Text: S.2673 — 107th Congress (2001-2002)All Information (Except Text)

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Placed on Calendar Senate (06/25/2002)

 
[Congressional Bills 107th Congress]
[From the U.S. Government Printing Office]
[S. 2673 Placed on Calendar Senate (PCS)]






                                                       Calendar No. 442
107th CONGRESS
  2d Session
                                S. 2673



    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 Exchange Commission resources and 
                   oversight, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 25, 2002

Mr. Sarbanes, from the Committee on Banking, Housing, and Urban 
        Affairs, reported the following original bill; which was read 
        twice and placed on the calendarYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY

_______________________________________________________________________

                                 A BILL


 
    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 Exchange Commission resources and 
                   oversight, and for other purposes.

    Be it enacted by the Senate and House of Representatives 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 Protection 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 definitions shall 
apply:
            (1) Appropriate state regulatory authority.--The term 
        ``appropriate State regulatory authority'' means the State 
        agency or other authority responsible for the licensure or 
        other regulation of the practice of accounting in the State or 
        States having jurisdiction over a registered public accounting 
        firm or associated person thereof, with respect to the matter 
        in question.
            (2) Audit.--The term ``audit'' means an examination 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 purpose of expressing an 
        opinion on such statements.
            (3) Audit committee.--The term ``audit committee'' means--
                    (A) a committee (or equivalent body) established 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 statements of the issuer; and
                    (B) if no such committee exists with respect to an 
                issuer, the entire board of directors of the issuer.
            (4) Audit report.--The term ``audit report'' means a 
        document or other record--
                    (A) prepared following an audit performed for 
                purposes of compliance by an issuer with the 
                requirements of the securities laws; and
                    (B) in which a public accounting firm either--
                            (i) sets forth the opinion of that firm 
                        regarding a financial statement, report, or 
                        other document; or
                            (ii) asserts that no such opinion can be 
                        expressed.
            (5) Board.--The term ``Board'' means the Public Company 
        Accounting Oversight Board established under section 101.
            (6) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
            (7) Issuer.--The term ``issuer'' means an issuer (as 
        defined in section 3 of the Securities Exchange Act of 1934 (15 
        U.S.C. 78c)), the securities of which are registered under 
        section 12 of that Act (15 U.S.C. 78l), or that is required to 
        file reports pursuant to 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 become effective pursuant to 
        the Securities Act of 1933 (15 U.S.C. 77a et. seq.), unless its 
        securities are registered under section 12 of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c) on or before the end of 
        such fiscal year.
            (8) Non-audit services.--The term ``non-audit services'' 
        means any professional services provided to an issuer by a 
        registered public accounting firm, other than those provided to 
        an issuer in connection with an audit or a review of the 
        financial statements of an issuer.
            (9) Person associated with a public accounting firm.--
                    (A) In general.--The terms ``person associated with 
                a public accounting firm'' (or with a ``registered 
                public accounting firm'') and ``associated person of a 
                public accounting firm'' (or of a ``registered public 
                accounting firm'') mean any individual proprietor, 
                partner, shareholder, principal, accountant, or other 
                professional employee of a public accounting firm, or 
                any other independent contractor or entity that, in 
                connection 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 subparagraph (A), to the extent that 
                the Board determines that any such exemption is 
                consistent with the purposes of this Act, the public 
                interest, or the protection of investors.
            (10) Professional standards.--The term ``professional 
        standards'' means--
                    (A) accounting principles that are--
                            (i) established by the standard setting 
                        body described in section 19(b) of the 
                        Securities 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 
                        particular issuers, or dealt with in the 
                        quality control system of a particular 
                        registered public accounting firm; and
                    (B) auditing standards, standards for attestation 
                engagements, quality control policies and procedures, 
                ethical and competency standards, 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 promulgated 
                        as rules of the Commission.
            (11) Public accounting firm.--The term ``public accounting 
        firm'' means--
                    (A) a proprietorship, partnership, incorporated 
                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 section 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 necessary 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 section 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 territory or possession of the 
        United States.
    (b) Conforming Amendment.--Section 3(a)(47) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) is amended by inserting 
``the Public Company Accounting Reform and Investor Protection Act of 
2002,'' before ``the Public''.

SEC. 3. COMMISSION RULES AND ENFORCEMENT.

    (a) Regulatory Action.--The Commission shall promulgate such rules 
and regulations, as may be necessary or appropriate in the public 
interest or for the protection of investors, and in furtherance of this 
Act.
    (b) Enforcement.--
            (1) In general.--A violation by any person of this Act, any 
        rule or regulation of the Commission issued under this Act, or 
        any rule of the Board shall be treated for all purposes in the 
        same manner as a violation of the Securities Exchange Act of 
        1934 (15 U.S.C. 78a et seq.) or the rules and regulations 
        issued thereunder, consistent with the provisions of this Act, 
        and any such person shall be subject to the same penalties, and 
        to the same extent, as for a violation of that Act or such 
        rules or regulations.
            (2) Investigations, injunctions, and prosecution of 
        offenses.--Section 21 of the Securities Exchange Act of 1934 
        (15 U.S.C. 78u) is amended
                    (A) in subsection (a)(1), by inserting ``the rules 
                of the Public Company Accounting Oversight Board, of 
                which such person is a registered public accounting 
                firm or a person associated with such a firm,'' after 
                ``is a participant,'';
                    (B) in subsection (d)(1), by inserting ``the rules 
                of the Public Company Accounting Oversight Board, of 
                which such person is a registered public accounting 
                firm or a person associated with such a firm,'' after 
                ``is a participant,'';
                    (C) in subsection (e), by inserting ``the rules of 
                the Public Company Accounting Oversight Board, of which 
                such person is a registered public accounting firm or a 
                person associated with such a firm,'' after ``is a 
                participant,''; and
                    (D) in subsection (f), by inserting ``or the Public 
                Company Accounting Oversight Board'' after ``self-
                regulatory organization'' each place that term appears.
            (3) Cease-and-desist proceedings.--Section 21C(c)(2) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is 
        amended by inserting ``registered public accounting firm (as 
        defined in section 2 of the Public Company Accounting Reform 
        and Investor Protection Act of 2002),'' after ``government 
        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 persons associated 
        with such firms for purposes of enforcement 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 applicable law; or
            (3) the ability of the Commission to take, on the 
        initiative of the Commission, legal, administrative, or 
        disciplinary action against any registered public accounting 
        firm or any associated person thereof.

           TITLE I--PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD

SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.

