I
107TH CONGRESS
2D SESSION
H. R. 5070
To improve quality and transparency in financial reporting and independent
audits and accounting services for public companies, to create a Public
Company Accounting Oversight Board, to enhance the standard setting
process for accounting practices, to strengthen the independence of firms
that audit public companies, to increase corporate responsibility and
the usefulness of corporate financial disclosure, to protect the objectivity
and independence of securities analysts, to improve Securities and Ex-
change Commission resources and oversight, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JULY 9, 2002
Mr. LAFALCE (for himself, Mr. DINGELL, and Mr. GEPHARDT) introduced the
following bill; which was referred to the Committee on Financial Services
A BILL
To improve quality and transparency in financial reporting
and independent audits and accounting services for pub-
lic companies, to create a Public Company Accounting
Oversight Board, to enhance the standard setting process
for accounting practices, to strengthen the independence
of firms that audit public companies, to increase cor-
porate responsibility and the usefulness of corporate fi-
nancial disclosure, to protect the objectivity and inde-
pendence of securities analysts, to improve Securities
and Exchange Commission resources and oversight, and
for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Public Company Accounting Reform and Investor Pro-
tection Act of 2002’’.
(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 disclosures.
Sec. 403. Disclosures of transactions involving management and principal
stockholders.
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.
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.
SEC. 2. DEFINITIONS.
(a) IN GENERAL.—In this Act, the following defini-
tions shall apply:
(1) APPROPRIATE
STATE
REGULATORY
AU-
THORITY.—The term ‘‘appropriate State regulatory
authority’’ means the State agency or other author-
ity responsible for the licensure or other regulation
of the practice of accounting in the State or States
having jurisdiction over a registered public account-
ing firm or associated person thereof, with respect to
the matter 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
related standards for such purposes), for the pur-
pose of expressing an opinion on such statements.
(3) AUDIT COMMITTEE.—The term ‘‘audit com-
mittee’’ means—
(A) a committee (or equivalent body) es-
tablished by and amongst the board of directors
of an issuer for the purpose of overseeing the
accounting and financial reporting processes of
the issuer and audits of the financial state-
ments of the issuer; and
(B) if no such committee exists with re-
spect 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
Public Company Accounting Oversight Board estab-
lished 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 Ex-
change 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 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 statement filed by such issuer has be-
come effective pursuant to the Securities Act of
1933 (15 U.S.C. 77a et. seq.), unless its securities
are registered under section 12 of the Securities Ex-
change 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 pro-
vided to an issuer by a registered public accounting
firm, other than those provided to an issuer in con-
nection 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 as-
sociated 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 con-
nection 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 inter-
est, 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 Se-
curities Act of 1933, as amended by this
Act, or prescribed by the Commission
under section 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
(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 at-
testation engagements, quality control policies
and procedures, ethical and competency stand-
ards, and independence standards (including
rules implementing title II) that the Board or
the Commission 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 pro-
mulgated as rules of the Commission.
(11) PUBLIC
ACCOUNTING
FIRM.—The term
‘‘public accounting firm’’ means—
(A) a proprietorship, partnership, incor-
porated association, corporation, limited liability
company, limited liability partnership, or other
legal entity that is engaged in the practice of
public accounting or preparing or issuing audit
reports; and
(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 sec-
tion 107), and those stated policies, practices, and
interpretations of the Board that the Commission,
by rule, may deem to be rules of the Board, as nec-
essary or appropriate 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
Exchange 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.
(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’’.
(B) in subsection (d)(1), by inserting ‘‘the
rules of the Public Company Accounting Over-
sight Board, of which such person is a reg-
istered public accounting firm or a person asso-
ciated with such a firm,’’ after ‘‘is a partici-
pant,’’;
(C) in subsection (e), by inserting ‘‘the
rules of the Public Company Accounting Over-
sight Board, of which such person is a reg-
istered public accounting firm or a person asso-
ciated with such a firm,’’ after ‘‘is a partici-
pant,’’; 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
‘‘registered public accounting firm (as defined in
section 2 of the Public Company Accounting Reform
and Investor Protection Act of 2002),’’ after ‘‘gov-
ernment securities dealer,’’.
(c) EFFECT ON COMMISSION AUTHORITY.—Nothing
in this Act or the rules of the Board shall be construed
to impair 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
standards for accounting or auditing practices or
auditor independence, derived from other provisions
of the securities laws or the rules or regulations
thereunder, for purposes of the preparation and
issuance of any audit report, or otherwise under ap-
plicable law; or
(3) the ability of the Commission to take, on
the initiative of the Commission, legal, administra-
tive, or disciplinary action against any registered
public accounting firm or any associated person
thereof.
