[House Report 107-418]
[From the U.S. Government Publishing Office]
107th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 107-418
======================================================================
.
PROVIDING FOR CONSIDERATION OF H.R. 3763, CORPORATE AND AUDITING
ACCOUNTABILITY, RESPONSIBILITY, AND TRANSPARENCY ACT OF 2002
_______
April 23, 2002.--Referred to the House Calendar and ordered to be
printed
_______
Mr. Sessions, from the Committee on Rules, submitted the following
R E P O R T
[To accompany H. Res. 395]
The Committee on Rules, having had under consideration
House Resolution 395, by a nonrecord vote, report the same to
the House with the recommendation that the resolution be
adopted.
SUMMARY OF PROVISIONS OF THE RESOLUTION
The resolution provides for the consideration of H.R. 3763,
the Corporate and Auditing Accountability, Responsibility, and
Transparency Act of 2002, under a structured rule. The rule
provides one hour of debate equally divided and controlled by
the chairman and ranking minority member of the Committee on
Financial Services. The rule waives all points of order against
consideration of the bill.
The rule provides that the amendment in the nature of a
substitute recommended by the Committee on Financial Services
now printed in the bill shall be considered as an original bill
for the purpose of amendment and shall be considered as read.
The rule waives all points of order against the bill, as
amended.
The rule makes in order only those amendments printed in
this report. The rule provides that the amendments printed in
this report shall be considered only in the order printed, may
be offered only by a Member designated, shall be considered as
read, shall be debatable for the time specified equally divided
and controlled by the proponent and an opponent, shall not be
subject to amendment, and shall not be subject to a demand for
division of the question in the House or in the Committee of
the Whole. The rule waives all points of order against the
amendments printed in this report.
Finally, the rule provides one motion to recommit with or
without instructions.
The waiver of all points of order includes a waiver of
clause 3 of rule XIII (requiring the inclusion of certain
information or statements in the committee report), because a
CBO cost estimate was not yet available when the Financial
Services Committee filed H. Rept. 107-414. The waiver of all
points of order also includes a waiver of clause 4(a) of rule
XIII (requiring a three-day layover of the committee report),
because H. Rept. 107-414 was filed on Monday, April 22 and the
House could consider the bill as early as Wednesday, April 24.
SUMMARY OF AMENDMENTS MADE IN ORDER UNDER THE RULE
Oxley--Manager's Amendment. Makes various technical and
conforming changes, strikes provisions requiring companies
listed on the stock exchanges to a code of ethics for senior
corporate officers due to workability issues, and retains
provisions regarding disclosure of changes in issuer codes of
conduct. (10 minutes)
Capuano--Clarifies that two members of the public
regulatory organization (PRO) must be individuals licensed to
practice public accounting, two members may be individuals
licensed to practice public accounting if they have not
practiced within two years of being appointed, and one member
must not be licensed to practice public accounting. Specifies
that all members of the PRO board must meet a standard of
financial literacy as determined by the SEC. (20 minutes)
Sherman--Requires auditors of publicly-traded companies to
meet a minimum net capital requirement of not less than one-
half of the annual audit revenue received by the accountant
from issuers registered with the SEC. (20 minutes)
Kucinich--Substitute. Creates the Federal Bureau of Audits
(FBA) to monitor corporate America's books by auditing all
publicly-traded companies. This new agency will be a part of
the Securities and Exchange Commission (SEC), but maintain
appropriate independence. The SEC will set the basic rules of
auditing by incorporating the generally accepted auditing
standards rules and making further refinements that are
``necessary and appropriate in the public interest and for the
protection of investors.'' The FBA's integrity will be ensured
by several conflict of interest provisions to ensure that
American taxpayers, investors, and employees get an accurate
assessment of a corporation. (20 minutes)
LaFalce--Substitute. Replaces the regulatory structure in
the bill with one that requires establishment of a public
regulator with specified duties and authority, modifies
definitions of non-audit services to make the two bands on non-
audit services included in the bill effective, provides for
approval of non-audit services by the audit committee, replaces
the executive responsibility provisions in the bill to require
executive certification of financial statements, to improve the
ability of the SEC to bar officers and directors from future
service in public companies. Enables the SEC to obtain
disgorgement of stock bonuses from executives who have
falsified financial statements. Places limits on analyst
conflicts of interest and improves corporate governance by
giving audit committees oversight of auditors. Establishes an
independent nominating committee for independent directors. (40
minutes)
TEXT OF AMENDMENTS MADE IN ORDER UNDER THE RULE
1. An Amendment To Be Offered by Representative Oxley of Ohio, or a
Designee, Debatable for 10 Minutes
Page 9, line 24, strike ``study'' and insert ``reviews''.
Page 11, line 10, insert ``or'' after ``review''.
Page 11, line 17, strike ``board'' and insert
``organization''.
Page 33, line 7, strike ``Definition'' and insert
``Definitions''; on line 8, strike ``term `beneficial owner'
has the meaning'' and insert ``terms `officer', `director', and
`beneficial owner' have the meanings''; and line 9, strike
``term'' and insert ``terms''.