    (a) Establishment of Board.--There is established the Public 
Company Accounting Oversight Board, to oversee the audit of public 
companies that are subject to the securities laws, and related matters, 
in order to protect the interests of investors and further the public 
interest in the preparation of informative, accurate, and independent 
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 nonprofit 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, except as otherwise provided in this 
Act, shall be subject to, and have all the powers conferred upon a 
nonprofit corporation by, the District of Columbia Nonprofit 
Corporation Act. No member or person employed by, or agent for, the 
Board shall be deemed to be an officer or employee of or agent for the 
Federal Government by reason of such service.
    (c) Duties of the Board.--The Board shall, subject to action by the 
Commission under section 107, and once a determination is made by the 
Commission under subsection (d) of this section--
            (1) register public accounting firms that prepare audit 
        reports for issuers, in accordance with section 102;
            (2) establish or adopt, or both, by rule, auditing, quality 
        control, ethics, independence, and other standards relating to 
        the preparation of audit reports for issuers, in accordance 
        with section 103;
            (3) conduct inspections of registered public accounting 
        firms, in accordance with section 104 and the rules of the 
        Board;
            (4) conduct investigations and disciplinary proceedings 
        concerning, and impose appropriate sanctions where justified 
        upon, registered public accounting 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, registered public accounting firms and 
        associated persons 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 securities laws relating 
        to the preparation and issuance of audit reports and the 
        obligations and liabilities of accountants with respect 
        thereto, by registered public 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 necessary or appropriate to enable the Commission to 
determine, 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 individuals of integrity and reputation 
        who have a demonstrated commitment to the interests of 
        investors and the public, and an understanding of the 
        responsibilities for and nature of the financial disclosures 
        required of issuers under the securities laws and the 
        obligations of accountants with respect to the preparation and 
        issuance of audit reports with respect to such disclosures.
            (2) Limitation.--Two members, and only 2 members, of the 
        Board shall be or have been certified public accountants 
        pursuant to the laws of 1 or more States, provided that, if 1 
        of those 2 members is the chairperson, he or she may not have 
        been a practicing certified public accountant for at least 5 
        years prior to his or her appointment to the Board.
            (3) Full-time independent service.--Each member of the 
        Board shall serve on a full-time basis, and may not, concurrent 
        with service on the Board, be employed by any other person or 
        engage in any other professional or business activity. No 
        member of the Board may share in any of the profits of, or 
        receive payments from, a public accounting firm (or any other 
        person, as determined by rule of the Commission), other than 
        fixed continuing payments, subject to such conditions as the 
        Commission may impose, under standard arrangements for the 
        retirement 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 chairperson) 
                        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 expiration 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 chairperson of the Board, 
                for more than 2 terms, whether or not such terms of 
                service are consecutive.
            (6) Removal from office.--A member of the Board may be 
        removed by the Commission from office, 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 authority granted to 
the Board otherwise in this Act, the Board shall have the power, 
subject to section 107--
            (1) to sue and be sued, complain and defend, in its 
        corporate name and through its own counsel, with the approval 
        of the Commission, in any Federal, State, or other court;
            (2) to conduct its operations and maintain offices, and to 
        exercise all other rights and powers authorized 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, attorneys, 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 private sector self-regulatory, accounting, 
        technical, supervisory, 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 obligations, 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, ordering, certifying, reporting, or otherwise 
        acting as to any matter, except that--
                    (A) the Board shall retain a discretionary right to 
                review any action pursuant to any such delegated 
                function, upon its own motion;
                    (B) a person shall be entitled to a review by the 
                Board with respect to any matter so delegated, 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 described 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 purposes, including appeal or 
                review thereof, be deemed to be the action of the 
                Board;
            (3) establish ethics rules and standards of conduct for 
        Board members and staff, including a bar on practice before the 
        Board (and the Commission, with respect to Board-related 
        matters) of 1 year for former members of the Board, and 
        appropriate periods (not to exceed 1 year) for former staff of 
        the Board; and
            (4) provide as otherwise required by this Act.
    (h) Annual Report to the Commission.--The Board shall submit an 
annual report (including its audited financial statements) to the 
Commission, and the Commission 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 Commission under section 101(d), it shall be 
unlawful for any person that is not a registered public accounting firm 
to prepare or issue, or to participate in the preparation or issuance 
of, any audit report with respect to any issuer.
    (b) Applications for Registration.--
            (1) Form of application.--A public accounting firm shall 
        use such form as the Board may prescribe, by rule, to apply for 
        registration under this section.
            (2) Contents of applications.--Each public accounting firm 
        shall submit, as part of its application 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, respectively;
                    (C) such other current financial information for 
                the most recently completed fiscal year of the firm as 
                the Board may reasonably request;
                    (D) a statement of the quality control policies 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 person, as well as 
                the State license numbers of the firm itself;
                    (F) information relating to criminal, civil, or 
                administrative actions or disciplinary proceedings 
                pending against the firm or any associated person of 
                the firm in connection with any audit report;
                    (G) copies of any periodic or annual disclosure 
                filed by an issuer with the Commission during the 
                immediately preceding calendar year which discloses 
                accounting disagreements between such issuer and the 
                firm in connection with an audit report furnished or 
                prepared by the firm for such issuer; and
                    (H) such other information as the rules of the 
                Board or the Commission shall specify as necessary or 
                appropriate in the public interest or for the 
                protection of investors.
            (3) Consents.--Each application for registration under this 
        subsection shall include--
                    (A) a consent executed by the public accounting 
                firm to cooperation in and compliance with any request 
                for testimony or the production 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 understands and 
                agrees that cooperation and compliance, as described in 
                the consent required by subparagraph (A), and the 
                securing and enforcement of such consents from its 
                associated persons, in accordance with the rules of the 
                Board, shall be a condition to the continuing 
                effectiveness of the registration of the firm with the 
                Board.
    (c) Action on Applications.--
            (1) Timing.--The Board shall approve a completed 
        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 disapproval 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 accounting firm shall 
submit an annual report to the Board, and may be required to report 
more frequently, as necessary to update the information contained in 
its application for registration under this section, and to provide to 
the Board such additional information as the Board or the Commission 
may specify, in accordance with subsection (b)(2).
    (e) Public Availability.--Registration applications 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 available 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 information 
contained in such applications or reports, provided that, in all 
events, the Board shall protect from public disclosure 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 processing and reviewing applications and annual reports.

SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE 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 appropriate, through 
        adoption of standards proposed by 1 or more professional groups 
        of accountants designated pursuant to paragraph (3)(A) or 
        advisory groups convened pursuant to paragraph (4), and amend 
        or otherwise modify or alter, such auditing and related 
        attestation standards, such quality control standards, and such 
        ethics standards to be used by registered public accounting 
        firms in the preparation and issuance of audit reports, as 
        required by this Act or the rules of the Commission, or as may 
        be necessary or appropriate in the public interest or for the 
        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 registered public 
                accounting firm shall--
                            (i) prepare, and maintain for a period of 
                        not less than 7 years, audit work papers, and 
                        other information related to any audit 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 accounting firm, other than the 
                        person in charge of the audit, or by an 
                        independent reviewer (as prescribed by the 
                        Board); and
                            (iii) describe the scope of the auditor's 
                        testing of the system of internal accounting 
                        controls of the issuer required by section 
                        13(b)(2) of the Securities Exchange Act of 1934 
                        (15 U.S.C. 78m(b)(2)), and present (in such 
                        report or in a separate report)--
                                    (I) the findings of the auditor 
                                from such testing;
                                    (II) an evaluation of whether such 
                                system of internal accounting 
                                controls--
                                            (aa) complies with the 
                                        requirements of that section 
                                        13(b)(2); and
                                            (bb) provides reasonable 
                                        assurance that receipts and 
                                        expenditures of the issuer 
                                        comply with applicable law, and 
                                        are being made in accordance 
                                        with proper authorizations of 
                                        the management and directors of 
                                        the issuer; and
                                    (III) a description of significant 
                                defects in such internal controls, and 
                                of any material noncompliance, of which 
                                the auditor should know on the basis of 
                                such testing; and
                    (B) shall include, in the quality control standards 
                that it adopts with respect to the issuance of audit 
                reports, requirements for every registered public 
                accounting firm relating to--
                            (i) monitoring of professional ethics and 
                        independence from issuers on behalf of which 
                        the firm issues audit reports;
                            (ii) consultation within such firm on 
                        accounting and auditing questions;
                            (iii) supervision of audit work;
                            (iv) hiring, professional development, and 
                        advancement of personnel;
                            (v) the acceptance and continuation of 
                        engagements;
                            (vi) internal inspection; and
                            (vii) such other requirements as the Board 
                        may prescribe, subject to subsection (a)(1).
            (3) Authority to adopt other standards.--
                    (A) In general.--In carrying out this 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 accountants that 
                        shall be designated or recognized by the Board, 
                        by rule, for such purpose, pursuant to this 
                        paragraph or 1 or more advisory groups convened 
                        pursuant to paragraph (4); and
                            (ii) notwithstanding clause (i), shall 
                        retain full authority to modify, supplement, 
                        revise, or subsequently amend, modify, or 
                        repeal, in whole or in part, any portion of any 
                        statement described in clause (i).
                    (B) Initial and transitional standards.--The Board 
                shall adopt standards described in subparagraph (A)(i) 
                as initial or transitional standards, to the extent the 
                Board determines necessary, prior to a determination of 
                the Commission under section 101(d), and such standards 
                shall be separately approved by the Commission at the 
                time of that determination, without regard to the 
                procedures required by section 107 that otherwise would 
                apply to the approval of rules of the Board.
            (4) Advisory groups.--The Board shall convene, 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 recommendations concerning the 
        content (including proposed drafts) of auditing, quality 
        control, ethics, independence, or other standards required to 
        be established under this section.
    (b) Independence Standards and Rules.--The Board shall establish 
such rules as may be necessary or 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 Professional Groups of Accountants 
and Advisory Groups.--
            (1) In general.--The Board shall cooperate on an ongoing 
        basis with professional groups of accountants 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 accountants 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 respond in a timely 
        fashion to requests from designated professional groups of 
        accountants and advisory groups referred to in paragraph (1) 
        for any changes in standards over which the Board has 
        authority.
    (d) Evaluation of Standard Setting Process.--The Board shall 
include in the annual report required by section 101(h) the results of 
its standard setting responsibilities during the period to which the 
report relates, including a discussion of the work of the Board with 
any designated professional groups of accountants and advisory 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 ACCOUNTING FIRMS.

