viewer as a necessary prerequisite to the
issuance of the accountant’s report.
(2) INSPECTIONS.—
(A) IN GENERAL.—Conduct a continuing
program of inspections of each public account-
ing firm registered with the Board to assess
compliance by such firm, and by persons associ-
ated with such firm, with applicable provisions
of this title, the securities laws, the rules and
regulations thereunder, the rules adopted by the
Board, and professional standards.
(B) ONGOING
INSPECTIONS.—Inspections
of each firm that audits more than 100 issuers
shall be conducted on an ongoing annual basis,
and all other public accounting firms no less
than at least once every 3 years, and shall,
among other matters that the Board may pre-
scribe, identify and report any act or practice,
or omission to act, by such firm, or by any per-
son associated with such firm, that is found to
be in violation of any such provision.
(C) REQUIRED
EVALUATIONS.—In con-
ducting such inspections, the Board shall,
among other things, inspect selected audit and
review engagements performed at various of-
fices and by various persons associated with the
public accounting firm under inspection, and, in
connection with the inspection, evaluate—
(i) whether the firm’s quality control
system is appropriate;
(ii) whether the firm’s policies and
procedures are adequately documented and
communicated to its personnel;
(iii) whether there is compliance with
such policies and procedures sufficient to
provide reasonable assurance of conformity
with professional standards; and
(iv) whether professional accounting,
auditing, and independence and ethics
standards were complied with.
(D) REPORT OF FINDINGS.—In connection
with each review, the Board, shall prepare a re-
port of its findings, and such report, accom-
panied by any letter of comments by the Board
or reviewer and any letter of response from the
firm under review, shall be made available to
the public.
(3) DISCIPLINE.—Provide that public account-
ing firms registered with the Board, and persons as-
sociated with such firms, shall be appropriately dis-
ciplined in accordance with the provisions of section
407 of this title for violation of any provision of this
title, the securities laws, the rules or regulations
thereunder, the rules adopted by the Board, or pro-
fessional standards.
(4) 
RECORDS
MAINTENANCE.—Prescribe
records to be made and kept by public accounting
firms and the periods for which, and physical loca-
tion where, such records shall be kept to facilitate
the reviews required under this title.
(b) AUDITING STANDARDS.—The Board shall pro-
mulgate and enforce compliance with such auditing stand-
ards as the Board, by rule, shall prescribe as necessary
or appropriate in the public interest or for the protection
of investors in connection with the preparation and
issuance by public accounting firms registered with the
Board of accountants’ reports with respect to financial
statements, reports, or other documents required to be
filed with the Commission under the securities laws.
(c) OTHER DUTIES.—The Board shall perform such
other duties or functions as the Commission determines
are necessary or appropriate in the public interest for the
protection of investors and to carry out the purposes of
this title.
SEC. 406. AUDITOR INDEPENDENCE.
(a) RULES; CRITERIA.—The Commission shall have
the authority and responsibility for promulgating and in-
terpreting auditor independence rules. For purposes of the
securities laws, a public accounting firm shall not be
deemed independent of an audit client if any of the fol-
lowing conditions or circumstances applies:
(1) PRIOR
EMPLOYMENT
OF
OFFICERS.—An
issuer’s chief executive officer, chief financial officer,
controller or principal accounting officer, or any
equivalent position was a person associated with the
public accounting firm during any period in the most
recent 2 years, on which the public accounting firm
sets forth its independent accountant’s report on the
financial statements required to be filed with the
Commission under the securities laws.
(2) NON-AUDIT SERVICE.—
(A) LIMITATION.—The auditor has pro-
vided services in any year other than those re-
quired by professional standards in connection
with rendering an independent accountant’s
audit or review report on the financial state-
ments of the issuer, and the audit committee
has not preapproved those services that were in-
dividually or in the aggregate in excess of 20
percent of the fees for professional services for
the audit and review of the annual and interim
financial statements, and in doing so, made a
determination they were in the best interest of
investors and disclosed that determination to
the stockholders of the issuer.
(B) IMPLEMENTATION.—The Board may
issue rules for purposes of implementing this
paragraph, and exempting services provided by
the auditor from its provision, if the Board
makes a finding that the services provided by
the auditor are in the best interests of investors
and will improve the quality of financial report-
ing and independent audits.