TITLE I—PUBLIC COMPANY AC-
COUNTING 
OVERSIGHT
BOARD
SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.
(a) ESTABLISHMENT OF BOARD.—There is estab-
lished the Public Company Accounting Oversight Board,
to oversee the audit of public companies that are subject
to the securities laws, and related matters, in order to pro-
tect the interests of investors and further the public inter-
est in the preparation of informative, accurate, and inde-
pendent audit reports 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 non-
profit corporation, and have succession until dissolved by
an Act of Congress.
(b) STATUS.—The Board shall not be an agency or
establishment of the United States Government, and, ex-
cept as otherwise provided in this Act, shall be subject to,
and have all the powers conferred upon a nonprofit cor-
poration by, the District of Columbia Nonprofit Corpora-
tion 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, sub-
ject to action by the Commission under section 107, and
once a determination is made by the Commission under
subsection (d) of this section—
(1) register public accounting firms that pre-
pare audit reports for issuers, in accordance with
section 102;
(2) establish or adopt, or both, by rule, audit-
ing, quality control, ethics, independence, and other
standards relating to the preparation of audit re-
ports for issuers, in accordance with section 103;
(3) conduct inspections of registered public ac-
counting firms, in accordance with section 104 and
the rules of the Board;
(4) conduct investigations and disciplinary pro-
ceedings concerning, and impose appropriate sanc-
tions where justified upon, registered public account-
ing firms and associated persons of such firms, in
accordance with section 105;
(5) perform such other duties or functions as
the Board determines are necessary or appropriate
to promote high professional standards among, and
improve the quality of audit services offered by, reg-
istered public accounting firms and associated per-
sons thereof, or otherwise to carry out this Act, in
order to protect investors, or to further the public
interest;
(6) enforce compliance with this Act, the rules
of the Board, professional standards, and the securi-
ties laws relating to the preparation and issuance of
audit reports and the obligations and liabilities of
accountants with respect thereto, by registered pub-
lic accounting 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
capacity to carry out the requirements of this title, and
to enforce compliance with this title by registered public
accounting 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 respon-
sibilities for and nature of the financial disclosures
required of issuers under the securities laws and the
obligations of accountants with respect to the prepa-
ration 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 cer-
tified public accountants pursuant to the laws of 1
or more States, provided that, if 1 of those 2 mem-
bers 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
receive 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 retire-
ment of members of public accounting firms.
(4) APPOINTMENT OF BOARD MEMBERS.—
(A) INITIAL BOARD.—Not later than 90
days after the date of enactment of this Act,
the Commission, after consultation with the
Chairman of the Board of Governors of the
Federal Reserve System and the Secretary of
the Treasury, shall appoint the chairperson and
other initial 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 appointments 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 chair-
person) shall expire in annual increments,
1 on each of the first 4 anniversaries of
the initial 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
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 con-
secutive.
(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 Fed-
eral, 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);
(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,
wherever situated;
(4) to appoint such employees, accountants, at-
torneys, and other agents as may be necessary or
appropriate, and to determine their qualifications,
define their duties, and fix their salaries or other
compensation (at a level that is comparable to pri-
vate sector self-regulatory, accounting, technical, su-
pervisory, 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 obli-
gations, 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—
(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
functions with respect to hearing, determining, or-
dering, 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 del-
egated, 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
review 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-
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 peri-
ods (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
Representatives, 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 Commis-
sion under section 101(d), it shall be unlawful for any per-
son that is not a registered public accounting firm to pre-
pare or issue, or to participate in the preparation or
issuance of, any audit report with respect to any issuer.
(b) APPLICATIONS FOR REGISTRATION.—
(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
accounting services, and non-audit services, re-
spectively;
(C) such other current financial informa-
tion for the most recently completed fiscal year
of the firm as the Board may reasonably re-
quest;
(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 preparation of audit reports, stating the
license or certification number of each such per-
son, 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
during the immediately preceding calendar year
which discloses accounting disagreements be-
tween 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 produc-
tion of documents made by the Board in the
furtherance of its authority and responsibilities
under this title (and an agreement to secure
and enforce similar consents from each of the
associated persons of the public accounting firm
as a condition of their continued employment by
or other association with such firm); and
(B) a statement that such firm under-
stands and agrees that cooperation and compli-
ance, as described in the consent required by
subparagraph (A), and the securing and en-
forcement of such consents from its associated
persons, in accordance with the rules of the
Board, shall be a condition to the continuing ef-
fectiveness 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
accordance 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
(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 nec-
essary to update the information contained in its applica-
tion for registration under this section, and to provide to
the Board such additional information as the Board or
the Commission may specify, in accordance with sub-
section (b)(2).