Page 39, strike line 5 and all that follows through page 40,
line 9; and on page 40, line 10, strike ``(d) Changes in Codes
of Conduct.--''.
Page 42, lines 9 and 11, strike ``accountants report'' and
insert ``accountant's report''.
Page 42, line 17, insert ``or her'' after ``his'', and
beginning on line 18, strike ``an opinion cannot be expressed''
and insert ``he or she cannot express an opinion''.
Page 53, line 23, strike ``the role played by'' and insert
``whether'', and on line 24, strike ``in assisting'' and insert
``assisted''.
Page 54, line 18, insert ``which may have been'' before
``designed solely''.
Page 57, line 9, insert ``7, 8,'' after ``6,''.
----------
2. An Amendment To Be Offered by Representative Capuano of
Massachusetts, or a Designee, Debatable for 20 Minutes
Page 3, beginning on line 21, strike paragraph (1) of section
2(b) through page 4, line 9, and insert the following:
(1)(A) The board of such organization shall be
comprised of five members--
(i) two of whom shall be persons who are
licensed to practice public accounting and who
have recent experience in auditing public
companies;
(ii) two of whom may be persons who are
licensed to practice public accounting, if such
person has not worked in the accounting
profession for any of the last two years prior
to the date of such person's appointment to the
board; and
(iii) one of whom shall be a person who has
never been licensed to practice public
accounting.
(B) Each member of the board of such organization
shall be a person who meets such standards of financial
literacy as are determined by the Commission.
----------
3. An Amendment To Be Offered by Representative Sherman of California,
or a Designee, Debatable for 20 Minutes
In section 21 strike ``and 15'' and insert ``and 16'' and
after section 13, insert the following new section (and
redesignate the succeeding sections and conform the table of
contents accordingly):
SEC. 14. AUDITOR MINIMUM CAPITAL.
(a) Regulation Required.--The Commission shall revise its
regulations pertaining to auditor independence to require that
an accountant shall not be considered independent unless such
accountant complies with such capital adequacy standards as the
Commission shall prescribe by regulation.
(b) Minimum Standard.--The capital adequacy standards
established by the Commission pursuant to this section shall
require that the net capital of an accountant be equal to not
less than one-half of the annual audit revenue received by such
accountant from issuers registered with the Commission.
(c) Treatment of Capital and Revenue.--For purposes of this
section--
(1) net capital shall include the sum of capital,
reserves, and malpractice insurance available to the
accountant for the performance of audit functions; and
(2) annual audit revenue shall include the sum of all
audit fees received by the accountant, but shall not
include any fees for non-audit services, as such terms
are defined in regulations of the Commission in effect
on the date of enactment of this Act.
----------
4. An Amendment in the Nature of a Substitute To Be Offered by
Representative Kucinich of Ohio, or a Designee, Debatable for 20
Minutes
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Investor, Shareholder, and
Employee Protection Act of 2002''.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) The failure of accounting firms to provide
accurate audits of its clients is not a new or isolated
problem.
(2) Accounting firms have been implicated in failed
audits that have cost investors billions of dollars
when earnings restatements sent stock prices tumbling.
(3) Auditors have an inherent conflict of interest.
They are hired, and fired, by their audit clients.
(4) This conflict of interest pressures auditors to
sign off on substandard financial statements rather
than risk losing a large client.
(5) Auditing a public company for the benefit of
small as well as large investors requires independence.
(6) Therefore the only truly independent audit is one
by a governmental agency.
(7) The Federal Bureau of Audits, closely regulated
by the Commission, will provide honest audits of all
publicly traded companies.
SEC. 3. ESTABLISHMENT OF BUREAU.
(a) Establishment.--There is hereby established within the
Commission an independent regulatory agency to be known as the
Federal Bureau of Audits.
(b) Function of the Bureau.--The Bureau shall conduct an
annual audit of the financial statements that are required to
be submitted by reporting issuers and to be certified under the
securities laws or the rules or regulations thereunder.
(c) Officers.--
(1) Bureau Head.--The head of the Bureau shall be a
Director, who shall be appointed by the President, by
and with the advice and consent of the Senate.
(2) Additional Officers.--There shall also be in the
Bureau a Deputy Director and an Inspector General, each
of whom shall be appointed by the President, by and
with the advice and consent of the Senate.
(3) Terms.--The Director, Deputy Director, and
Inspector General shall be appointed for terms of 12
years, except that--
(A) the first term of office of the Deputy
Director shall be eight years; and
(B) the first term of office of the Inspector
General shall be 4 years.
(d) Independence.--Except as provided in sections 4 and 5, in
the performance of their functions, the officers, employees, or
other personnel of the Bureau shall not be responsible to or
subject to the supervision or direction of any officer,
employee, or agent of any other part of the Commission.
(e) Administrative Support.--The Commission shall provide to
the Bureau such support and facilities as the Director
determines it needs to carry out its functions.
(f) Rules.--The Bureau is authorized to establish such
procedural and administrative rules as are necessary to the
exercise of its functions, but the Bureau may not establish any
auditing standards within the jurisdiction of the Commission
under sections 4 and 5.