(3) LACK OF AUDITOR ROTATION.—The firm
has served as the auditor of an issuer for more than
7 consecutive years during which the auditor issued
its independent accountant’s report on the financial
statements of the issuer. However, an accounting
firm shall be considered to be independent if after
serving as the auditor of the issuer for 7 consecutive
years, it has not issued its accountant’s report on
the financial statements of the issuer for at least 2
consecutive years, subsequent to the 7-year term as
auditor.
(4) TRANSACTION DESIGN AND EVALUATION.—
(A) ADVICE OR CONSULTATION.—With re-
spect to any transaction that is accounted for
in the issuer’s audited or reviewed financial
statements, and which is included in the trans-
actions on which the firm issues its audit opin-
ion or review report on the issuer’s financial
statements, the firm—
(i) advised or consulted the issuer or
an intermediary in the design or struc-
turing of such transaction; or
(ii) provided the issuer or inter-
mediary a report on the application of gen-
erally accepted accounting principles or
Federal tax laws or regulations to the
transaction.
(B) EXCEPTION.—The firm’s independence
shall not be deemed to be impaired if the public
accounting firm provides, in the performance of
an audit engagement, a report to an audit cli-
ent on the application of generally accepted ac-
counting principles or Federal tax laws or regu-
lations to a specific transaction on which the
auditor has not otherwise advised or consulted
on the design or structuring.
(5) NOT SUPERVISED BY AUDIT COMMITTEE.—
The firm is not appointed by, and does not report
directly to, the audit committee of the board of di-
rectors, or, in the absence of an audit committee, the
board committee performing equivalent functions or
the entire board of directors.
(b) BOARD ACTIONS.—The Board shall seek to pro-
mote the independence of auditors by—
(1) inspecting the compliance with professional
standards by public accounting firms registered with
the Board, pursuant to paragraphs (1), (2), and (3)
of section 405(a); and
(2) appropriately disciplining the firm or per-
sons associated with such firm in accordance with
the provisions of section 407 of this title for viola-
tions of provisions of this title, the securities laws,
the rules or regulations thereunder, the rules adopt-
ed by the Board or professional standards.
SEC. 
407. 
INVESTIGATIONS 
AND 
DISCIPLINARY 
PRO-
CEEDINGS.
(a) 
INVESTIGATIONS
AND
DISCIPLINARY
PRO-
CEEDINGS.—The Board shall establish fair procedures for
investigating and disciplining public accounting firms reg-
istered with the Board, and persons associated with such
firms, for violations of this title, the securities laws, the
rules or regulations thereunder, the rules adopted by the
Board, or professional standards.
(b) INVESTIGATION PROCEDURES.—
(1) GENERAL
AUTHORITY.—The Board may
conduct an investigation of any act or practice, or
omission to act, by a public accounting firm reg-
istered with the Board, or by any person associated
with such firm, that may violate any applicable pro-
vision of this title, the securities laws, the rules or
regulations thereunder, the rules adopted by the
Board, or professional standards, whether such act,
practice, or omission is identified in a review con-
ducted in accordance with the provisions of section
405 of this title, is the subject of a criminal, civil,
or administrative action or disciplinary proceeding,
or otherwise is brought to the attention of the
Board. At the discretion of the Board, such an in-
vestigation, in light of the circumstances, may relate
to the entire public accounting firm, to 1 or more
persons associated with the firm, or to 1 or more of-
fices, engagements, or transactions of such firm.
(2) INCIDENTAL AUTHORITY.—For purposes of
an investigation under this section, the Board may,
in addition to such other actions as the Board deter-
mines to be necessary or appropriate—
(A) require the testimony of any person as-
sociated with a public accounting firm reg-
istered with the Board, with respect to any
matter which the Board considers relevant or
material to the investigation;
(B) require the production of audit work
papers and of any other document or informa-
tion in the possession of a public accounting
firm registered with the Board or any person
associated with such firm, wherever domiciled,
that the Board considers relevant or material to
the investigation, and may examine the books
and records of such firm to verify the accuracy
of any documents or information supplied; and
(C) require the testimony of, and produc-
tion of any document in the possession of, any
person, including any client of a public account-
ing firm registered with the Board, that the
Board considers relevant or material to the in-
vestigation.