(e) PUBLIC AVAILABILITY.—Registration applica-
tions and annual reports required by this subsection, or
such portions of such applications or reports as may be
designated under rules of the Board, shall be made avail-
able for public inspection, subject to rules of the Board
or the Commission, and to applicable laws relating to the
confidentiality of proprietary, personal, or other informa-
tion contained in such applications or reports, provided
that, in all events, the Board shall protect from public dis-
closure information reasonably identified by the subject
accounting firm as proprietary 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 proc-
essing and reviewing applications and annual reports.
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,
establish, including, to the extent it determines ap-
propriate, through adoption of standards proposed
by 1 or more professional groups of accountants des-
ignated 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 con-
trol standards, and such ethics standards to be used
by registered public accounting firms in the prepara-
tion 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 protection 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 reg-
istered public accounting firm shall—
(i) prepare, and maintain for a period
of not less than 7 years, audit work pa-
pers, and other information related to any
audit 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 account-
ing controls of the issuer required by sec-
tion 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 re-
port)—
(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
(bb) provides reasonable as-
surance that receipts and expend-
itures of the issuer comply with
applicable law, and are being
made in accordance with proper
authorizations of the manage-
ment 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;
(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
STAND-
ARDS.—
(A) IN
GENERAL.—In carrying out this
subsection, 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 determines satisfy the requirements
of paragraph (1), and that were proposed
by 1 or more professional groups of ac-
countants that shall be designated or rec-
ognized by the Board, by rule, for such
purpose, pursuant to this paragraph or 1
or more advisory groups convened pursu-
ant 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).
(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 determina-
tion, without regard to the procedures required
by section 107 that otherwise would apply to
the approval of rules of the Board.
(4) ADVISORY GROUPS.—The Board shall con-
vene, or authorize its staff to convene, such expert
advisory groups as may be appropriate, which may
include practicing accountants and other experts, as
well as representatives of other interested groups,
subject to such rules as the Board may prescribe to
prevent conflicts of interest, to make recommenda-
tions concerning the content (including proposed
drafts) of auditing, quality control, ethics, independ-
ence, 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
appropriate in the public interest or for the protection of
investors, to implement, or as authorized under, title II
of this Act.
(c) COOPERATION
WITH
DESIGNATED
PROFES-
SIONAL
GROUPS
OF
ACCOUNTANTS
AND
ADVISORY
GROUPS.—
(1) IN GENERAL.—The Board shall cooperate
on an ongoing basis with professional groups of ac-
countants designated under subsection (a)(3)(A) and
advisory groups convened under subsection (a)(4) in
the examination of the need for changes in any
standards subject to its authority under subsection
(a), recommend issues for inclusion on the agendas
of such designated professional groups of account-
ants or advisory groups, and take such other steps
as it deems appropriate to increase the effectiveness
of the standard setting process.
(2) BOARD RESPONSES.—The Board shall re-
spond in a timely fashion to requests from des-
ignated professional groups of accountants and advi-
sory groups referred to in paragraph (1) for any
changes in standards over which the Board has au-
thority.
(d) EVALUATION
OF STANDARD SETTING PROC-
ESS.—The Board shall include in the annual report re-
quired by section 101(h) the results of its standard setting
responsibilities during the period to which the report re-
lates, including a discussion of the work of the Board with
any designated professional groups of accountants and ad-
visory groups described 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
compliance of each registered public accounting firm and
associated persons of that firm with this Act, the rules
of the Board, the rules of the Commission, or professional
standards, 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),
inspections required by this section shall be
conducted—
(A) annually with respect to each reg-
istered 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 under paragraph (1) if the Board finds that dif-
ferent 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 in-
spection 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
standards;
(2) report any such act, practice, or omission,
if appropriate, to the Commission and each appro-
priate 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
inspection of a registered public accounting firm under
this section, the Board shall—
(1) inspect and review selected audit and review
engagements of the firm (which may include audit
engagements that are the subject of ongoing litiga-
tion 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 con-
trol system of the firm, and the manner of the docu-
mentation 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 otherwise required by section 103 or the rules issued
thereunder.