    (a) In General.--The Board shall conduct a continuing 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 registered public 
                accounting firm that regularly provides audit reports 
                for more than 100 issuers; and
                    (B) not less frequently than once every 3 years 
                with respect to each registered public accounting firm 
                that regularly provides audit reports 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 different inspection schedules are consistent 
        with the purposes of this Act, the public interest, and the 
        protection of investors.
    (c) Procedures.--The Board shall, in each inspection 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 inspection 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 appropriate State 
        regulatory authority; and
            (3) begin a formal investigation or take appropriate 
        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 litigation or other controversy 
        between the firm and 1 or more third parties), performed at 
        various offices and by various associated persons of the firm, 
        as selected by the Board;
            (2) evaluate the sufficiency of the quality control system 
        of the firm, and the manner of the documentation and 
        communication of that system by the firm; and
            (3) perform such other testing of the audit, supervisory, 
        and quality control procedures of the firm as are necessary or 
        appropriate in light of the purpose 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 response 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 continuing 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 response from the registered public accounting firm; 
        and
            (2) made available in appropriate detail to the public 
        (subject to section 105(b)(5)(A), and to the protection of such 
        confidential and proprietary information as the Board may 
        determine to be appropriate, 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 control 
        systems of the firm under inspection shall be made public if 
        those criticisms or defects are addressed by the firm, to the 
        satisfaction of the Board, not later than 12 months after the 
        date of the inspection report.
    (h) Interim Commission Review.--
            (1) Reviewable matters.--A registered public accounting 
        firm may seek review by the Commission, pursuant to such rules 
        as the Commission shall promulgate, if the firm--
                    (A) has provided the Board with a response, 
                pursuant to rules issued by the Board under subsection 
                (f), to the substance of particular items in a draft 
                inspection report, and disagrees with the assessments 
                contained in any final report prepared by the Board 
                following such response; or
                    (B) disagrees with the determination of the Board 
                that criticisms or defects identified in an inspection 
                report have not been addressed to the satisfaction of 
                the Board within 12 months of the date of the 
                inspection report, for purposes of subsection (g)(2).
            (2) Treatment of review.--Any decision of the Commission 
        with respect to a review under paragraph (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 purposes of section 704 of title 5, United States Code.
            (3) Timing.--Review under paragraph (1) may be sought 
        during the 30-day period following the date of the event giving 
        rise to the review under subparagraph (A) or (B) of paragraph 
        (1).

SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.

    (a) In General.--The Board shall establish, by rule, subject to the 
requirements of this section, fair procedures for the investigation and 
disciplining of registered public accounting firms and associated 
persons of such firms.
    (b) Investigations.--
            (1) Authority.--In accordance with the rules of the Board, 
        the Board may conduct an investigation of any act or practice, 
        or omission to act, by a 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 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, 
        regardless of how the act, practice, or omission is brought to 
        the attention of the Board.
            (2) Testimony and document production.--In addition to such 
        other actions as the Board 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 accounting firm or any associated 
                person thereof, wherever domiciled, that the Board 
                considers relevant 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 production of any 
                document in the possession of, any other person, 
                including any client of a registered public accounting 
                firm that the Board considers relevant or material to 
                an investigation under this section, with appropriate 
                notice, subject to the needs of the investigation, as 
                permitted under the rules of the Board; and
                    (D) provide for procedures to seek issuance by the 
                Commission, in a manner established by the Commission, 
                of a subpoena to require the 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 investigations.--
                    (A) In general.--If a registered public accounting 
                firm or any associated person thereof refuses to 
                testify, produce documents, or otherwise 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 association;
                            (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 investigation under 
        this section--
                    (A) to the Commission;
                    (B) to any other Federal functional regulator (as 
                defined in section 509 of the Gramm-Leach-Bliley Act 
                (15 U.S.C. 6809)), in the case of an investigation that 
                concerns an audit report for an institution that is 
                subject to the jurisdiction of such regulator; and
                    (C) at the direction of the Commission, to--
                            (i) the Attorney General of the United 
                        States;
                            (ii) the attorney general of 1 or more 
                        States; and
                            (iii) the appropriate State regulatory 
                        authority.
            (5) Use of documents.--
                    (A) Confidentiality.--Except as provided in 
                subparagraph (B), all documents and information 
                prepared or received by or specifically for the Board, 
                and deliberations of the Board and its employees and 
                agents, in connection with an inspection under section 
                104 or with an investigation under this section, shall 
                be confidential and privileged as an evidentiary matter 
                (and shall not be subject to civil discovery or other 
                legal process) in any proceeding in any Federal or 
                State court or administrative agency, and shall be 
                exempt from disclosure, in the hands of an agency or 
                establishment of the Federal Government, under the 
                Freedom of Information 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 agencies.--All 
                information referred to in subparagraph (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 functional regulator (as defined in 
                section 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 
                6809)), other than the Commission, with respect to an 
                audit report for an institution subject 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 engaged 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 Government in similar circumstances.
    (c) Disciplinary Procedures.--
            (1) Notification; recordkeeping.--The rules of the Board 
        shall provide that in any proceeding by the Board to determine 
        whether a registered public accounting firm, or an associated 
        person thereof, should be disciplined, the Board shall--
                    (A) bring specific charges with respect to the firm 
                or associated person;
                    (B) notify such firm or associated person of, and 
                provide to the firm or associated person an opportunity 
                to defend against, such charges; and
                    (C) keep a record of the proceedings.
            (2) Public hearings.--Hearings under this section shall not 
        be public, unless otherwise ordered by the Board for good cause 
        shown, with the consent of the parties to such hearing.
            (3) Supporting statement.--A determination by the Board to 
        impose a sanction under this subsection shall be supported by a 
        statement setting forth--
                    (A) each act or practice in which the registered 
                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 
                professional standards which the Board determines has 
                been violated; and
                    (C) the sanction imposed, including a justification 
                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 natural 
                        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 education or 
                training; or
                    (G) any other appropriate sanction provided for in 
                the rules of the Board.
            (5) Intentional or other knowing conduct.--The sanctions 
        and penalties described in subparagraphs (A) through (C) and 
        (D)(ii) of paragraph (4) shall only apply to--
                    (A) intentional or knowing conduct, including 
                reckless conduct, that results in violation of the 
                applicable statutory, regulatory, or professional 
                standard; or
                    (B) repeated instances of negligent conduct, each 
                resulting in a violation of the applicable statutory, 
                regulatory, or professional standard.
            (6) Failure to supervise.--
                    (A) In general.--The Board may impose sanctions 
                under this section on a registered accounting 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 violations 
                        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 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 associated 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 associated person; and
                            (ii) such person has reasonably discharged 
                        the duties and obligations incumbent upon that 
                        person by reason of such procedures and system, 
                        and had no reasonable cause to believe that 
                        such procedures and system were not being 
                        complied with.
            (7) Effect of suspension.--
                    (A) Association with a public accounting 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 
                accounting firm that knew, or, in the exercise of 
                reasonable care should have known, of the suspension or 
                bar, to permit such an association, without the consent 
                of the Board or the Commission.
                    (B) Association with an issuer.--It shall be 
                unlawful for any person that is suspended or barred 
                from being associated with an issuer under this 
                subsection willfully to become or remain associated 
                with any issuer in an accountancy or a financial 
                management capacity, and for any issuer that knew, or 
                in the exercise of reasonable care should have known, 
                of such suspension or bar, to permit such an 
                association, without the consent of the Board or the 
                Commission.
    (d) Reporting of Sanctions.--
            (1) Recipients.--If the Board imposes a disciplinary 
        sanction, in accordance with this section, the Board shall 
        report the sanction to--
                    (A) the Commission;
                    (B) any appropriate State regulatory authority or 
                any foreign accountancy licensing board with which such 
                firm or person is licensed or certified; and
                    (C) the public (once any stay on the imposition 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 Commission 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 action, unless and until the Commission 
        orders (summarily or after notice and opportunity for hearing 
        on the question of a stay, which hearing may consist solely of 
        the submission of affidavits or presentation of oral arguments) 
        that no such stay shall continue to operate.
            (2) Expedited procedures.--The Commission shall establish 
        for appropriate cases an expedited procedure for consideration 
        and determination of the question of the duration of a stay 
        pending review 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 accounting firm that 
        prepares or furnishes an audit report with respect to any 
        issuer, shall be subject to this Act and the rules of the Board 
        and the Commission issued under this Act, in the same manner 
        and to the same extent as a public accounting firm that is 
        organized and operates under the laws of the United States or 
        any State, except that registration pursuant 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 
        appropriate, 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 accordance with, this title.
    (b) Production of Audit Workpapers.--
            (1) Consent by foreign firms.--If a foreign public 
        accounting firm issues an opinion or otherwise performs 
        material services upon which a registered public accounting 
        firm relies in issuing all or part of any audit report or any 
        opinion contained in an 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 enforcement of any 
                request for production of such workpapers.
            (2) Consent by domestic firms.--A registered public 
        accounting firm that relies upon the opinion of a foreign 
        public accounting firm, as described in paragraph (1), shall be 
        deemed--
                    (A) to have consented to supplying the audit 
                workpapers of that foreign public accounting firm in 
                response to a request for production by the Board or 
                the Commission; and
                    (B) to have secured the agreement of that foreign 
                public accounting firm to such production, as a 
                condition of its reliance on the opinion of that 
                foreign public accounting firm.
    (c) Exemption Authority.--The Commission, and the Board, subject to 
the approval of the Commission, may, by rule, regulation, or order, and 
as the Commission (or Board) determines necessary or appropriate in the 
public interest or for the protection of investors, either 
unconditionally or upon specified terms and conditions exempt any 
foreign public accounting firm, or any class of such firms, from any 
provision of this Act or the rules of the Board or the Commission 
issued under this Act.
    (d) Definition.--In this section, the term ``foreign public 
accounting firm'' means a public accounting firm that is organized and 
operates under the laws of a foreign government or political 
subdivision thereof.

SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.

    (a) General Oversight Responsibility.--The Commission shall have 
oversight and enforcement authority over the Board, as provided in this 
Act.
    (b) Rules of the Board.--
            (1) Definition.--In this section, the term ``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 approval of the Commission in 
        accordance with this section, other than as provided in section 
        103(a)(3)(B) with respect to initial or transitional standards.
            (3) Approval criteria.--The Commission shall approve a 
        proposed rule, if it finds that the rule is consistent with the 
        requirements of this Act and the securities laws, or is 
        necessary or appropriate in the public interest or for the 
        protection of investors.
            (4) Proposed rule procedures.--The provisions 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 requirements 
                of this title and the rules and regulations thereunder 
                applicable to such organization'' in section 19(b)(2) 
                of that Act shall be deemed to read ``consistent with 
                the requirements of title I of the Public Company 
                Accounting Reform and Investor Protection Act of 2002, 
                and the rules and regulations issued thereunder 
                applicable to such organization, or as necessary or 
                appropriate in the public interest or for the 
                protection of investors''; and
                    (B) the phrase ``otherwise in furtherance of the 
                purposes of this title'' in section 19(b)(3)(C) of that 
                Act shall be deemed to read ``otherwise in furtherance 
                of the purposes of title I of the Public Company 
                Accounting Reform 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 addition to portions of the rules of the Board by the 
        Commission as fully as if the Board were a ``registered 
        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 organization, or otherwise in 
        furtherance of the purposes of this title'' in section 19(c) of 
        that Act shall, for purposes of this paragraph, be deemed to 
        read ``to assure the fair administration of the Public Company 
        Accounting Oversight Board, conform the rules promulgated by 
        that Board to the requirements of title I of the Public Company 
        Accounting Reform and Investor Protection Act of 2002, or 
        otherwise further the purposes of that Act, the securities 
        laws, and the rules and regulations thereunder applicable to 
        that Board''.
    (c) Commission Review of Disciplinary Action Taken by the Board.--
            (1) Notice of sanction.--The Board shall promptly file 
        notice with the Commission of any final sanction on any 
        registered public accounting firm or on any associated person 
        thereof, in such form and containing such information as the 
        Commission, by rule, may prescribe.
            (2) Review of sanctions.--The provisions of sections 
        19(d)(2) and 19(e)(1) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78s (d)(2) and (e)(1)) shall govern the review by 
        the Commission of final disciplinary sanctions imposed by the 
        Board (including sanctions imposed under section 105(b)(3) of 
        this Act for noncooperation in an investigation of the Board), 
        as fully as if the Board were a self-regulatory organization 
        and the Commission were the appropriate regulatory agency for 
        such organization for purposes of those sections 19(d)(2) and 
        19(e)(1), except that, for purposes of this paragraph--
                    (A) section 105(e) of this Act (rather than that 
                section 19(d)(2)) shall govern the extent to which 
                application for, or institution by the Commission on 
                its own motion of, review of any disciplinary action of 
                the Board operates as a stay of such action;
                    (B) references in that section 19(e)(1) to 
                ``members'' of such an organization shall be deemed to 
                be references to registered public accounting firms;
                    (C) the phrase ``consistent with the purposes of 
                this title'' in that section 19(e)(1) shall be deemed 
                to read ``consistent with the purposes of this title 
                and title I of the Public Company Accounting Reform and 
                Investor Protection Act of 2002'';
                    (D) references to rules of the Municipal Securities 
                Rulemaking Board in that section 19(e)(1) shall not 
                apply; and
                    (E) the reference to section 19(e)(2) of the 
                Securities Exchange Act of 1934 shall refer instead to 
                section 107(c)(3) of this Act.
            (3) Commission modification authority.--The Commission may 
        enhance, modify, cancel, reduce, or require the remission of a 
        sanction imposed by the Board upon a registered public 
        accounting firm or associated person thereof, if the 
        Commission, having due regard for the public interest and the 
        protection of investors, finds, after a proceeding in 
        accordance with this subsection, that the sanction--
                    (A) is not necessary or appropriate in furtherance 
                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 interest, the protection of 
        investors, and the other purposes of this Act and the 
        securities laws, may relieve the Board of any responsibility to 
        enforce compliance with any provision of this Act, the 
        securities laws, the rules of the Board, or professional 
        standards.
            (2) Censure of the board; limitations.--The Commission may, 
        by order, as it determines necessary or appropriate in the 
        public interest, for the protection of investors, or otherwise 
        in furtherance of the purposes of this Act or the securities 
        laws, censure or impose limitations upon the activities, 
        functions, and operations of the Board, if the Commission 
        finds, on the record, after notice and opportunity for a 
        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 excuse, 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 protection 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 securities laws;
                    (B) has willfully abused the authority of that 
                member; or
                    (C) without reasonable justification or excuse, 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 following:
    ``(b) Recognition of Accounting Standards.--
            ``(1) In general.--In carrying out its authority under 
        subsection (a) and under section 13(b) of the Securities 
        Exchange Act of 1934, the Commission may recognize, as 
        `generally accepted' for purposes of the securities laws, any 
        accounting principles established by a standard setting body--
                    ``(A) that--
                            ``(i) is organized as a private entity;
                            ``(ii) has, for administrative and 
                        operational purposes, a board of trustees (or 
                        equivalent body) serving in the public 
                        interest, the majority of whom are not, 
                        concurrent 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 ensure 
                        prompt consideration, by majority vote of its 
                        members, of changes to accounting principles 
                        necessary to reflect emerging accounting issues 
                        and changing business practices;
                            ``(v) considers, in adopting accounting 
                        principles, the need to keep standards current 
                        in order to reflect changes in the business 
                        environment, the extent to which international 
                        convergence on high quality accounting 
                        standards is necessary or appropriate in the 
                        public interest and for the protection of 
                        investors; and
                    ``(B) that the Commission determines has the 
                capacity to assist the Commission in fulfilling the 
                requirements of subsection (a) and section 13(b) of the 
                Securities Exchange Act of 1934, because, at a minimum, 
                the standard setting 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 annual report to the Commission 
        and the public, containing audited financial statements of that 
        standard setting body.''.
    (b) Commission Authority.--The Commission shall promulgate such 
rules and regulations to carry out section 19(b) of the Securities Act 
of 1933, as added by this section, as it deems necessary or appropriate 
in the public interest or for the protection of investors.
    (c) No Effect on Commission Powers.--Nothing in this Act, including 
this section and the amendment made by this section, shall be construed 
to impair or limit the authority of the Commission to establish 
accounting 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 principles-based accounting 
                system.
                    (B) Study topics.--The study required by 
                subparagraph (A) shall include an examination of--
                            (i) the extent to which principles-based 
                        accounting and financial reporting exists in 
                        the United States;
                            (ii) the length of time required for change 
                        from a rules-based to a principles-based 
                        financial reporting system;
                            (iii) the feasibility of and proposed 
                        methods by which a principles-based system may 
                        be implemented; and
                            (iv) a thorough economic analysis of the 
                        implementation of a principles-based system.
            (2) Report.--Not later than 1 year after the date of 
        enactment of this Act, the Commission shall submit a report on 
        the results of the study required by paragraph (1) to the 
        Committee on Banking, Housing, and Urban Affairs of the Senate 
        and the Committee on Financial Services of the House of 
        Representatives.

