Section 101 establishes the Public Company Accounting Oversight Board (Board), a new,independent regulatory body, to oversee the auditing of issuers (publiccompanies which are subject to the federal securities laws). The Board's oversight of auditors is for the purpose ofprotecting the interests of investors. The Board shall not be an agency or establishment of the United States Government and shall be a nonprofit corporation subject to the District of ColumbiaNonprofit Corporation Act. No employee shall be deemed an officer, employee, or agent of the federal government. The Board is subject to the oversight of the Securities and Exchange Commission, and subject to this oversight the Board shall register public accounting firmswhich prepare audit reports for issuers subject to SEC registration, establish standards concerning the preparationof audit reports, conduct inspections ofregistered public accounting firms, conduct investigations and disciplinary proceedings where justified uponregistered public accounting firms, perform otherduties as determined by the SEC, enforce compliance with the Act, and set the budget and manage the operationsof the Board and its staff. The Board shall have five members, who shall be prominent individuals of integrity with a demonstrated commitment to the interests of investors and the public. They must understand the financial disclosures required of issuers under the securities laws and the obligations ofaccountants concerning the preparation andissuing of audit reports concerning these disclosures. Only two members of the Board shall be or have been certified public accountants. If one of those persons is the chairperson, that person may not have been apracticing certified public accountant for at least five years before appointment to the Board. Each Board membermust serve on a full-time basis and may nothave other employment while serving on the Board. No Board member can share in the profits of or receivepayments from a public accounting firm, except forfixed continuing payments under standard retirement arrangements, subject to conditions imposed by the SEC. Not later than ninety days after the Act's enactment, the SEC, after consulting with the Chairman of the Board of Governors of the Federal Reserve System andthe Secretary of the Treasury, shall appoint the chairperson of the Board and other initial members and shalldesignate each person's term of service. The term of service of each Board member is five years, except that the terms of office of the initial Board members shall expire in annual increments. Any Boardmember appointed to fill a vacancy occurring before the expiration of the term of the predecessor shall be appointedonly for the remainder of that term. No person may be a member or chairperson of the Board for more than two terms, whether or not consecutive. A member of the Board may be removed by theSEC for good cause. The Board may issue rules concerning its operation and administration and other matters, subject to the approval of the SEC. The Board must submit an annual report to the SEC; the SEC shall transmit a copy of that report to the Senate Committee on Banking, Housing, and UrbanAffairs and the House Committee on Financial Services. Section 102 requires that, beginning 180 days after the Commission determines that the Board can fulfill its duties, it shall be unlawful for any person not aregistered public accounting firm to prepare or issue or participate in the preparation or issuing of any audit reportconcerning any issuer. Each accounting firm must submit as part of its application for registration the names of all issuers for which it prepared or issued audit reports during thepreceding calendar year; the annual fees received from each issuer for audit services, other accounting services, andnon-audit services; other current financialinformation as requested by the Board; a statement of the firm's quality control practices; a list of all accountantsassociated with the firm who help to prepareaudit reports; information concerning civil, criminal, or administrative actions or disciplinary proceedings pendingagainst the firm or any person associated withthe firm in connection with any audit report; copies of any disclosures filed by an issuer with the Commissionconcerning accounting disagreements; and any otherspecified information. The Board shall approve a completed application for registration not later than 45 days after the date of receipt unless the Board issues a notice of disapproval orrequests more information. Each registered public accounting firm shall submit an annual report to the Board andmay be required to update reports morefrequently. Registration applications and annual reports shall be made available for public inspection. The Board shall assess and collect a registration fee and an annual fee from each registered public accounting firm to cover the costs of processing and reviewing. Section 103 requires the Board to establish by rule such quality control standards to be used by registered public accounting firms in the preparation and issuing ofaudit reports, as required by the Act or the rules of the Commission or as necessary or appropriate in the publicinterest or for the protection of investors. TheBoard may consult with professional groups of accountants or advisory groups. The Board's rules shall require that each registered public accounting firm must keep work papers for at least seven years, provide a