(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
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
subsection (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 re-
sponse 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
protection of such confidential and proprietary infor-
mation as the Board may determine to be appro-
priate, or as may be required by law), except that
no portions of the inspection report that deal with
criticisms of or potential defects in the quality con-
trol systems of the firm under inspection shall be
made public if those criticisms or defects are ad-
dressed by the firm, to the satisfaction of the Board,
not later than 12 months after the date of the in-
spection report.
(h) INTERIM COMMISSION REVIEW.—
(1) REVIEWABLE MATTERS.—A registered pub-
lic accounting firm may seek review by the Commis-
sion, pursuant to such rules as the Commission shall
promulgate, if the firm—
(A) has provided the Board with a re-
sponse, pursuant to rules issued by the Board
under subsection (f), to the substance of par-
ticular 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 pur-
poses of subsection (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), or deemed to be ‘‘final agency action’’ for pur-
poses 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 sub-
paragraph (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 proce-
dures 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 investiga-
tion of any act or practice, or omission to act, by a
registered 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 prep-
aration and issuance of audit reports and the obliga-
tions and liabilities of accountants with respect
thereto, including the rules of the Commission issued
under this Act, or professional standards, regardless
of how the act, practice, or omission is brought to
the attention of the Board.
(2) TESTIMONY
AND
DOCUMENT
PRODUC-
TION.—In addition to such other actions as the
Board determines 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 rel-
evant or material to the investigation, and may
inspect the books and records of such firm or
associated person to verify the accuracy of any
documents or information supplied;
(C) request the testimony of, and produc-
tion of any document in the possession of, any
other person, including any client of a reg-
istered public accounting firm that the Board
considers relevant or material to an investiga-
tion under this section, with appropriate notice,
subject to the needs of the investigation, as per-
mitted 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
testimony of, and production of any document
in the possession of, any person, including any
client of a registered public accounting firm,
that the Board considers relevant or material to
an investigation under this section.
(3) 
NONCOOPERATION
WITH
INVESTIGA-
TIONS.—
(A) IN GENERAL.—If a registered public
accounting firm or any associated person there-
of refuses to testify, produce documents, or oth-
erwise 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
accounting firm, or require the registered
public accounting firm to end such associa-
tion;
(ii) suspend or revoke the registration
of the public accounting firm; and
(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 in-
vestigation 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 re-
port for an institution that is subject to the ju-
risdiction 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 pro-
vided in subparagraph (B), all documents and
information prepared or received by or specifi-
cally for the Board, and deliberations of the
Board and its employees and agents, in connec-
tion with an inspection under section 104 or
with an investigation under this section, shall
be confidential and privileged as an evidentiary
matter (and shall not be subject to civil dis-
covery 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
Federal Government, under the Freedom of In-
formation Act (5 U.S.C. 552a), or otherwise,
unless and until presented in connection with a
public proceeding or released in accordance with
subsection (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 appropriate Federal func-
tional regulator (as defined in section 509 of
the 
Gramm-Leach-Bliley 
Act 
(15 
U.S.C.
6809)), other than the Commission, with re-
spect to an audit report for an institution sub-
ject to the jurisdiction of such regulator, to
State attorneys general in connection with any
criminal investigation, and to any appropriate
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 Gov-
ernment in similar circumstances.
(c) DISCIPLINARY PROCEDURES.—
(1) 
NOTIFICATION; 
RECORDKEEPING.—The
rules of the Board shall provide that in any pro-
ceeding by the Board to determine whether a reg-
istered public accounting firm, or an associated per-
son thereof, should be disciplined, the Board shall—
(A) bring specific charges with respect to
the firm or associated person;
(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 determina-
tion by the Board to impose a sanction under this
subsection shall be supported by a statement setting
forth—
(A) each act or practice in which the reg-
istered public accounting firm, or associated
person, 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
securities laws, the rules of the Board, or pro-
fessional 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
public accounting firm or associated person thereof
has engaged in any act or practice, or omitted to
act, in violation 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 liabilities of accountants with respect
thereto, including 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
required additional professional education or
training);
(D) a civil money penalty for each such
violation, in an amount equal to—
(i) not more than $100,000 for a nat-
ural person or $2,000,000 for any other
person; and
(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
subparagraphs (A) through (C) and (D)(ii) of para-
graph (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 con-
duct, each resulting in a violation of the appli-
cable 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—
(i) the firm has failed reasonably to
supervise an associated person, either as
required 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 relat-
ing to the preparation and issuance of
audit reports and the obligations and li-
abilities of accountants with respect there-
to, 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
subparagraph (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 detect any such violation by such asso-
ciated 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
AC-
COUNTING 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 associated with any registered public
accounting firm, or for any registered public ac-
counting firm that knew, or, in the exercise of
reasonable care should have known, of the sus-
pension or bar, to permit such an association,
without the consent of the Board or the Com-
mission.