(g) Additional Authority.--In carrying out any of its
functions, the Bureau shall have the power to hold hearings,
sign and issue subpoenas, administer oaths, examine witnesses,
and receive evidence at any place in the United States it may
designate. The Bureau may, by one or more of its officers or by
such agents as it may designate, conduct any hearing or other
inquiry necessary or appropriate to its functions, except that
nothing in this subsection shall be deemed to supersede the
provisions of section 556 of title 5, United States Code
relating to hearing examiners.
(h) Conflict of Interest Provisions.--A person previously
employed by the Bureau may not accept employment or
compensation from an issuer audited by the Bureau or an
accountant that provides audit related services to an issuer
audited by the Bureau for 10 years after the last day of
employment at the Bureau. Any current employee of the Bureau
shall be required to place all investments in a blind trust, in
accordance with regulations prescribed by the Commission. The
employees of the Bureau who conduct the audits shall be exempt
from the civil service pay system under section 4802 of title
5, United States Code, and shall be paid salaries that are
competitive with similar private sector employment.
(i) Legal Representation.--Except as provided in section 518
of title 28, United States Code, relating to litigation before
the Supreme Court, attorneys designated by the Director of the
Bureau may appear for, and represent the Bureau in, any civil
action brought in connection with any function carried out by
the Bureau pursuant to this Act or as otherwise authorized by
law.
SEC. 4. ASSUMPTION OF AUTHORITY BY COMMISSION OVER AUDITING STANDARDS.
(a) Assumption of Authority.--Pursuant to its authority under
the securities laws to require the certification, in accordance
with the rules of the Commission, of financial statements and
other documents of reporting issuers of securities, the
Commission shall, by rule, establish and revise as necessary
auditing standards for audits of such financial statements.
(b) Incorporation of Current Standards.--In adopting auditing
standards under this section, the Commission shall incorporate
generally accepted auditing standards in effect on the date of
enactment of this Act, with such modifications as the
Commission determines are necessary and appropriate in the
public interest and for the protection of investors.
(c) Additional Requirements for Rules.--The rules prescribed
by the Commission under subsection (a)--
(1) shall be available for public comment for not
less than 90 days;
(2) shall be prescribed not less than 180 days after
the date of enactment of this Act; and
(3) shall be effective on the first January 1 that
occurs after the end of such 180 days.
SEC. 5. FEES FOR THE RECOVERY OF COSTS OF OPERATIONS.
(a) In General.--The Commission shall in accordance with this
section assess and collect a fee on each reporting issuer whose
financial statements are audited by the Bureau. This section
applies as of the first fiscal year that begins after the date
of enactment of this Act (referred to in this section as the
``first applicable fiscal year'').
(b) Total Fee Revenues; Individual Fee Amounts.--The total
fee revenues collected under subsection (a) for a fiscal year
shall be the amounts appropriated under subsection (d)(2) for
such fiscal year. Individual fees shall be assessed by the
Commission on the basis of an estimate by the Commission of the
amount necessary to ensure that the sum of the fees collected
for such fiscal year equals the amount so appropriated.
(c) Fee Waiver or Reduction.--The Commission shall grant a
waiver from or a reduction of a fee assessed under subsection
(a) if the Commission finds that the fee to be paid will exceed
the anticipated present and future costs of the operations of
the Bureau.
(d) Crediting and Availability of Fees.--
(1) In general.--Fees collected for a fiscal year
pursuant to subsection (a) shall be credited to the
appropriation account for salaries and expenses of the
Bureau and shall be available until expended without
fiscal year limitation.
(2) Appropriations.--
(A) First fiscal year.--For the first
applicable fiscal year, there shall be
available for the salaries and expenses of the
Bureau $5,150,000,000.
(B) Subsequent fiscal years.--For each of the
four fiscal years following the first
applicable fiscal year, there shall be
available for the salaries and expenses of the
Bureau an amount equal to the amount made
available by paragraph (1) for the first
applicable fiscal year, multiplied by the
adjustment factor for such fiscal year (as
defined in subsection (f)).
(e) Collection of Unpaid Fees.--In any case where the
Commission does not receive payment of a fee assessed under
subsection (a) within 30 days after it is due, such fee shall
be treated as a claim of the United States Government subject
to subchapter II of chapter 37 of title 31, United States Code.
(f) Definition of Adjustment Factor.--For purposes of this
section, the term ``adjustment factor'' applicable to a fiscal
year is the lower of--
(1) the Consumer Price Index for all urban consumers
(all items; United States city average) for April of
the preceding fiscal year divided by such Index for
April of the first applicable fiscal year; or
(2) the total of discretionary budget authority
provided for programs in categories other than the
defense category for the immediately preceding fiscal
year (as reported in the Office of Management and
Budget sequestration preview report, if available,
required under section 254(c) of the Balanced Budget
and Emergency Deficit Control Act of 1985) divided by
such budget authority for the first applicable fiscal
year (as reported in the Office of Management and
Budget final sequestration report submitted for such
year).
For purposes of this subsection, the terms ``budget authority''
and ``category'' have the meaning given such terms in the
Balanced Budget and Emergency Deficit Control Act of 1985.
SEC. 6. DEFINITIONS.
