The term ‘‘boards of accountancy of the
States’’ means any organization or association char-
tered or approved under the law of any State with
responsibility for the registration, supervision, or
regulation of accountants.
(3) COMMISSION.—The term ‘‘Commission’’
means the Securities and Exchange Commission.
(4) INDIVIDUAL
ACCOUNT
PLAN.—The term
‘‘individual account plan’’ has the meaning provided
such term in section 3(34) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C.
1002(34)).
(5) ISSUER.—The term ‘‘issuer’’ shall have the
meaning set forth in section 2(a)(4) of the Securities
Act of 1933 (15 U.S.C. 77b(a)(4)).
(6) PERSON ASSOCIATED WITH AN ACCOUNT-
ANT.—The term ‘‘person associated with an ac-
countant’’ means any partner, officer, director, or
manager of such accountant (or any person occu-
pying a similar status or performing similar func-
tions), any person directly or indirectly controlling,
controlled by, or under common control with such
accountant, or any employee of such accountant who
performs a supervisory role in the auditing process.
(7) RECOGNIZED PUBLIC REGULATORY ORGANI-
ZATION.—The term ‘‘recognized public regulatory
organization’’ means a public regulatory organiza-
tion that the Commission has recognized as meeting
the criteria established by the Commission under
subsection (b) of section 2.
(8) SECURITIES LAWS.—The term ‘‘securities
laws’’ means the Securities Act of 1933 (15 U.S.C.
77a et seq.), the Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.), the Trust Indenture Act of
1939 (15 U.S.C. 77aaa et seq.), the Investment
Company Act of 1940 (15 U.S.C. 80a–1 et seq.), the
Investment Advisers Act of 1940 (15 U.S.C. 80b et
seq.), and the Securities Investor Protection Act of
1970 (15 U.S.C. 78aaa et seq.), notwithstanding
any contrary provision of any such Act.
Æ