(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-
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 associa-
tion, without the consent of the Board or the
Commission.
(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 li-
censed or certified; and
(C) the public (once any stay on the impo-
sition 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.—
(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 Commis-
sion shall establish for appropriate cases an expe-
dited procedure for consideration and determination
of the question of the duration of a stay pending re-
view of any disciplinary action of the Board under
this subsection.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) APPLICABILITY TO CERTAIN FOREIGN FIRMS.—
(1) IN GENERAL.—Any foreign public account-
ing 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 any State, except that registration pursu-
ant to section 102 shall not by itself provide a basis
for subjecting 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
reports nonetheless plays such a substantial role in
the preparation and furnishing of such reports for
particular issuers, that it is necessary or appro-
priate, in light of the purposes of this Act and in the
public interest or for the protection of investors, that
such firm (or class of firms) should be treated as a
public accounting firm (or firms) for purposes of
registration under, and oversight by the Board in ac-
cordance with, this title.
(b) PRODUCTION OF AUDIT WORKPAPERS.—
(1) CONSENT BY FOREIGN FIRMS.—If a foreign
public accounting firm issues an opinion or other-
wise performs material services upon which a reg-
istered public accounting firm relies in issuing all or
part of any audit report or any opinion contained in
an 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 reg-
istered public accounting firm that relies upon the
opinion of a foreign public accounting firm, as de-
scribed in paragraph (1), shall be deemed—
(A) to have consented to supplying the
audit workpapers of that foreign public ac-
counting firm in response to a request for pro-
duction 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 opin-
ion 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 Board) determines necessary or appropriate in the
public interest or for the protection of investors, either un-
conditionally or upon specified terms and conditions ex-
empt 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 author-
ity over the Board, as provided in this Act.
(b) RULES OF THE BOARD.—
(1) DEFINITION.—In this section, the term
‘‘proposed 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 ap-
proval 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 consistent with the requirements of this Act
and the securities laws, or is necessary or appro-
priate 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 re-
quirements of this title and the rules and regu-
lations thereunder applicable to such organiza-
tion’’ in section 19(b)(2) of that Act shall be
deemed to read ‘‘consistent with the require-
ments of title I of the Public Company Ac-
counting Reform and Investor Protection Act of
2002, and the rules and regulations issued
thereunder applicable to such organization, or
as necessary or appropriate in the public inter-
est 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 Company Accounting Re-
form and Investor Protection 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 ad-
dition to portions of the rules of the Board by the
Commission as fully as if the Board were a ‘‘reg-
istered securities 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 regulations thereunder applicable to such orga-
nization, 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 administration of the Public Com-
pany 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.—
(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 in-
terest, the protection of investors, and the other pur-
poses of this Act and the securities laws, may relieve
the Board of any responsibility to enforce compli-
ance with any provision of this Act, the securities
laws, the rules of the Board, or professional stand-
ards.
(2) CENSURE OF THE BOARD; LIMITATIONS.—
The Commission may, by order, as it determines
necessary or appropriate in the public interest, for
the protection of investors, or otherwise in further-
ance of the purposes of this Act or the securities
laws, censure or impose limitations upon the activi-
ties, functions, and operations of the Board, if the
Commission finds, on the record, after notice and
opportunity for a hearing, 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
(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 opportunity for a hearing, that such member—
(A) has willfully violated any provision of
this Act, the rules of the Board, or the securi-
ties 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.
SEC. 108. ACCOUNTING STANDARDS.
