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 byand 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 anissuer, 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 purposesof 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 regardinga 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 under section 15(d) (15 U.S.C. 78o(d)), or that files or has filed a
registration statement that has not yet become effective under the Securities
Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.
(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—
H. R. 3763—4
(i) shares in the profits of, or
receives compensationin any other form from, that firm; or
(ii) participates as agent or
otherwise on behalfof 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 auditreports for issuers; and
(ii) are established or adopted by
the Board undersection 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 associa-tion, 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 theBoard, 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)).
H. R. 3763—5
(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 Sarbanes-Oxley 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 Sarbanes-Oxley Act of 2002),’’ after ‘‘government securities
dealer,’’.
(4) ENFORCEMENT BY FEDERAL BANKING AGENCIES.—Section 12(i) of the Securities
Exchange Act of 1934 (15 U.S.C. 78l(i)) is amended by—
(A) striking ‘‘sections 12,’’ each
place it appears and inserting ‘‘sections 10A(m), 12,’’; and
H. R. 3763—6
(B) striking ‘‘and 16,’’ each place
it appears and inserting ‘‘and 16 of this Act, and sections 302, 303, 304, 306,
401(b), 404, 406, and 407 of the Sarbanes-Oxley Act of 2002,’’.
(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 theaccounting 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 foraccounting 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 initiativeof 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 auditreports for issuers, in accordance with section 102;
(2) establish or adopt, or both, by
rule, auditing, qualitycontrol, 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 accountingfirms, in accordance with section 104 and the rules of the
Board;
(4) conduct investigations and
disciplinary proceedings con-cerning, and impose appropriate sanctions where
justified upon,
H. R. 3763—7
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(or the Commission, by rule or order) 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 Boardand 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. The Commission shall be responsible, prior to the appointment
of the Board, for the planning for the establishment and administrative
transition to the Board’s operation.
(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
H. R. 3763—8
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 vacancyoccurring 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 corporatename 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, andto 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 other-wise acquire, improve, use, sell, exchange, or convey,
all of or an interest in any property, wherever situated;
(4) to appoint such employees,
accountants, attorneys, andother 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 feesestablished 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 liabil-ities, 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.
H. R. 3763—9
(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 theBoard, the exercise of its authority, and the performance
of its responsibilities under this Act;
(2) permit, as the Board determines
necessary or appro-priate, 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 toreview any action pursuant to any such delegated
function, upon its own motion;
(B) a person shall be entitled to a
review by the Boardwith 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 insubparagraph (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 Boardmembers 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 preparedor 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;
H. R. 3763—10
(B) the annual fees received by the
firm from eachsuch issuer for audit services, other accounting services, and
non-audit services, respectively;
(C) such other current financial
information for themost recently completed fiscal year of the firm as the Board
may reasonably request;
(D) a statement of the quality
control policies of thefirm for its accounting and auditing practices;
(E) a list of all accountants
associated with the firmwho 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 adminis-trative 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 filedby 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 Boardor 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 firmto 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 agreesthat 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
H. R. 3763—11
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
itadopts, requirements that each registered public accounting firm shall—
(i) prepare, and maintain for a
period of not lessthan 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 reviewand 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 in each audit report the scope ofthe
auditor’s testing of the internal control structure and procedures of the
issuer, required by section 404(b), and present (in such report or in a
separate report)—
H. R. 3763—12
(I) the findings of the auditor from
suchtesting;
(II) an evaluation of whether such
internalcontrol structure and procedures—
(aa) include maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the issuer;
(bb) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the issuer are being made only in accordance with
authorizations of management and directors of the issuer; and
(III) a description, at a minimum, of
materialweaknesses in such internal controls, and of any material noncompliance
found on the basis of such testing.
(B) shall include, in the quality
control standards thatit adopts with respect to the issuance of audit reports,
requirements for every registered public accounting firm relating to—
(i) monitoring of professional ethics
and independ-ence from issuers on behalf of which the firm issues audit
reports;
(ii) consultation within such firm on
accountingand auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional
development, and advance-ment of personnel;
(v) the acceptance and continuation
of engage-ments;
(vi) internal inspection; and
(vii) such other requirements as the
Board mayprescribe, 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 termsof 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 fullauthority 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
H. R. 3763—13
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 publicaccounting firm that regularly provides audit reports for more
than 100 issuers; and
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(B) not less frequently than once
every 3 years withrespect 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. The Board may conduct special inspections at
the request of the Commission or upon its own motion.
(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 theregistered 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 disciplinary action,if appropriate, 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 engage-ments 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 systemof 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—
H. R. 3763—15
(1) transmitted, in appropriate
detail, to the Commissionand 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 (sub-ject 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, pursuantto 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 thatcriticisms 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.
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(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 personassociated 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 andany 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 anydocument 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 theCommission, 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
associ-ated 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 publicaccounting firm; and
(iii) invoke such other lesser
sanctions as the Boardconsiders 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) COORDINATION AND REFERRAL OF INVESTIGATIONS.—
(A) COORDINATION.—The Board shall notify the Commission of any pending Board
investigation involving a potential violation of the securities laws, and
thereafter coordinate its work with the work of the Commission’s Division of
Enforcement, as necessary to protect an ongoing Commission investigation.
(B) REFERRAL.—The
Board may refer an investigation under this section—
(i) to the Commission;
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(ii) to any other Federal functional
regulator (asdefined 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
(iii) 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.—Without the loss of its status as
confidential and privileged in the hands of the Board, all information referred
to in subparagraph (A) may—
(i) be made available to the Commission; and
(ii) in the discretion of the Board, when determinedby
the Board to be necessary to accomplish the purposes of this Act or to protect
investors, be made available to—
(I) the Attorney General of the United States;
(II) the appropriate Federal functional regu-lator (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;
(III) State attorneys general in connection withany
criminal investigation; and
(IV) any appropriate State regulatory
authority, each of
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
H. R. 3763—18
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 firmor associated person;
(B) notify such firm or associated person
of, and provideto 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 publicaccounting 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 securitieslaws, the rules of the Board, or professional standards
which the Board determines has been violated; and
(C) the sanction imposed, including a
justification forthat 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 ofregistration under this title;
(B) temporary or permanent suspension
or bar of aperson from further association with any registered public
accounting firm;
(C) temporary or permanent limitation
on the activi-ties, 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, inan amount equal to—
(i) not more than $100,000 for a
natural personor $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 therules of the Board.
H. R. 3763—19
(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 recklessconduct, that results in violation of the applicable
statutory, regulatory, or professional standard; or
(B) repeated instances of negligent
conduct, eachresulting 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 anassociated 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 ofthis 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 thatfirm 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
theduties 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
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care should have known, of such suspension or bar, to
permit such an association, without the consent of the Board or the C