SEC. 109. FUNDING.

    (a) In General.--The Board, and the standard setting body 
designated pursuant to section 19(b) of the Securities Act of 1933, as 
amended by section 108, shall be funded as provided in this section.
    (b) Annual Budgets.--The Board and the standard setting body 
referred to in subsection (a) shall each establish a budget for each 
fiscal year, which shall be reviewed and approved according to their 
respective internal procedures not less than 1 month prior to the 
commencement of the fiscal year to which the budget pertains. The 
budget of the Board shall be subject to approval by the Commission.
    (c) Sources and Uses of Funds.--
            (1) Recoverable budget expenses.--The budget of the Board 
        (reduced by any registration or annual fees received under 
        section 102(e) for the year preceding the year for which the 
        budget is being computed), and all of the budget of the 
        standard setting body referred to in subsection (a), for each 
        fiscal year of each of those 2 entities, shall be payable from 
        annual accounting support fees, in accordance with subsections 
        (d) and (e).
            (2) Funds generated from the collection of monetary 
        penalties.--All funds collected by the Board as a result of the 
        assessment of monetary penalties shall be used to fund a merit 
        scholarship program for undergraduate and graduate students 
        enrolled in accredited accounting degree programs, which 
        program is to be administered by the Board or by an entity or 
        agent identified by the Board.
    (d) Annual Accounting Support Fee for the Board.--
            (1) Establishment of fee.--The Board shall establish, with 
        the approval of the Commission, a reasonable annual accounting 
        support fee (or a formula for the computation thereof), as may 
        be necessary or appropriate to establish and maintain the 
        Board.
            (2) Assessments.--The rules of the Board under paragraph 
        (1) shall provide for the equitable allocation, assessment, and 
        collection by the Board (or an agent appointed by the Board) of 
        the fee established under paragraph (1), among issuers, in 
        accordance with subsection (f), allowing for differentiation 
        among classes of issuers, as appropriate.
    (e) Annual Accounting Support Fee for Standard Setting Body.--The 
annual accounting support fee for the standard setting body referred to 
in subsection (a)--
            (1) shall be allocated in accordance with subsection (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, stable source 
        of funding for such body, subject to review 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 applicable) 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 relates; and
            (2) the denominator of which is the average monthly equity 
        market capitalization of all such issuers for such 12-month 
        period.
    (g) Conforming Amendments.--Section 13(b)(2) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m(b)(2)) is amended--
            (1) in subparagraph (A), by striking ``and'' at the end;
            (2) in subparagraph (B), by striking the period at the end 
        and inserting the following: ``; and
            ``(C) notwithstanding any other provision of law, pay the 
        allocable share of such issuer of a reasonable annual 
        accounting support fee or fees, determined in accordance with 
        section 109 of the Public Company Accounting Reform and 
        Investor Protection Act of 2002.''.
    (h) Rule of Construction.--Nothing in this section shall be 
construed to render either the Board, the standard setting body 
referred to in subsection (a), or both, subject to procedures in 
Congress to authorize or appropriate public funds, or to prevent such 
organization from utilizing additional sources of revenue for its 
activities, 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 commencement 
of the operations of the Public Company Accounting Oversight Board 
established under section 101 of the Public Company Accounting Reform 
and Investor Protection Act of 2002 (in this section referred to as the 
`Board'), the rules of the Board, to provide to that issuer, 
contemporaneously with the audit, any non-audit service, including--
            ``(1) bookkeeping or other services related to the 
        accounting records or financial statements of the audit client;
            ``(2) financial information systems design and 
        implementation;
            ``(3) appraisal or valuation services, fairness opinions, 
        or contribution-in-kind reports;
            ``(4) actuarial services;
            ``(5) internal audit outsourcing services;
            ``(6) management functions or human resources;
            ``(7) broker or dealer, investment adviser, or investment 
        banking services;
            ``(8) legal services and expert services unrelated to the 
        audit; and
            ``(9) any other service that the Board determines, by 
        regulation, is impermissible.
    ``(h) Preapproval Required for Non-Audit Services.--A registered 
public accounting firm may engage in any non-audit service, including 
tax services, that is not described in any of paragraphs (1) through 
(9) of subsection (g) for an audit client, only if the activity is 
approved in advance by the audit committee of the issuer, in accordance 
with subsection (i).''.
    (b) Exemption Authority.--The Board may, on a case by case basis, 
exempt any person, issuer, public accounting 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 auditing 
                services (which may entail providing comfort 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 engagement to be 
                        non-audit services; and
                            ``(iii) such services are promptly brought 
                        to the attention of the audit committee of the 
                        issuer and approved by the audit committee 
                        prior to the completion of the audit, by 1 or 
                        more members of the audit committee who are 
                        members of the board of directors to whom 
                        authority to grant such approvals has been 
                        delegated by the audit committee.
            ``(2) Disclosure to investors.--Approval by an audit 
        committee of an issuer under this subsection of a non-audit 
        service to be performed by the auditor of the issuer shall be 
        disclosed to investors in periodic reports required by section 
        13(a).
            ``(3) Delegation authority.--The audit 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 
        subsection. The decisions of any member to whom authority 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 purposes of this 
        subsection.''.

SEC. 203. AUDIT PARTNER ROTATION.

    Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the 
following:
    ``(j) Audit Partner Rotation.--It shall be unlawful for a 
registered public accounting firm to provide audit services to an 
issuer if the lead audit partner (having primary responsibility for the 
audit) or the audit partner responsible for reviewing the audit that is 
assigned to perform those audit services has performed audit services 
for that issuer in each of the 5 previous fiscal years of that 
issuer.''.

SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.

    Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the 
following:
    ``(k) Reports to Audit Committees.--Each registered public 
accounting firm that performs for any issuer any audit required by this 
title shall timely report to the audit committee of the issuer--
            ``(1) all critical accounting policies and practices to be 
        used;
            ``(2) all alternative treatments of financial information 
        within generally accepted accounting principles that have been 
        discussed with management officials of the issuer, 
        ramifications of the use of such alternative disclosures and 
        treatments, and the treatment preferred by the registered 
        public accounting firm; and
            ``(3) other material written communications between 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 Exchange 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) established 
                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 statements of the issuer; and
                    ``(B) if no such committee exists with respect to 
                an issuer, the entire board of directors of the issuer.
            ``(59) Registered public accounting firm.--The term 
        `registered public accounting firm' has the same meaning as in 
        section 3 of the Public Company Accounting Reform and Investor 
        Protection Act of 2002.''.
    (b) Auditor Requirements.--Section 10A of the Securities Exchange 
Act of 1934 (15 U.S.C. 78j-1) is amended--
            (1) by striking ``an independent public accountant'' each 
        place that term appears and inserting ``a registered public 
        accounting firm'';
            (2) by striking ``the independent public accountant'' each 
        place that term appears and inserting ``the registered public 
        accounting firm'';
            (3) in subsection (c), by striking ``No independent public 
        accountant'' and inserting ``No registered 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 
                accountant'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 accountant'' each 
        place that term appears and inserting ``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 REGISTERED PUBLIC ACCOUNTING 
              FIRMS.

    (a) Study and Review Required.--The Comptroller General of the 
United States shall conduct a study and review of the potential effects 
of requiring the mandatory 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, Housing, and Urban Affairs of the Senate and 
the Committee on Financial Services of the House of Representatives on 
the results of the study and review required by this section.
    (c) Definition.--For purposes of this section, the term ``mandatory 
rotation'' refers to the imposition of a limit on the period of years 
in which a particular registered public accounting firm may be the 
auditor of record for a particular issuer.

SEC. 208. COMMISSION AUTHORITY.

    (a) Commission Regulations.--Not later than 180 days after the date 
of enactment of this Act, the Commission shall issue final regulations 
to carry out each of subsections (g) through (l) of section 10A of the 
Securities Exchange Act of 1934, as added by this title.
    (b) Auditor Independence.--It shall be unlawful for any registered 
public accounting firm (or an associated person thereof, as applicable) 
to prepare or issue any audit 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 REGULATORY AUTHORITIES.

    It is the intention of this Act that, in supervising nonregistered 
public accounting firms and their associated persons, appropriate State 
regulatory authorities should make an independent determination of the 
proper standards applicable, particularly taking into consideration the 
size and nature of the business of the accounting firms they supervise. 
The standards applied by the Board under this Act should not be 
presumed to be applicable for purposes of this section for small- and 
medium-sized nonregistered public accounting firms.

                  TITLE III--CORPORATE RESPONSIBILITY

SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.

    Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78f) 
is amended by adding at the end the following:
    ``(m) Standards Relating to Audit Committees.--
            ``(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 national securities 
                associations to prohibit the listing of any security of 
                an issuer that is not in compliance with the 
                requirements of any portion of paragraphs (2) through 
                (6).
                    ``(B) Opportunity to cure defects.--The rules of 
                the Commission under subparagraph (A) shall provide for 
                appropriate procedures for an issuer to have an 
                opportunity to cure any defects that would be the basis 
                for a prohibition under subparagraph (A), before the 
                imposition of such prohibition.
            ``(2) Responsibilities relating to registered public 
        accounting firms.--The audit committee of each issuer, in its 
        capacity as a committee of the board of directors, shall be 
        directly responsible for the appointment, compensation, and 
        oversight of the work of any registered public accounting 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 
        accounting firm shall report directly to the audit committee.
            ``(3) Independence.--
                    ``(A) In general.--Each member of the audit 
                committee of the issuer shall be a member of the board 
                of directors of the issuer, and shall otherwise be 
                independent.
                    ``(B) Criteria.--In order to be considered to be 
                independent for purposes of this paragraph, a member of 
                an audit committee of an issuer may not, other than in 
                his or her capacity as a member of the audit committee, 
                the board of 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 Commission 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 auditing matters; and
                    ``(B) the confidential, anonymous submission by 
                employees of the issuer of concerns regarding 
                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 determines 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 
thereof) of the issuer.
    (b) Content.--The statement required by subsection (a) shall 
certify the appropriateness of the financial 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 Commission 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 
fraudulently influence, coerce, manipulate, or mislead any independent 
public or certified accountant engaged in the performance of an audit 
of the financial statements of that issuer for the purpose of rendering 
such financial statements materially misleading.
    (b) Enforcement.--In any civil proceeding, the Commission shall 
have exclusive authority to enforce this section and any rule or 
regulation issued under this section.
    (c) No Preemption of Other Law.--The provisions of subsection (a) 
shall be in addition to, and shall not 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 PROFITS.

    (a) Additional Compensation Prior to Noncompliance 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 equity-based 
        compensation received by that person from the issuer during the 
        12-month period following the first public issuance or filing 
        with the Commission (whichever first occurs) of the financial 
        document embodying such financial reporting requirement; and
            (2) any profits realized from the sale of securities of the 
        issuer during that 12-month period.
    (b) Commission Exemption Authority.--The 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.--Section 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 insert ``unfitness''.
    (b) Equitable Relief.--Section 21(d) of the Securities 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 following:
    ``(2) Equitable relief.--In any action or proceeding brought or 
instituted by the Commission under any provision of the securities 
laws, the Commission may seek, and any Federal court may grant, any 
equitable relief that may be appropriate or necessary for the benefit 
of investors.''.

SEC. 306. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS 
              PROHIBITED.

    (a) Prohibition.--It shall be unlawful for any director or 
executive officer of an issuer of any equity security (other than an 
exempted security), directly or indirectly, to purchase, sell, or 
otherwise acquire or transfer any equity security of the issuer (other 
than an exempted security), during any blackout period with respect to 
such equity security, in accordance with any exception provided by rule 
of the Commission pursuant to subsection (d).
    (b) Effectiveness.--
            (1) Notice requirements.--Except as provided 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 
        beneficiaries.
            (2) Exception.--The 30-day notice requirement in paragraph 
        (1) shall not apply, and notice under paragraph (1) shall be 
        furnished as soon as is 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 Retirement Income Security 
                Act of 1974, and a fiduciary of the plan so reasonably 
                determines in writing; or
                    (B) the inability to provide the 30-day notice 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 director 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 intention on the part of such 
        director or executive officer in entering into the transaction.
            (2) Actions to recover profits.--An action to recover 
        profits in accordance with this section may be instituted at 
        law or in equity in any court of 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 subsection, 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 participants or 
                beneficiaries under all applicable individual account 
                plans maintained by the issuer to purchase, sell, or 
                otherwise acquire or transfer an interest in any equity 
                of such issuer held in such an individual account plan, 
                is suspended by the issuer or a fiduciary of the plan; 
                and
                    (B) does not include--
                            (i) a period in which the employees of an 
                        issuer may not allocate their interests in the 
                        individual account plan due to an express 
                        investment restriction--
                                    (I) incorporated into the 
                                individual 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 
                        subparagraph (A) that is imposed solely in 
                        connection with persons becoming participants 
                        or beneficiaries, or ceasing to be participants 
                        or beneficiaries, in an applicable individual 
                        account plan by reason of a corporate 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 Securities Exchange 
Act of 1934 (15 U.S.C. 78m) is amended by adding at the end the 
following:
    ``(i) Accuracy of Financial Reports.--Each financial report that is 
required to be prepared in accordance with generally accepted 
accounting principles under this title and filed with the Commission 
shall reflect all material correcting adjustments that have been 
identified by a 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 Protection Act of 2002, the Commission shall issue final rules 
providing that each annual and quarterly financial report required to 
be filed with the Commission shall disclose all material off-balance 
sheet transactions, arrangements, obligations (including contingent 
obligations), and other relationships of the issuer with unconsolidated 
entities or other persons, that may have a material current or future 
effect on financial condition, changes in financial condition, 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 periodic or other report filed with the Commission pursuant to the 
securities laws, or in any public disclosure or press or other release, 
shall be presented in a manner that--
            (1) does not contain an untrue statement of a material fact 
        or omit to state a material fact necessary in order to make the 
        pro forma financial information, 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 DISCLOSURES.

    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 Commission, 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 arrangement from that issuer in 
                favor of another person who lends, or agrees to lend, 
                money to the director or executive officer of the 
                issuer, including the amounts loaned and balances owed, 
                not later than 7 calendar days after the date on which 
                the loan, guarantee, or other arrangement is made, or 
                such other time period, as determined 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, officer, 
                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 available 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 required by this 
        subsection shall be in such form and subject to such terms and 
        conditions as the Commission shall specify.''.

SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND 
              PRINCIPAL STOCKHOLDERS.

    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 inserting 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 ownership, or if 
        such person shall have purchased or sold a security-based swap 
        agreement (as defined in section 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 
        securities exchange, shall also file with the exchange), a 
        statement before the end of the second business day following 
        the day on which the subject transaction has been executed, or 
        at such other 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 
        paragraph.''.

SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.

    (a) Rules Required.--The Commission shall prescribe rules requiring 
each annual report required by section 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 reporting; and
            (2) contain an assessment, as of the end of the most recent 
        fiscal year of the issuer, of the effectiveness of the internal 
        control structure and procedures of the issuer for financial 
        reporting.
    (b) Internal Control Evaluation and Reporting.--With respect to the 
internal control assessment required by subsection (a), each registered 
public accounting firm that prepares or issues the audit report for the 
issuer shall attest to, and report on, the assessment made by the 
management of the issuer. An attestation made under this subsection 
shall be made in accordance with standards for attestation engagements 
issued or adopted by the Board. Any such attestation shall not be the 
subject of a separate engagement.

SEC. 405. EXEMPTION.

    Nothing in section 401, 402, or 404, the amendments made by those 
sections, or the rules of the Commission under those sections shall 
apply to any investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-8).

SEC. 406. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS.

    (a) Code of Ethics Disclosure.--The Commission 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 Commission shall revise its 
regulations concerning matters requiring prompt disclosure on Form 8-K 
(or any successor thereto) to require the immediate disclosure, by 
means of the filing of such form, dissemination by the Internet or by 
other 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 interest between 
        personal and professional relationships;
            (2) full, fair, accurate, timely, and understandable 
        disclosure in the periodic reports required to be filed by the 
        issuer; and
            (3) compliance with applicable governmental rules and 
        regulations.
    (d) Deadline for Rulemaking.--The Commission shall--
            (1) propose rules to implement this section, not later than 
        90 days after the date of enactment of this Act; and
            (2) issue final rules to implement this section, not later 
        than 180 days after that date of enactment.

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 committee of that 
issuer is comprised of at least 1 member who is a financial expert, as 
such term is defined by the Commission.
    (b) Considerations.--In defining the term ``financial expert'' for 
purposes of subsection (a), the Commission shall consider whether a 
person has, through education and experience as a public accountant or 
auditor or a principal financial officer, comptroller, or principal 
accounting officer of an issuer, or from a position involving the 
performance of similar functions--
            (1) an understanding of generally accepted accounting 
        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 functions.
    (c) Deadline for Rulemaking.--The Commission shall--
            (1) propose rules to implement this section, not later than 
        90 days after the date of enactment of this Act; and
            (2) issue final rules to implement this section, not later 
        than 180 days after that date of enactment.