(a) AMENDMENT TO SECURITIES ACT OF 1933.—
Section 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 author-
ity under subsection (a) and under section 13(b) of
the Securities Exchange Act of 1934, the Commis-
sion may recognize, as ‘generally accepted’ for pur-
poses of the securities laws, any accounting prin-
ciples established 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 in-
terest, the majority of whom are not, con-
current with their service on such board,
and have not been during the 2-year period
preceding such service, associated persons
of any registered public accounting firm;
‘‘(iii) is funded as provided in section
109 of the Public Company Accounting
Reform and Investor Protection Act of
2002;
‘‘(iv) has adopted procedures to en-
sure prompt consideration, by majority
vote of its members, of changes to account-
ing principles necessary to reflect emerging
accounting 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
international convergence on high quality
accounting standards is necessary or ap-
propriate in the public interest and for the
protection of investors; and
‘‘(B) that the Commission determines has
the capacity to assist the Commission in ful-
filling the requirements of subsection (a) and
section 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.
‘‘(2) ANNUAL
REPORT.—A standard setting
body described in paragraph (1) shall submit an an-
nual report to the Commission and the public, con-
taining 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
principles or standards for purposes of enforcement of the
securities 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 prin-
ciples-based accounting system.
(B) STUDY TOPICS.—The study required
by subparagraph (A) shall include an examina-
tion 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 sys-
tem 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
Representatives.
SEC. 109. FUNDING.
(a) IN GENERAL.—The Board, and the standard set-
ting body designated pursuant to section 19(b) of the Se-
curities Act of 1933, as amended by section 108, shall be
funded as provided in this section.
(b) ANNUAL BUDGETS.—The Board and the stand-
ard setting body referred to in subsection (a) shall each
establish a budget for each fiscal year, which shall be re-
viewed and approved according to their respective internal
procedures not less than 1 month prior to the commence-
ment 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 computed), and all of the budget of the stand-
ard setting body referred to in subsection (a), for
each fiscal year of each of those 2 entities, shall be
payable from annual accounting support fees, in ac-
cordance with subsections (d) and (e).
(2) FUNDS
GENERATED
FROM
THE
COLLEC-
TION OF MONETARY PENALTIES.—All funds collected
by the Board as a result of the assessment of mone-
tary penalties shall be used to fund a merit scholar-
ship program for undergraduate and graduate stu-
dents enrolled in accredited accounting degree pro-
grams, 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
reasonable annual accounting support fee (or a for-
mula for the computation thereof), as may be nec-
essary 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 es-
tablished under paragraph (1), among issuers, in ac-
cordance with subsection (f), allowing for differentia-
tion among classes of issuers, as appropriate.
(e) ANNUAL
ACCOUNTING
SUPPORT
FEE
FOR
STANDARD SETTING BODY.—The annual accounting sup-
port fee for the standard setting body referred to in sub-
section (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 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, sta-
ble source of funding for such body, subject to re-
view by the Commission; and
(2) may differentiate among different classes of
issuers.
(f) ALLOCATION OF ACCOUNTING SUPPORT FEES
AMONG ISSUERS.—Any amount due from issuers (or a
particular 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 ap-
plicable) in an amount equal to the total of such amount,
multiplied by a fraction—
(1) the numerator of which is the average
monthly equity market capitalization of the issuer
for the 12-month period immediately preceding the
beginning of the fiscal year to which such budget re-
lates; 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—
(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 rea-
sonable annual accounting support fee or fees, deter-
mined in accordance with section 109 of the Public
Company Accounting Reform and Investor Protec-
tion Act of 2002.’’.
(h) RULE OF CONSTRUCTION.—Nothing in this sec-
tion 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 public funds, or to prevent such organization
from utilizing additional sources of revenue for its activi-
ties, such as earnings 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.
TITLE II—AUDITOR
INDEPENDENCE
SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF
AUDITORS.
(a) PROHIBITED ACTIVITIES.—Section 10A of the
Securities Exchange Act of 1934 (15 U.S.C. 78j–1) is
amended by adding at the end the following:
‘‘(g) 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 com-
mencement of the operations of the Public Company Ac-
counting 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;
‘‘(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 re-
sources;
‘‘(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 deter-
mines, by regulation, is impermissible.
‘‘(h) PREAPPROVAL
REQUIRED
FOR
NON-AUDIT
SERVICES.—A registered public accounting firm may en-
gage 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
extent that such exemption is necessary or appropriate in
the public interest and is consistent with the protection
of investors, 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;
‘‘(ii) such services were not recognized
by the issuer at the time of the engage-
ment 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 sub-
section 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
committee of an issuer may delegate to 1 or more
designated members of the audit committee who are
independent directors of the board of directors, the
authority to grant preapprovals required by this sub-
section. The decisions of any member to whom au-
thority is delegated under this paragraph to
preapprove an activity under this subsection shall be
presented to the full audit committee at each of its
scheduled meetings.