As used in this Act:
(1) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(2) Securities laws.--The term ``securities laws''
means the Securities Act of 1933 (15 U.S.C. 77a et
seq.), the Securities Exchange Act of 1934 (15 U.S.C.
78a et seq.), the Trust Indenture Act of 1939 (15
U.S.C. 77aaa et seq.), the Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.), the Investment Advisers
Act of 1940 (15 U.S.C. 80b et seq.), and the Securities
Investor Protection Act of 1970 (15 U.S.C. 78aaa et
seq.).
(3) Reporting issuer.--The term ``reporting issuer''
means any registrant under section 12 of the Securities
Exchange Act of 1934 (15 U.S.C. 78l) or any other
issuer required to file periodic reports under section
13 or 15 of such Act (15 U.S.C. 78m, 78o).
----------
5. An Amendment in the Nature of a Substitute To Be Offered by
Representative LaFalce of New York, or a Designee, Debatable for 40
Minutes
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Corporate
and Auditing Accountability, Responsibility, and Transparency
Act of 2002''.
(b) Table of Contents.--
Sec. 1. Short title; table of contents.
Sec. 2. Auditor oversight.
Sec. 3. Improper influence on conduct of audits.
Sec. 4. Real-time disclosure of financial information.
Sec. 5. Insider trades during pension fund blackout periods prohibited.
Sec. 6. Improved transparency of corporate disclosures.
Sec. 7. Improvements in reporting on insider transactions and
relationships.
Sec. 8. Enhanced oversight of periodic disclosures by issuers.
Sec. 9. Retention of records.
Sec. 10. Removal of unfit corporate officers.
Sec. 11. Disgorgement required.
Sec. 12. CEO and CFO accountability for disclosure.
Sec. 13. Securities and Exchange Commission authority to provide relief.
Sec. 14. Authorization of appropriations of the Securities and Exchange
Commission.
Sec. 15. Analyst conflicts of interest.
Sec. 16. Independent directors.
Sec. 17. Enforcement of audit committee governance practices.
Sec. 18. Review of corporate governance practices.
Sec. 19. Study of enforcement actions.
Sec. 20. Study of credit rating agencies.
Sec. 21. Study of investment banks
Sec. 22. Study of model rules for attorneys of issuers.
Sec. 23. Enforcement authority.
Sec. 24. Exclusion for investment companies.
Sec. 25. Definitions.
SEC. 2. AUDITOR OVERSIGHT.
(a) Certified Financial Statement Requirements.--If a
financial statement is required by the securities laws or any
rule or regulation thereunder to be certified by an independent
public or certified accountant, an accountant shall not be
considered to be qualified to certify such financial statement,
and the Securities and Exchange Commission shall not accept a
financial statement certified by an accountant, unless such
accountant--
(1) is subject to a system of review by a public
regulatory organization that complies with the
requirements of this section and the rules prescribed
by the Commission under this section; and
(2) has not been determined in the most recent review
completed under such system to be not qualified to
certify such a statement.
(b) Establishment of PRO.--
(1) Establishment required.--Not later than 90 days
after the date of enactment of this section, the
Commission shall establish a public regulatory
organization to perform the duties set forth in this
section.
(2) Chairman.--The Chairman of the public regulatory
organization shall be appointed by the Commission for a
term of 5 years.
(3) Appointment of public regulatory organization
members.--There shall be 6 additional public regulatory
organization members, who shall be selected jointly by
the Chairman of the public regulatory organization and
the Chairman of the Commission.
(4) Accountant members.--Up to 2 of the members may
be present or former certified public accountants,
provided such members--
(A) are not currently in public practices;
(B) have not been a person associated with a
public accounting firm for a period of at least
3 years; and
(C) agree to not be a person associated with
a public accounting firm or to receive
consulting fees from a public accounting firm
for a period of 5 years after leaving the
public regulatory organization.
(5) Nominations.--In making appointments of members,
the Chairman of the public regulatory organization and
the Chairman of the Commission shall consult with, and
make appointments from nominations received from--
(A) institutional investors;
(B) public employee pension plans;
(C) pension plans organized pursuant to the
Employee Retirement Income Security Act of
1974; and
(D) pension plans organized pursuant to the
Taft-Hartley Act.
(6) Terms.--The members of the public regulatory
organization shall have terms of 4 years, except that
the Chairman of the public regulatory organization and
the Chairman of the Commission shall adopt procedures
for staggering the initial terms of the members first
so appointed to provide for a reasonable overlapping of
the terms of office of subsequently elected members.
(7) Full-time basis.--The members of the public
regulatory organization shall serve on a full-time
basis, severing all business ties with former firms or
employers prior to beginning service on the public
regulatory organization.
(8) Rules.--Following selection of the initial
members of the public regulatory organization, the
public regulatory organization shall propose and adopt
rules, which shall provide for--
(A) the operation and administration of the
public regulatory organization, including the
compensation of the members of the public
regulatory organization, which shall be at a
level comparable to similar professional
positions in the private sector;
(B) the appointment and compensation of such
employees, attorneys, and consultants as may be
necessary or appropriate to carry out the
public regulatory organization's functions
under this section;
(C) the registration of public accounting
firms with the public regulatory organization
pursuant to subsections (d); and
(D) the matters described in subsections (e)
and (f).