                 TITLE V--ANALYST CONFLICTS OF INTEREST

SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED 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 following:
    ``(n) Rules Regarding Securities Analysts.--
            ``(1) Analyst protections.--The Commission, or upon the 
        authorization and direction of the Commission, a registered 
        securities association or national securities exchange, shall 
        have adopted, not later than 1 year after the date of enactment 
        of this subsection, rules reasonably designed to address 
        conflicts of interest that can arise when research analysts 
        recommend equity securities in research reports and public 
        appearances, in order to improve the objectivity of research 
        and provide investors with more useful and reliable 
        information, including rules designed--
                    ``(A) to foster greater public confidence in 
                securities research, and to protect the objectivity and 
                independence of securities analysts, by--
                            ``(i) restricting the prepublication 
                        clearance or approval of research reports by 
                        persons employed by the broker or dealer who 
                        are engaged in investment banking activities, 
                        or persons not directly responsible for 
                        investment research, other than legal or 
                        compliance staff;
                            ``(ii) limiting the supervision and 
                        compensatory evaluation of securities analysts 
                        to officials employed by the broker or dealer 
                        who are not engaged in investment banking 
                        activities; and
                            ``(iii) requiring that a broker or dealer 
                        and persons employed by a broker or dealer who 
                        are involved with investment banking activities 
                        may not, directly or indirectly, retaliate 
                        against or threaten to retaliate against any 
                        securities analyst employed by that broker or 
                        dealer or its affiliates as a result of an 
                        adverse, negative, or otherwise unfavorable 
                        research report that may adversely affect the 
                        present or prospective investment banking 
                        relationship of the broker or dealer with the 
                        issuer that is the subject of the research 
                        report, except that such rules may not limit 
                        the authority of a broker or dealer to 
                        discipline a securities analyst for causes 
                        other than such research report in accordance 
                        with the policies and procedures of the firm;
                    ``(B) to define periods during which brokers or 
                dealers who have participated, or are to participate, 
                in a public offering of securities as underwriters or 
                dealers should not publish or otherwise distribute 
                research reports relating to such securities or to the 
                issuer of such securities;
                    ``(C) to establish structural and institutional 
                safeguards within registered brokers or dealers to 
                assure that securities analysts are separated by 
                appropriate informational partitions within the firm 
                from the review, pressure, or oversight of those whose 
                involvement in investment banking activities might 
                potentially bias their judgment or supervision; and
                    ``(D) to address such other issues as the 
                Commission, or such association or exchange, determines 
                appropriate.
            ``(2) Disclosure.--The Commission, or upon the 
        authorization and direction of the Commission, a registered 
        securities association or national securities exchange, shall 
        have adopted, not later than 1 year after the date of enactment 
        of this subsection, rules reasonably designed to require each 
        securities analyst to disclose in public appearances, and each 
        registered broker or dealer to disclose in each research 
        report, as applicable, conflicts of interest that are known or 
        should have been known by the securities analyst or the broker 
        or dealer, to exist at the time of the appearance or the date 
        of distribution of the report, including--
                    ``(A) the extent to which the securities analyst 
                has debt or equity investments in the issuer that is 
                the subject of the appearance or research report;
                    ``(B) whether any compensation has been received by 
                the registered broker or dealer, or any affiliate 
                thereof, including the securities analyst, from the 
                issuer that is the subject of the appearance or 
                research report, subject to such exemptions as the 
                Commission may determine appropriate and necessary to 
                prevent disclosure by virtue of this subparagraph of 
                material non-public information regarding specific 
                potential future investment banking transactions of 
                such issuer, as is appropriate in the public interest 
                and consistent with the protection of investors;
                    ``(C) whether an issuer, the securities of which 
                are recommended in the appearance or research report, 
                currently is, or during the 1-year period preceding the 
                date of the appearance or date of distribution of the 
                report has been, a client of the registered broker or 
                dealer, and if so, stating the types of services 
                provided to the issuer;
                    ``(D) whether the securities analyst received 
                compensation with respect to a research report, based 
                upon (among any other factors) the investment banking 
                revenues (either generally or specifically earned from 
                the issuer being analyzed) of the registered broker or 
                dealer; and
                    ``(E) such other disclosures of conflicts of 
                interest that are material to investors, research 
                analysts, or the broker or dealer as the Commission, or 
                such association or exchange, determines appropriate.
            ``(3) Definitions.--In this subsection--
                    ``(A) the term `securities analyst' means any 
                associated person of a registered broker or dealer that 
                is principally responsible for, and any associated 
                person who reports directly or indirectly to a 
                securities analyst in connection with, the preparation 
                of the substance of a research report, whether or not 
                any such person has the job title of `securities 
                analyst'; and
                    ``(B) the term `research report' means a written or 
                electronic communication that includes an analysis of 
                equity securities of individual companies or 
                industries, and that provides information reasonably 
                sufficient upon which to base an investment 
                decision.''.
    (b) Enforcement.--Section 21B(a) of the Securities Exchange Act of 
1934 (15 U.S.C. 78u-2(a)) is amended by inserting ``15A(n),'' before 
``15B''.
    (c) Commission Authority.--The Commission may promulgate and amend 
its regulations, or direct a registered securities association or 
national securities exchange to promulgate and amend its rules, to 
carry out section 15A(n) of the Securities Exchange Act of 1934, as 
added by this section, as is necessary for the protection of investors 
and in the public interest.

              TITLE VI--COMMISSION RESOURCES AND AUTHORITY

SEC. 601. AUTHORIZATION OF APPROPRIATIONS.

    Section 35 of the Securities Exchange Act of 1934 (15 U.S.C. 78kk) 
is amended to read as follows:

``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

    ``In addition to any other funds authorized to be appropriated to 
the Commission, there are authorized to be appropriated to carry out 
the functions, powers, and duties of the Commission, $776,000,000 for 
fiscal year 2003, of which--
            ``(1) $102,700,000 shall be available to fund additional 
        compensation, including salaries and benefits, as authorized in 
        the Investor and Capital Markets Fee Relief Act (Public Law 
        107-123; 115 Stat. 2390 et seq.);
            ``(2) $108,400,000 shall be available for information 
        technology, security enhancements, and recovery and mitigation 
        activities in light of the terrorist attacks of September 11, 
        2001; and
            ``(3) $98,000,000 shall be available to add not fewer than 
        an additional 200 qualified professionals to provide enhanced 
        oversight of auditors and audit services required by the 
        Federal securities laws, and to improve Commission 
        investigative and disciplinary efforts with respect to such 
        auditors and services, as well as for additional professional 
        support staff necessary to strengthen the programs of the 
        Commission involving Full Disclosure and Prevention and 
        Suppression of Fraud, risk management, industry technology 
        review, compliance, inspections, examinations, market 
        regulation, and investment management.''.

SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting after section 4B the following:

``SEC. 4C. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.

    ``(a) Authority To Censure.--The Commission may censure any person, 
or deny, temporarily or permanently, to any person the privilege of 
appearing or practicing before the Commission in any way, if that 
person is found by the Commission, after notice and opportunity for 
hearing in the matter--
            ``(1) not to possess the requisite qualifications to 
        represent others;
            ``(2) to be lacking in character or integrity, or to have 
        engaged in unethical or improper professional conduct; or
            ``(3) to have willfully violated, or willfully aided and 
        abetted the violation of, any provision of the securities laws 
        or the rules and regulations issued thereunder.
    ``(b) Definition.--With respect to any registered public accounting 
firm, for purposes of this section, the term `improper professional 
conduct' means--
            ``(1) intentional or knowing conduct, including reckless 
        conduct, that results in a violation of applicable professional 
        standards; and
            ``(2) negligent conduct in the form of--
                    ``(A) a single instance of highly unreasonable 
                conduct that results in a violation of applicable 
                professional standards in circumstances in which the 
                registered public accounting firm knows, or should 
                know, that heightened scrutiny is warranted; or
                    ``(B) repeated instances of unreasonable conduct, 
                each resulting in a violation of applicable 
                professional standards, that indicate a lack of 
                competence to practice before the Commission.''.

SEC. 603. FEDERAL COURT AUTHORITY TO IMPOSE PENNY STOCK BARS.