(3) SANCTIONS.—Failure of any person to com-
ply with the requirements of this section shall be
subject to the same sanctions as are applicable for
any failure to produce information or testimony to
the Commission in the course of a formal investiga-
tion. In addition, the refusal of any person associ-
ated with a public accounting firm registered with
the Board to testify, or the refusal of any such per-
son, or of any public accounting firm, to produce
documents or otherwise cooperate with the Board in
connection with an investigation under this section,
shall be cause for the suspension or revocation of
registration of such public accounting firm, sus-
pending or barring such person from being associ-
ated with an issuer or a public accounting firm reg-
istered with the Board, or such other appropriate
sanction as the Board shall determine.
(4) REFERRAL
TO
COMMISSION.—The Board
may refer any other investigation to the Commission
as it deems appropriate. The Commission shall
evaluate any such matter referred to it by the Board
and shall take action with respect to the matter as
it deems necessary or appropriate.
(5) CONFIDENTIALITY OF INVESTIGATIONS.—
(A) INFORMATION
CONFIDENTIAL.—Ex-
cept as provided in subparagraph (B), all re-
ports, memorandums, and other information
prepared or received by, and deliberations of,
the Board and its employees and agents in con-
nection with an investigation under this section
shall be confidential and privileged unless and
until presented in connection with a public pro-
ceeding or the public release by the Board of
its report of sanctions pursuant to subsection
(d).
(B) AVAILABILITY
TO
OTHER
AUTHORI-
TIES.—All information referred to in subpara-
graph (A) of this paragraph—
(i) shall be available to—
(I) the Commission and any
other Federal department or agency;
(II) the appropriate State licens-
ing board or boards; and
(III) Federal and State authori-
ties in connection with any criminal
investigation or proceeding; and
(ii) shall be admissible—
(I) in any civil action brought by
the Commission or any other Federal
department or agency, or by any such
State licensing board; and
(II) in any criminal action.
Nothing in this subsection shall authorize the
Board to withhold information from Congress.
(C) RELATION TO FOIA.—For purposes of
section 552 of title 5, United States Code, this
paragraph shall be considered a statute de-
scribed in section 552(b)(3)(B) of such title.
(6) INVESTIGATIVE IMMUNITY.—Any employee
of the Board engaged in carrying out an investiga-
tion under this section shall be immune from any
civil liability arising out of such investigation in the
same manner and to the same extent as an employee
of the Federal Government in similar circumstances.
(c) DISCIPLINARY PROCEDURES.—
(1) NOTICE AND HEARING.—In any proceeding
by the Board to determine whether a public account-
ing firm, or a person associated with such firm,
should be disciplined, the Board shall bring specific
charges, notify such firm or person of, and give such
persons or firm an opportunity to defend against,
such charges, and shall keep a record of the pro-
ceedings. All hearings under this subsection shall be
public unless otherwise ordered by the Board on its
own motion or after considering the motion of a
party.
(2) AVAILABLE REMEDIES.—If the Board finds
that a public accounting firm, or persons associated
with a public accounting firm, has engaged in any
act or practice, or omitted to act, in violation of this
title, the securities laws, the rules or regulations
thereunder, the rules adopted by the Board, or pro-
fessional standards, then the Board may impose
such disciplinary or remedial sanctions as it deems
appropriate, including—
(A) temporary or permanent revocation or
suspension of registration with the Board;
(B) temporary or permanent limitation of
activities, functions, or operations;
(C) civil money penalties;
(D) censure and, in the case of a person
associated with a public accounting firm, tem-
porary or permanent suspension or bar from
being associated with any public accounting
firm registered with the Board; or
(E) any other appropriate sanction.
(3) AUTHORIZED CIVIL PENALTIES.—
(A) DETERMINATION BY BOARD.—Subject
to subparagraphs (B) and (C), the Board may
impose, and shall determine the amount of, civil
money penalties in light of the facts and cir-
cumstances.
(B) IN GENERAL.—For each violation, the
amount of the penalty shall not exceed the
greater of $100,000 for a natural person or
$2,000,000 for any other persons.
(C) 
INCREASED
PENALTIES.—Notwith-
standing subparagraph (B), the amount of pen-
alty for each such violation shall not exceed the
greater of $750,000 for a natural person or
$15,000,000 for any other persons, if the viola-
tion involved fraud, deceit, manipulation, or de-
liberate or reckless disregard of the regulatory
standard.