(9) Funding of the public regulatory organization.--
(A) Self-financing.--The public regulatory
organization shall establish rules for the
assessment and collection of fees sufficient to
recover the costs and expenses of the public
regulatory organization and to permit the
public regulatory organization to operate on a
self-financing basis.
(B) Assessment and collection.--The fees
shall be assessed on issuers that file any
financial statements, reports, or other
documents with the Commission under the
securities laws that must be certified by a
public accounting firm. The fees shall be
collected through the public accounting firm
that certifies such statement, report, or
document.
(C) Payment a condition of registration.--The
public regulatory organization shall terminate
or suspend the registration under subsection
(d) of any public accounting firm that fails to
collect and transmit a fee assessed under this
subsection.
(c) Prohibition on the Offer of Both Audit and Consulting
Services.--
(1) Modification of regulations required.--The
Commission shall revise its regulations pertaining to
auditor independence to require that an accountant
shall not be considered independent with respect to an
audit client if the accountant provides to the client
the following nonaudit services, subject to such
conditions and exemptions as the Commission shall
prescribe:
(A) financial information system design or
implementation; or
(B) internal audit services.
(2) Audit committee approval of nonaudit services.--
The Commission shall revise its regulations pertaining
to auditor independence to require that--
(A) an accountant shall not be considered to
be independent for purposes of certifying the
financial statements or other documents of an
issuer required to be filed with the Commission
under the securities laws for any fiscal year
of the issuer if, during such fiscal year, the
accountant provides any nonaudit services
unless the provision of such nonaudit services
was approved in advance by the audit committee
or, in the absence of an audit committee, the
equivalent board committee or the entire board
of directors; and
(B) in approving such services, the audit
committee shall evaluate the impact of the
provision of such services on the independence
of the auditor.
(3) Review of prohibited nonaudit services.--The
Commission is authorized to review the impact on the
independence of auditors of the scope of services
provided by auditors to issuers in order to determine
whether the list of prohibited nonaudit services under
paragraph (1) shall be modified. In conducting such
review, the Commission shall consider the impact of the
provision of a service on an auditor's independence
where provision of the service creates a conflict of
interest with the audit client.
(4) Additions by rule.--After conducting the review
required by paragraph (3) and at any other time, the
Commission may, by rule consistent with the protection
of investors and the public interest, modify the list
of prohibited nonaudit services under paragraph (1).
(5) Report.--The Commission shall report to the
Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate on its conduct of any
reviews as required by this section. The report shall
include a discussion of regulatory or legislative steps
that are recommended or that may be necessary to
address concerns identified in the study.
(6) Definitions.--For purposes of this subsection:
(A) Financial information system design or
implementation..--The term ``financial
information systems design or implementation''
means designing or implementing a hardware or
software system used to generate information
that is significant to the audit client's
financial statements taken as a whole, not
including services an accountant performs in
connection with the assessment, design, and
implementation of internal accounting controls
and risk management controls.
(B) Internal audit services.--The term
``internal audit services'' means internal
audit services for an audit client or an
affiliate of an audit client, not including
nonrecurring evaluations of discrete items or
programs and operational internal audits
unrelated to the internal accounting controls,
financial systems, or financial statements.
(7) Deadline for rulemaking.--The Commission shall--
(A) within 90 days after the date of
enactment of this Act, propose, and
(B) within 270 days after such date,
prescribe,
the revisions to its regulations required by this
subsection.
(d) Registration With Public Regulatory Organization.--
(1) Registration required.--Beginning 1 year after
the date on which all initial members of the public
regulatory organization have been selected in
accordance with subsection (b), it shall be unlawful
for a public accounting firm to furnish an accountant's
report on any financial statement, report, or other
document required to be filed with the Commission under
any Federal securities law, unless such firm is
registered with the public regulatory organization.
(2) Application for registration.--A public
accounting firm may be registered under this subsection
by filing with the public regulatory organization an
application for registration in such form and
containing such information as the public regulatory
organization, by rule, may prescribe. Each application
shall include--
(A) the names of all clients of the public
accounting firm for which the firm furnishes
accountant's reports on financial statements,
reports, or other documents filed with the
Commission;
(B) financial information of the public
accounting firm for its most recent fiscal
year, including its annual revenues from
accounting and auditing services, its assets,
and its liabilities;
(C) a statement of the public accounting
firm's policies and procedures with respect to
quality control of its accounting and auditing
practice;
(D) information relating to criminal, civil,
or administrative actions or formal
disciplinary proceedings pending against such
firm, or any person associated with such firm,
in connection with an accountant's report
furnished by such firm;
(E) a list of persons associated with the
public accounting firm who are certified public
accountants, including any State professional
license or certification number for each such
person; and
(F) such other information that is reasonably
related to the public regulatory organization's
responsibilities as the public regulatory
organization considers necessary or
appropriate.
(3) Periodic reports.--Once in each year, or more
frequently as the public regulatory organization, by
rule, may prescribe, each public accounting firm
registered with the public regulatory organization
shall submit reports to the public regulatory
organization updating the information contained in its
application for registration and containing such
additional information that is reasonably related to
the public regulatory organization's responsibilities
as the public regulatory organization, by rule, may
prescribe.