    (a) Securities Exchange Act of 1934.--Section 21(d) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78u(d)), as amended by this 
Act, is amended by adding at the end the following:
    ``(7) Authority of a court to prohibit persons from participating 
in an offering of penny stock.--
            ``(A) In general.--In any proceeding under paragraph (1) 
        against any person participating in, or, at the time of the 
        alleged misconduct who was participating in, an offering of 
        penny stock, the court may prohibit that person from 
        participating in an offering of penny stock, conditionally or 
        unconditionally, and permanently or for such period of time as 
        the court shall determine.
            ``(B) Definition.--For purposes of this paragraph, the term 
        `person participating in an offering of penny stock' includes 
        any person engaging in activities with a broker, dealer, or 
        issuer for purposes of issuing, trading, or inducing or 
        attempting to induce the purchase or sale of, any penny stock. 
        The Commission may, by rule or regulation, define such term to 
        include other activities, and may, by rule, regulation, or 
        order, exempt any person or class of persons, in whole or in 
        part, conditionally or unconditionally, from inclusion in such 
        term.
    (b) Securities Act of 1933.--Section 20 of the Securities Act of 
1933 (15 U.S.C. 77t) is amended by adding at the end the following:
    ``(g) Authority of a Court To Prohibit Persons From Participating 
in an Offering of Penny Stock.--
            ``(1) In general.--In any proceeding under subsection (a) 
        against any person participating in, or, at the time of the 
        alleged misconduct, who was participating in, an offering of 
        penny stock, the court may prohibit that person from 
        participating in an offering of penny stock, conditionally or 
        unconditionally, and permanently or for such period of time as 
        the court shall determine.
            ``(2) Definition.--For purposes of this subsection, the 
        term `person participating in an offering of penny stock' 
        includes any person engaging in activities with a broker, 
        dealer, or issuer for purposes of issuing, trading, or inducing 
        or attempting to induce the purchase or sale of, any penny 
        stock. The Commission may, by rule or regulation, define such 
        term to include other activities, and may, by rule, regulation, 
        or order, exempt any person or class of persons, in whole or in 
        part, conditionally or unconditionally, from inclusion in such 
        term.''.

SEC. 604. QUALIFICATIONS OF ASSOCIATED PERSONS OF BROKERS AND DEALERS.

    (a) Brokers and Dealers.--Section 15(b)(4) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o) is amended--
            (1) by striking subparagraph (F) and inserting the 
        following:
            ``(F) is subject to any order of the Commission barring or 
        suspending the right of the person to be associated with a 
        broker or dealer;''; and
            (2) in subparagraph (G), by striking the period at the end 
        and inserting the following: ``; or
            ``(H) is subject to any final order of a State securities 
        commission (or any agency or officer performing like 
        functions), State authority that supervises or examines banks, 
        savings associations, or credit unions, State insurance 
        commission (or any agency or office performing like functions), 
        an appropriate Federal banking agency (as defined in section 3 
        of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or 
        the National Credit Union Administration, that--
                    ``(i) bars such person from association with an 
                entity regulated by such commission, authority, agency, 
                or officer, or from engaging in the business of 
                securities, insurance, banking, savings association 
                activities, or credit union activities; or
                    ``(ii) constitutes a final order based on 
                violations of any laws or regulations that prohibit 
                fraudulent, manipulative, or deceptive conduct.''.
    (b) Investment Advisers.--Section 203(e) of the Investment Advisers 
Act of 1940 (15 U.S.C. 80b-3(e)) is amended by striking paragraphs (7) 
and (8) and inserting the following:
            ``(7) is subject to any order of the Commission barring or 
        suspending the right of the person to be associated with an 
        investment adviser; or
            ``(8) is subject to any final order of a State securities 
        commission (or any agency or officer performing like 
        functions), State authority that supervises or examines banks, 
        savings associations, or credit unions, State insurance 
        commission (or any agency or office performing like functions), 
        an appropriate Federal banking agency (as defined in section 3 
        of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or 
        the National Credit Union Administration, that--
                    ``(A) bars such person from association with an 
                entity regulated by such commission, authority, agency, 
                or officer, or from engaging in the business of 
                securities, insurance, banking, savings association 
                activities, or credit union activities; or
                    ``(B) constitutes a final order based on violations 
                of any laws or regulations that prohibit fraudulent, 
                manipulative, or deceptive conduct.''.
    (c) Conforming Amendments.--
            (1) Securities Exchange Act of 1934.--The Securities 
        Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended--
                    (A) in section 3(a)(39)(F) (15 U.S.C. 
                78c(a)(39)(F)), by inserting ``, or is subject to an 
                order or finding,'' before ``enumerated'';
                    (B) in each of sections 15(b)(6)(A)(i) (15 U.S.C. 
                78o(b)(6)(A)(i)), paragraphs (2) and (4) of section 
                15B(c) (15 U.S.C. 78o-4(c)), and subparagraphs (A) and 
                (C) of section 15C(c)(1) (15 U.S.C. 78o-5(c)(1)) by 
                striking ``or omission'' each place that term appears, 
                and inserting ``, or is subject to an order or 
                finding,''; and
                    (C) in each of paragraphs (3)(A) and (4)(C) of 
                section 17A(c) (15 U.S.C. 78q-1(c)), by inserting ``, 
                or is subject to an order or finding,'' before 
                ``enumerated'' each place that term appears.
            (2) Investment Advisers Act of 1940.--Section 203(f) of the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b-3(f)) is 
        amended, by inserting ``or (3)'' after ``paragraph (2)''.

                     TITLE VII--STUDIES AND REPORTS

SEC. 701. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF PUBLIC 
              ACCOUNTING FIRMS.

    (a) Study Required.--The Comptroller General of the United States 
shall conduct a study--
            (1) to identify--
                    (A) the factors that have led to the consolidation 
                of public accounting firms since 1989 and the 
                consequent reduction in the number of firms capable of 
                providing audit services to large national and multi-
                national business organizations that are subject to the 
                securities laws;
                    (B) the present and future impact of the condition 
                described in subparagraph (A) on capital formation and 
                securities markets, both domestic and international; 
                and
                    (C) solutions to any problems identified under 
                subparagraph (B), including ways to increase 
                competition and the number of firms capable of 
                providing audit services to large national and 
                multinational business organizations that are subject 
                to the securities laws;
            (2) of the problems, if any, faced by business 
        organizations that have resulted from limited competition among 
        public accounting firms, including--
                    (A) higher costs;
                    (B) lower quality of services;
                    (C) impairment of auditor independence; or
                    (D) lack of choice; and
            (3) whether and to what extent Federal or State regulations 
        impede competition among public accounting firms.
    (b) Consultation.--In planning and conducting the study under this 
section, the Comptroller General shall consult with--
            (1) the Commission;
            (2) the regulatory agencies that perform functions similar 
        to the Commission within the other member countries of the 
        Group of Seven Industrialized Nations;
            (3) the Department of Justice; and
            (4) any other public or private sector organization that 
        the Comptroller General considers appropriate.
    (c) Report Required.--Not later than 1 year after the date of 
enactment of this Act, the Comptroller General shall submit a report on 
the results of the study required by this section to the Committee on 
Banking, Housing, and Urban Affairs of the Senate and the Committee on 
Financial Services of the House of Representatives.

SEC. 702. COMMISSION STUDY AND REPORT REGARDING CREDIT RATING AGENCIES.

    (a) Study Required.--
            (1) In general.--The Commission shall conduct a study of 
        the role and function of credit rating agencies in the 
        operation of the securities market.
            (2) Areas of consideration.--The study required by this 
        subsection shall examine--
                    (A) the role of credit rating agencies in the 
                evaluation of issuers of securities;
                    (B) the importance of that role to investors and 
                the functioning of the securities markets;
                    (C) any impediments to the accurate appraisal by 
                credit rating agencies of the financial resources and 
                risks of issuers of securities;
                    (D) any barriers to entry into the business of 
                acting as a credit rating agency, and any measures 
                needed to remove such barriers;
                    (E) any measures which may be required to improve 
                the dissemination of information concerning such 
                resources and risks when credit rating agencies 
                announce credit ratings; and
                    (F) any conflicts of interest in the operation of 
                credit rating agencies and measures to prevent such 
                conflicts or ameliorate the consequences of such 
                conflicts.
    (b) Report Required.--The Commission shall submit a report on the 
study required by subsection (a) to the President, the Committee on 
Financial Services of the House of Representatives, and the Committee 
on Banking, Housing, and Urban Affairs of the Senate not later than 180 
days after the date of enactment of this Act.




                                                       Calendar No. 442

107th CONGRESS

  2d Session

                                S. 2673

_______________________________________________________________________

                                 A BILL

    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 Exchange Commission resources and 
                   oversight, and for other purposes.

_______________________________________________________________________

                             June 25, 2002

                 Read twice and placed on the calendar

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