‘‘(4) APPROVAL
OF
AUDIT
SERVICES
FOR
OTHER PURPOSES.—In carrying out its duties under
subsection (m)(2), if the audit committee of an
issuer approves an audit service within the scope of
the engagement of the auditor, such audit service
shall be deemed to have been preapproved for pur-
poses 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 unlaw-
ful 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 per-
form 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:
‘‘(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 prac-
tices to be used;
‘‘(2) all alternative treatments of financial in-
formation within generally accepted accounting prin-
ciples that have been discussed with management of-
ficials of the issuer, ramifications of the use of such
alternative disclosures and treatments, and the
treatment preferred by the registered public account-
ing 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
adding at the end the following:
‘‘(58) AUDIT
COMMITTEE.—The term ‘audit
committee’ means—
‘‘(A) a committee (or equivalent body) es-
tablished by and amongst the board of directors
of an issuer for the purpose of overseeing the
accounting and financial reporting processes of
the issuer and audits of the financial state-
ments 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 Protec-
tion Act of 2002.’’.
(b) AUDITOR REQUIREMENTS.—Section 10A of the
Securities 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 ac-
countant’’ each place that term appears and insert-
ing ‘‘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)—
(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 insert-
ing ‘‘a registered public accounting firm’’.
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
accounting officer or any person serving in an equivalent
position for the issuer was employed by that registered
independent 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.’’.
SEC. 207. STUDY OF MANDATORY ROTATION OF REG-
ISTERED PUBLIC ACCOUNTING FIRMS.
(a) STUDY AND REVIEW REQUIRED.—The Comp-
troller General of the United States shall conduct a study
and review of the potential effects of requiring the manda-
tory rotation 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 sec-
tion.
(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 reg-
istered 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 Commis-
sion shall issue final regulations to carry out each of sub-
sections (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
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.
It is the intention of this Act that, in supervising non-
registered public accounting firms and their associated
persons, appropriate State regulatory authorities should
make an independent determination of the proper stand-
ards applicable, particularly taking into consideration the
size and nature of the business of the accounting firms
they supervise. The standards applied by the Board under
this Act should not be presumed to be applicable for pur-
poses of this section for small- and medium-sized nonreg-
istered 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:
‘‘(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 subsection, the Commission shall, by rule,
direct the national securities exchanges and na-
tional securities associations to prohibit the list-
ing of any security of an issuer that is not in
compliance with the requirements of any por-
tion of paragraphs (2) through (6).
‘‘(B) OPPORTUNITY TO CURE DEFECTS.—
The rules of the Commission under subpara-
graph (A) shall provide for appropriate proce-
dures for an issuer to have an opportunity to
cure any defects 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 ac-
counting firm employed by that issuer (including
resolution 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 ac-
counting firm shall report directly to the audit com-
mittee.
‘‘(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 para-
graph, a member of an audit committee of an
issuer may not, other than in his or her capac-
ity as a member of the audit committee, the
board of directors, 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
Commission 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
accounting, internal accounting controls, or au-
diting 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
committee, 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).’’.
SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL
REPORTS.
(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
accompanied by a written statement by the chief executive
officer and chief financial officer (or the equivalent there-
of) of the issuer.
(b) CONTENT.—The statement required by sub-
section (a) shall certify the appropriateness of the finan-
cial statements and disclosures contained in the periodic
report, and that those financial statements and disclosures
fairly present, in all material respects, the operations and
financial condition of the issuer.
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-
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 sec-
tion.
(c) NO PREEMPTION OF OTHER LAW.—The provi-
sions of subsection (a) shall be in addition to, and shall
not supersede 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.
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
accounting 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 eq-
uity-based compensation received by that person
from the issuer during the 12-month period fol-
lowing the first public issuance or filing with the
Commission (whichever first occurs) of the financial
document embodying such financial reporting re-
quirement; and
(2) any profits realized from the sale of securi-
ties of the issuer during that 12-month period.
(b) COMMISSION
EXEMPTION
AUTHORITY.—The
Commission 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 (15 U.S.C. 78u(d)(2)) is amended by striking
‘‘substantial 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 Secu-
rities 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 re-
lief that may be appropriate or necessary for the benefit
of investors.’’.
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 eq-
uity security of the issuer (other than an exempted secu-
rity), during any blackout period with respect to such eq-
uity security, 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 require-
ment in paragraph (1) shall not apply, and notice
under paragraph (1) shall be furnished as soon as
is reasonably 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.