(4) Exemptions.--The Commission, by rule or order,
upon its own motion or upon application, may
conditionally or unconditionally exempt any public
accounting firm or any accountant's report, or any
class of public accounting firms or any class of
accountant's reports, from any provisions of this
section or the rules or regulations issued hereunder,
if the Commission finds that such exemption is
consistent with the public interest, the protection of
investors, and the purposes of this section.
(5) Confidentiality.--The public regulatory
organization may, by rule, designate portions of the
filings required pursuant to paragraphs (2) and (3) as
privileged and confidential. This paragraph shall be
considered to be a statute described in section
552(b)(3)(B) of title 5, United States Code, for
purposes of that section 552.
(e) Duties Regarding Quality Control.--
(1) Objectives; attainment.--The public regulatory
organization shall seek to promote a high level of
professional conduct among public accounting firms
registered with the public regulatory organization, to
improve the quality of audit services provided by such
firms, and, in general, to protect investors and
promote the public interest. The public regulatory
organization shall attain these objectives--
(A) by establishing standards regarding the
performance of financial audits in accordance
with the requirements of paragraph (2);
(B) by the direct performance of quality
reviews and inspections of audits in accordance
with the requirements of paragraphs (3) and
(4); and
(C) by the supervision and oversight of peer
review organizations in accordance with the
requirements of paragraph (5).
(2) Audit quality standards.--
(A) In general.--The public regulatory
organization shall, by rule, establish quality
standards applicable to the conduct of audit
services provided by public accounting firms.
Such standards shall include--
(i) independence standards;
(ii) quality control standards;
(iii) professional and ethical
standards; and
(iv) such other standards as the
public regulatory organization
determines to be necessary to carry out
the objectives specified in paragraph
(1).
(B) Specific contents of standards.--In
establishing the quality standards required by
subparagraph (A), the public regulatory
organization shall also establish--
(i) procedures for the monitoring by
public accounting firms of their
compliance with professional ethical
standards established by the public
regulatory organization, including its
independence from its audit clients;
(ii) procedures for the assignment of
personnel to audit engagements;
(iii) procedures for consultation
within a public accounting firm or with
other accountants relating to
accounting and auditing questions;
(iv) procedures for the supervision
of audit work;
(v) procedures for the review of
decisions to accept and retain audit
clients;
(vi) procedures for the internal
inspection of the public accounting
firms own compliance with such policies
and procedures;
(vii) requirements for public
accounting firms to prepare and
maintain for a period of no less than 7
years, audit work papers and other
information related to any audit
report, in sufficient detail to support
the conclusions reached in an audit
report issued by a public accounting
firm; and
(viii) procedures establishing
``concurring'' or ``second'' partner
review systems for the evaluation and
review of audit work by a partner that
is not in charge of the conduct of the
audit.
(3) Direct reviews of public accounting firms.--The
public regulatory organization shall, by rule,
establish procedures for the conduct of a continuing
program of inspections of each public accounting firm
registered with the public regulatory organization to
assess compliance by such firm, and by persons
associated with such firm, with applicable provisions
of this Act, the securities laws, the rules and
regulations thereunder, the rules adopted by the public
regulatory organization, and professional standards.
Except as provided in paragraph (5), the public
regulatory organization shall annually inspect each
public accounting firm that audits more than 100
issuers on an ongoing annual basis, to the extent
practicable, and all other public accounting firms no
less than at least once every 3 years. In conducting
such inspections, the public regulatory organization
shall, among other things, inspect selected audit and
review engagements. The review shall include
evaluations of the firm's quality control procedures
and compliance with all legal and ethical requirements.
In connection with each review, the public regulatory
organization shall prepare a report of its findings and
such report, accompanied by any letter of comments by
the public regulatory organization or reviewer and any
letter of response from the firm under review, shall be
made available to the public. The public regulatory
organization shall take any appropriate disciplinary or
remedial action based on its findings after completion
of such review and an opportunity for a hearing.
(4) Quality review of individual audits.--The public
regulatory organization shall, by rule, establish
procedures for the conduct of direct inspection and
review of individual audits of issuers and standards
under which it will evaluate audit service quality. A
finding by the public regulatory organization that an
individual audit of an issuer did or did not meet the
standards of the public regulatory organization with
respect to the quality of the audit shall not be
construed in any action arising out of the securities
laws as indicative of compliance or noncompliance with
the securities laws or with any standard of liability
arising thereunder.
(5) Use of professional peer review organizations.--
(A) Option to utilize peer review
organizations.--The public regulatory
organization may, by rule, establish
requirements for the use of peer review
organizations for the purposes of conducting
the continuing program of inspections to assess
compliance as required by paragraph (3) of each
public accounting firm registered with the
public regulatory organization. Such rule shall
provide for appropriate oversight and
supervision of such peer review organization by
the public regulatory organization to ensure
that such inspections meet the requirements of
such paragraph.