(4) STATEMENT OF SANCTION.—A determina-
tion by the Board to impose a disciplinary or reme-
dial sanction shall be supported by a statement set-
ting forth—
(A) any act or practice in which such firm
or person associated with such firm has been
found to have engaged, or which such firm or
person has been found to have omitted;
(B) the specific provision of this title, the
securities laws, the rules or regulations there-
under, the rules adopted by the Board, or pro-
fessional standards which any such act or prac-
tice, or omission to act, is deemed to violate;
and
(C) the sanction imposed and the reason
for that sanction.
(5) CONSEQUENCES OF SANCTION.—
(A) ASSOCIATION
WITH
FIRMS.—It shall
be unlawful for any person suspended or barred
from being associated with a public accounting
firm registered with the Board willfully to be-
come or remain associated with such a firm
without the consent of the Board or the Com-
mission. It shall be unlawful for any public ac-
counting firm registered with the Board to per-
mit such a person to become or remain associ-
ated with such a firm without the consent of
the Board or the Commission if such firm
knew, or, in the exercise of reasonable care
should have known, of such suspension or bar.
(6) ASSOCIATION WITH ISSUERS.—It shall be
unlawful for any person suspended or barred from
being associated with an issuer willfully to become,
or remain associated with such an issuer without the
consent of the Board or the Commission. It shall be
unlawful for any issuer to permit such a person to
become, or remain a person associated with such
issuer without the consent of the Board or the Com-
mission if such issuer knew, or, in the exercise of
reasonable care should have known, of such suspen-
sion or bar.
(d) REPORTING OF SANCTIONS.—
(1) REPORTING
REQUIRED.—Whenever the
Board imposes a disciplinary sanction against a pub-
lic accounting firm or a person associated with a
public accounting firm or any other person, the
Board shall report the sanction to the Commission,
to the appropriate State or foreign licensing board
or boards with which such firm or person is licensed
or certified to practice public accounting, and to the
public.
(2) INFORMATION REQUIRED.—The information
required to be reported shall include—
(A) the name of the public accounting
firm, or accountant associated with an issuer,
against whom the sanction is imposed;
(B) a description of the acts or practices,
or omissions to act, upon which the sanction is
based;
(C) the nature of the sanction; and
(D) such other information respecting the
circumstances of the disciplinary action as the
Board deems appropriate.
(3) AVAILABILITY
TO
PUBLIC.—In order to
make the information required under paragraph (2)
available to the public, the Board shall—
(A) establish and maintain a toll-free tele-
phone listing and any other readily accessible
electronic process to receive inquiries regarding
such information; and
(B) respond promptly to such inquiries.
SEC. 408. SECURITIES AND EXCHANGE COMMISSION OVER-
SIGHT OF THE BOARD.
(a) PROPOSED RULE CHANGES.—
(1) FILING, PUBLICATION, AND
COMMENT.—
The Board shall file with the Commission, in accord-
ance with such rules as the Commission may pre-
scribe, copies of any proposed rule or any proposed
change in, addition to, or deletion from the rules of
the Board (hereinafter collectively referred to as
‘‘proposed rule change’’) accompanied by a concise
general statement of the basis and purpose of such
proposed rule change. Upon the filing of any pro-
posed rule change, the Commission shall publish a
public notice of the proposed rule change together
with the terms and substance of the proposed rule
change or a description of the subjects and issues in-
volved in the Federal Register. The Commission
shall give interested persons an opportunity to sub-
mit written data, views, and arguments concerning
such proposed rule change. No proposed rule
changes shall take effect unless approved by the
Commission or otherwise permitted in accordance
with the provisions of this section.
(2) PROCEDURE.—
(A) APPROVAL OR INSTITUTION OF PRO-
CEEDINGS.—Within 35 days of the date of pub-
lication of notice of the filing of a proposed rule
change in accordance with subsection (a)(1) of
this section, or within such longer period as the
Commission may designate up to 90 days of
such date if it finds such longer period to be
appropriate and publishes its reasons for so
finding or as to which the Board consents, the
Commission shall—
(i) by order approve such proposed
rule change; or
(ii) institute proceedings to determine
whether the proposed rule change should
be disapproved.
(B) NOTICE OF GROUNDS; APPROVAL OR
DISAPPROVAL.—Such proceedings shall include
notice of the grounds for disapproval under con-
sideration and opportunity for hearing and be
concluded within 180 days of the date of publi-
cation of notice of the filing of the proposed
rule change. At the conclusion of such pro-
ceedings the Commission, by order published in
the Federal Register, 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 Board consents.