(3) WRITTEN NOTICE.—The notice required to
be provided under paragraph (1) shall be in writing,
except 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 in-
tention on the part of such director or executive offi-
cer 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 competent 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, except 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 sub-
section, to ensure adequate notice to all persons affected
by this subsection, 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 trans-
fer 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
express 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
(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 Se-
curities Exchange Act of 1934 (15 U.S.C. 78m) is amend-
ed by adding at the end the following:
‘‘(i) ACCURACY OF FINANCIAL REPORTS.—Each fi-
nancial report that is required to be prepared in accord-
ance 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 registered public accounting firm in accordance with
generally accepted accounting principles and the rules and
regulations 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 Protec-
tion 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, ob-
ligations (including contingent obligations), and other re-
lationships of the issuer with unconsolidated entities or
other persons, that may have a material current or future
effect on financial condition, changes in financial condi-
tion, results of operations, 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 peri-
odic 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 in-
formation, 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
accepted accounting principles.
SEC. 402. ENHANCED CONFLICT OF INTEREST DISCLO-
SURES.
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) ENHANCED DISCLOSURES OF LOANS.—
‘‘(1) IN GENERAL.—The Commission shall, by
rule, require each issuer of any securities registered
pursuant to section 12 to disclose to the Commis-
sion, in writing—
‘‘(A) other than as provided in paragraph
(2), each loan by that issuer, or an affiliate
thereof, to a director or executive officer of that
issuer, or a loan guarantee or similar arrange-
ment from that issuer in favor of another per-
son who lends, or agrees to lend, money to the
director or executive officer of the issuer, in-
cluding the amounts loaned and balances owed,
not later than 7 calendar days after the date on
which the loan, guarantee, or other arrange-
ment is made, or such other time period, as de-
termined appropriate by the Commission;
‘‘(B) together with each report or other
document required to be filed under this section
in the case of each loan, guarantee, or similar
arrangement described in subparagraph (A),
whether—
‘‘(i) the obligation has been forgiven;
‘‘(ii) the issuer or its affiliate makes
payment on the obligation; and
‘‘(iii) any collateral is foreclosed upon
with respect to the obligation; and
‘‘(C) any conflict of interest, as defined by
the Commission, on the part of any partner, of-
ficer, director, or other management official or
affiliated person of the issuer.
‘‘(2) EXCEPTIONS.—Paragraph (1)(A) does not
require disclosure by an issuer of 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 an issuer;
‘‘(B) of a type that is generally made avail-
able by the issuer to the public; and
‘‘(C) made on market terms, or terms that
are no more favorable than those offered by the
issuer to the general public for such loans.
‘‘(3) FORM OF DISCLOSURES.—Disclosures re-
quired by this subsection shall be in such form and
subject to such terms and conditions as the Commis-
sion shall specify.’’.
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
inserting 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 se-
curities exchange, shall also file with the exchange),
a statement before the end of the second business
day following the day on which the subject trans-
action has been executed, or at such other time as
the Commission 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 recent such filing under this para-
graph.’’.
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
establishing and maintaining an adequate internal
control structure and procedures for financial re-
porting; 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-
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 com-
pany registered under section 8 of the Investment Com-
pany 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 Commis-
sion shall issue rules to require each issuer, together with
periodic 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 adopted a code of ethics for senior financial officers,
applicable to its principal financial officer, comptroller or
principal accounting officer, or persons performing similar
functions.
(b) CHANGES IN CODES OF ETHICS.—The Commis-
sion shall revise its regulations concerning matters requir-
ing 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 electronic 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
ethical handling of actual or apparent conflicts of in-
terest between personal and professional relation-
ships;
(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 enact-
ment.
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
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 reasons therefor, the audit com-
mittee 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 Commis-
sion shall consider whether a person has, through edu-
cation and experience as a public accountant or auditor
or a principal financial officer, comptroller, or principal
accounting officer of an issuer, or from a position involv-
ing the performance 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,
accruals, and reserves;
(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 enact-
ment.
TITLE V—ANALYST CONFLICTS
OF INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REG-
ISTERED SECURITIES ASSOCIATIONS.
(a) RULES REGARDING SECURITIES ANALYSTS.—
Section 15A of the Securities Exchange Act of 1934 (15
U.S.C. 78o–3) is amended by adding at the end the fol-
lowing:
‘‘(n) RULES REGARDING SECURITIES ANALYSTS.—