(B) Penalties.--If the public regulatory
organization establishes requirements for the
conduct of peer reviews under subparagraph (A),
the violation by a public accounting firm or a
person associated with such a firm of a rule of
the peer review organization to which the firm
belongs shall constitute grounds for--
(i) the imposition of disciplinary
sanctions by the public regulatory
organization pursuant to subsection
(g); and
(ii) denial to the public accounting
firm or person associated with such
firm of the privilege of appearing or
practicing before the Commission.
(6) Confidentiality.--Except as otherwise provided by
this section, all reports, memoranda, and other
information provided to the public regulatory
organization solely for purposes of paragraph (3) or
(4), or to a peer review organization certified by the
public regulatory organization, shall be confidential,
unless such confidentiality is expressly waived by the
person or entity that created or provided the
information.
(f) Disciplinary Duties of Public Regulatory Organization.--
The public regulatory organization shall have the following
duties and powers:
(1) Investigations and disciplinary proceedings.--The
public regulatory organization shall establish fair
procedures for investigating and disciplining public
accounting firms registered with the public regulatory
organization, and persons associated with such firms,
for violations of the Federal securities laws, the
rules or regulations issued thereunder, the rules
adopted by the public regulatory organization, or
professional standards in connection with the
preparation of an accountant's report on a financial
statement, report, or other document filed with the
Commission.
(2) Investigation procedures.--
(A) In general.--The public regulatory
organization may conduct an investigation of
any act, practice, or omission by a public
accounting firm registered with the public
regulatory organization, or by any person
associated with such firm, in connection with
the preparation of an accountant's report on a
financial statement, report, or other document
filed with the Commission that may violate any
applicable provision of the Federal securities
laws, the rules and regulations issued
thereunder, the rules adopted by the public
regulatory organization, or professional
standards, whether such act, practice, or
omission is the subject of a criminal, civil,
or administrative action, or a disciplinary
proceeding, or otherwise is brought to the
attention of the public regulatory
organization.
(B) Powers of public regulatory
organization.--For purposes of an investigation
under this paragraph, the public regulatory
organization may, in addition to such other
actions as the public regulatory organization
determines to be necessary or appropriate--
(i) require the testimony of any
person associated with a public
accounting firm registered with the
public regulatory organization, with
respect to any matter which the public
regulatory organization considers
relevant or material to the
investigation;
(ii) require the production of audit
workpapers and any other document or
information in the possession of a
public accounting firm registered with
the public regulatory organization, or
any person associated with such firm,
wherever domiciled, that the public
regulatory organization considers
relevant or material to the
investigation, and may examine the
books and records of such firm to
verify the accuracy of any documents or
information so supplied; and
(iii) request the testimony of any
person and the production of any
document in the possession of any
person, including a client of a public
accounting firm registered with the
public regulatory organization, that
the public regulatory organization
considers relevant or material to the
investigation.
(C) Suspension or revocation of registration
for noncompliance.--The refusal of any person
associated with a public accounting firm
registered with the public regulatory
organization to testify, or the refusal of any
such person to produce documents or otherwise
cooperate with the public regulatory
organization, in connection with an
investigation or hearing under this section,
shall be cause for suspending or barring such
person from associating with a public
accounting firm registered with the public
regulatory organization, or such other
appropriate sanction authorized by paragraph
(3)(B) as the public regulatory organization
shall determine. The refusal of any public
accounting firm registered with the public
regulatory organization to produce documents or
otherwise cooperate with the public regulatory
organization, in connection with an
investigation or hearing under this section,
shall be cause for the suspension or revocation
of the registration of such firm, or such other
appropriate sanction authorized by paragraph
(3)(B) as the public regulatory organization
shall determine.
(D) Referral to commission.--
(i) In general.--If the public
regulatory organization is unable to
conduct or complete an investigation or
hearing under this section because of
the refusal of any client of a public
accounting firm registered with the
public regulatory organization, or any
other person, to testify, produce
documents, or otherwise cooperate with
the public regulatory organization in
connection with such investigation, the
public regulatory organization shall
report such refusal to the Commission.
(ii) Investigation.--The Commission
may designate the public regulatory
organization or one or more officers of
the public regulatory organization who
shall be empowered, in accordance with
such procedures as the Commission may
adopt, to subpoena witnesses, compel
their attendance, and require the
production of any books, papers,
correspondence, memoranda, or other
records relevant to any investigation
by the public regulatory organization.
Attendance of witnesses and the
production of any records may be
required from any place in the United
States or any State at any designated
place of hearing. Enforcement of a
subpoena issued by the public
regulatory organization, or an officer
of the public regulatory organization,
pursuant to this subparagraph shall
occur in the manner provided for in
section 21(c). Examination of witnesses
subpoenaed pursuant to this
subparagraph shall be conducted before
an officer authorized to administer
oaths by the laws of the United States
or of the place where the examination
is held.
(iii) Referrals to commission.--The
public regulatory organization may
refer any investigation to the
Commission, as the public regulatory
organization deems appropriate.
(E) Immunity from civil liability.--An
employee of the public regulatory organization
engaged in carrying out an investigation or
disciplinary proceeding under this section
shall be immune from any civil liability
arising out of such investigation or
disciplinary proceeding in the same manner and
to the same extent as an employee of the
Federal Government in similar circumstances.