concurring or second partnerreview of the audit report, and describe in each audit report the internal control structure and procedures of theissuer. The Board shall cooperate with professional groups of accountants and advisory groups in the examination of the need for changes in accounting standards. Section 104 requires the Board to conduct a continuing program of inspections to assess the degree of compliance of each registered public accounting firm. Inspections shall be conducted annually for each registered public accounting firm providing audit reports for morethan 100 issuers and at least once every threeyears for each firm providing audit reports for 100 or fewer issuers. Section 105 requires the Board to issue rules concerning fair procedures for the investigation and disciplining of registered public accounting firms and associatedpersons of the firms. The Board may conduct an investigation of any act or practice by a registered publicaccounting firm which may be a violation of the Act,the Board's rules, or the securities laws concerning preparation and issuing of audit reports and liabilities ofaccountants. If a registered public accounting firm or person associated with the firm refuses to cooperate with the investigation, the Board may impose such sanctions assuspending or revoking the registration of the public accounting firm. The Board may refer an investigation to the Commission, any other federal functional regulator, the Attorney General of the United States, the attorney general ofone or more states, and the appropriate state regulatory authority. For the most part information received by the Board concerning an investigation shall be privileged and confidential in any proceeding in federal court, state court,or administrative agency until presented in connection with a public proceeding. If the Board finds that a registered public accounting firm has violated the Act, the rules of the Board, or the securities laws concerning audit reports andaccountants, it may impose appropriate sanctions, including temporary suspension or permanent revocation ofregistration; a civil penalty for each violation in anamount not more than $100,000 for a natural person or $2,000,000 for any other person; if in a case involvingintentional or other knowing conduct, a fine notmore than $750,000 for a natural person or $15,000,000 for any other person; censure; or any other appropriatesanction. Such sanctions as registrationsuspension and revocation and the larger monetary penalties shall apply only to intentional or knowing conduct,including reckless conduct, or in repeatedinstances of negligent conduct. Section 106 states that any foreign accounting firm which prepares or furnishes an audit report concerning any issuer is subject to the Act and the rules of theBoard and the SEC issued under the Act to the same extent as a United States public accounting firm. Auditworkpapers of the foreign accounting firm shall beproduced if a United States public accounting firm relies upon the opinion of a foreign accounting firm in auditingan issuer. The Commission and the Board may exempt any foreign public accounting firm from any provision of the Act or from rules of the Board or the Commission inthe public interest or for the protection of investors. Section 107 provides that the Commission shall have oversight and enforcement authority over the Board. No rule of the Board shall become effective withoutprior approval by the Commission. The Board is to be treated as a registered securities association for purposes ofapproval of its rules by the Commission. TheCommission may modify a sanction imposed by the Board upon a registered public accounting firm if it finds thatthe sanction is not necessary or appropriate or isexcessive, oppressive, or inadequate. Section 108 allows the Commission to recognize as "generally accepted" for purposes of the securities laws any accounting principles established by a standardsetting body that is a private entity, has a board of trustees the majority of whom are not and have not been for twoyears associated with a registered publicaccounting firm, is funded as required, has adopted procedures to ensure prompt changes to accounting principlesnecessary to reflect changing business practices,and considers the need to keep standards current. This standard setting body must have the capacity to assist theCommission. The standard setting body mustsubmit an annual report to the Commission and the public. The SEC shall conduct a study on adoption by the United States financial reporting system of a principles-based accounting system to replace the rules-basedaccounting system. Section 109 concerns funding of the Board and the standard setting body, known as the Financial Accounting Standards Board. The Board and the standardsetting body shall establish an annual budget, which is subject to approval by the SEC. The budget of the Board shall be payable from annual accounting support fees assessed upon publicly traded companies. Section 201 prohibits a registered public accounting firm which performs an audit for any issuerto provide to that issuer any non-audit service, such asbookkeeping, financial information systems design, actuarial services, management functions, investment bankingservice, and legal services. Accounting firmsmay provide certain other non-audit services, including tax services, for an audit client if the activity is approvedby the audit committee of the issuer.