(C) GROUNDS FOR DECISION.—The Com-
mission shall approve a proposed rule change if
it finds that such proposed rule change is con-
sistent with the requirements of this title, the
securities laws, and the rules and regulations
thereunder. The Commission shall disapprove a
proposed rule change if it does not make such
a finding. The Commission shall not approve
any proposed rule change prior to the 30th day
after the date of publication of notice of the fil-
ing thereof, unless the Commission finds good
cause for so doing and publishes its reasons for
so doing.
(3) RULES EFFECTIVE UPON FILING.—
(A) RULES PERMITTED.—Notwithstanding
the provisions of paragraph (2) of this sub-
section, a proposed rule change may take effect
upon filing with the Commission if designated
by the Board as—
(i) constituting a stated policy, prac-
tice, or interpretation with respect to the
meaning, administration, or enforcement of
an existing rule of the Board;
(ii) establishing or changing a fee, or
other charge imposed by the Board; or
(iii) concerned solely with the admin-
istration of the Board or other matters
which the Commission, by rule, consistent
with the public interest and the purposes
of this section, may specify as outside the
provisions of such paragraph (2).
(B) 
AUTHORITY.—Notwithstanding 
any
other provision of this section, a proposed rule
change may be put into effect summarily if it
appears to the Commission, after consultation
with the Board, or the Board after consultation
with the Commission, that such action is nec-
essary for the protection of investors. Any pro-
posed rule change so put into effect shall be
filed promptly thereafter in accordance with the
provisions of paragraph (1) of this subsection.
(C) LIMITATION
ON
EFFECT.—Any pro-
posed rule change that has taken effect pursu-
ant to subparagraph (A) or (B) of this para-
graph may be enforced by the Board to the ex-
tent it is not inconsistent with the provisions of
this title, the securities laws, the rules and reg-
ulations thereunder, the rules adopted by the
Board, and other applicable Federal and State
law.
(D) ABROGATION.—At any time within 60
days of the date of filing of such a proposed
rule change in accordance with the provisions of
this paragraph, the Commission summarily may
abrogate the change in the rules of the Board
made thereby and require that the proposed
rule change be refiled in accordance with the
provisions of paragraph (2) of this subsection,
if it appears to the Commission that such ac-
tion is necessary or appropriate in the public in-
terest, for the protection of investors, or other-
wise in furtherance of the purposes of this title
or the securities laws. Commission action pur-
suant to the preceding sentence shall not affect
the validity or force of the rule change during
the period it was in effect and shall not be re-
viewable under section 25 of the Securities Ex-
change Act of 1934 nor deemed to be ‘‘final
agency action’’ for purposes of section 704 of
title 5, United States Code.
(b) POWER OF THE COMMISSION TO AMEND RULES
OF THE BOARD.—The Commission, by rule or order, may
abrogate, add to, and delete from (hereinafter collectively
referred to as ‘‘amend’’) the rules of the Board as the
Commission deems necessary or appropriate to assure the
fair administration of the Board, to conform its rules to
the requirements of this title, the securities laws, and the
rules and regulations thereunder applicable to the Board,
and otherwise in furtherance of the purposes of this title
or the securities laws, in the following manner:
(1) NOTICE.—The Commission shall notify the
Board and publish notice of the proposed rule-
making in the Federal Register. The notice shall in-
clude the text of the proposed amendment to the
rules of the Board and a statement of the Commis-
sion’s reasons, including the pertinent facts, for
commencing such proposed rulemaking.
or the securities laws, to censure or impose limita-
tions upon the activities, functions, and operations
of the Board, if the Commission finds, on the record
after notice and opportunity for a hearing, that the
Board has violated or is unable to comply with any
provision of this title, the securities laws, the rules
or regulations thereunder, or its own rules or with-
out reasonable justification or excuse has failed to
enforce compliance with any such provision or any
professional standard by a public accounting firm
registered with the Board or a person associated
with such a firm.
(2) COMMISSION
AUTHORITY
TO
SANCTION
MEMBERS.—The Commission is authorized, if in its
opinion such activity is necessary or appropriate in
the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title
or the securities laws, to remove from office or cen-
sure any member of the Board, if the Commission
finds, on the record after notice and opportunity for
a hearing, that such member has willfully violated
any provision of this title, the securities laws, the
rules or regulations thereunder, or the rules of the
Board, willfully abused his or her authority, or with-
out reasonable justification or excuse has failed to