(3) Disciplinary procedures.--
(A) Decision to discipline.--In a proceeding
by the public regulatory organization to
determine whether a public accounting firm, or
a person associated with such firm, should be
disciplined, the public regulatory organization
shall bring specific charges, notify such firm
or person of the charges, give such firm or
person an opportunity to defend against such
charges, and keep a record of such actions.
(B) Sanctions.--If the public regulatory
organization, after conducting a review and
providing an opportunity for a hearing, finds
that a public accounting firm, or a person
associated with such firm, has engaged in any
act, practice, or omission in violation of the
Federal securities laws, the rules or
regulations issued thereunder, the rules
adopted by the public regulatory organization,
or professional standards, the public
regulatory organization may impose such
disciplinary sanctions as it deems appropriate,
including--
(i) temporary or permanent revocation
or suspension of registration under
this section;
(ii) limitation of activities,
functions, and operations;
(iii) fine;
(iv) censure;
(v) in the case of a person
associated with a public accounting
firm, suspension or bar from being
associated with a public accounting
firm registered with the public
regulatory organization; and
(vi) any such other disciplinary
sanction or remedial action as the
public regulatory organization has
established by rule that the public
regulatory organization determines to
be appropriate to prevent the
recurrence of the violation.
(C) Statement required.--A determination by
the public regulatory organization to impose a
disciplinary sanction shall be supported by a
written statement by the public regulatory
organization that shall be made available to
the public and that sets forth--
(i) any act or practice in which the
public accounting firm or person
associated with such firm has been
found to have engaged, or which such
firm or person has been found to have
omitted;
(ii) the specific provision of the
Federal securities laws, the rules or
regulations issued thereunder, the
rules adopted by the public regulatory
organization, or professional standards
which any such act, practice, or
omission is deemed to violate; and
(iii) the sanction imposed and the
reasons therefor.
(D) Prohibition on association.--It shall be
unlawful--
(i) for any person as to whom a
suspension or bar is in effect
willfully to be or to become associated
with a public accounting firm
registered with the public regulatory
organization, in connection with the
preparation of an accountant's report
on any financial statement, report, or
other document filed with the
Commission, without the consent of the
public regulatory organization or the
Commission; and
(ii) for any public accounting firm
registered with the public regulatory
organization to permit such a person to
become, or remain, associated with such
firm without the consent of the public
regulatory organization or the
Commission, if such firm knew or, in
the exercise of reasonable care should
have known, of such suspension or bar.
(4) Reporting of sanctions.--If the public regulatory
organization imposes a disciplinary sanction against a
public accounting firm, or a person associated with
such firm, the public regulatory organization shall
report such sanction to the Commission, to the
appropriate State or foreign licensing public
regulatory organization or public regulatory
organizations with which such firm or such person is
licensed or certified to practice public accounting,
and to the public. The information reported shall
include--
(A) the name of the public accounting firm,
or person associated with such firm, against
whom the sanction is imposed;
(B) a description of the acts, practices, or
omissions upon which the sanction is based;
(C) the nature of the sanction; and
(D) such other information respecting the
circumstances of the disciplinary action
(including the name of any client of such firm
affected by such acts, practices, or omissions)
as the public regulatory organization deems
appropriate.
(5) Discovery and admissibility of public regulatory
organization material.--
(A) Discoverability.--
(i) In general.--Except as provided
in subparagraph (C), all reports,
memoranda, and other information
prepared, collected, or received by the
public regulatory organization, and the
deliberations and other proceedings of
the public regulatory organization and
its employees and agents in connection
with an investigation or disciplinary
proceeding under this section shall not
be subject to any form of civil
discovery, including demands for
production of documents and for
testimony of individuals, in connection
with any proceeding in any State or
Federal court, or before any State or
Federal administrative agency. This
subparagraph shall not apply to any
information provided to the public
regulatory organization that would have
been subject to discovery from the
person or entity that provided it to
the public regulatory organization, but
is no longer available from that person
or entity.
(ii) Exemption.--Submissions to the
public regulatory organization by or on
behalf of a public accounting firm or
person associated with such a firm or
on behalf of any other participant in a
public regulatory organization
proceeding (other than a public
hearing), including documents generated
by the public regulatory organization
itself, shall be exempt from discovery
to the same extent as the material
described in clause (i), whether in the
possession of the public regulatory
organization or any other person, if
such submission--
(I) is prepared specifically
for the purpose of the public
regulatory organization
proceeding; and
(II) addresses the merits of
the issues under investigation
by the public regulatory
organization.
(iii) Hearings public.--Except as
otherwise ordered by the public
regulatory organization on its own
motion or on the motion of a party, all
hearings under this paragraph shall be
open to the public.
(B) Admissibility.--
(i) In general.--Except as provided
in subparagraph (C), all reports,
memoranda, and other information
prepared, collected, or received by the
public regulatory organization, the
deliberations and other proceedings of
the public regulatory organization and
its employees and agents in connection
with an investigation or disciplinary
proceeding under this section, the fact
that an investigation or disciplinary
proceeding has been commenced, and the
public regulatory organization's
determination with respect to any
investigation or disciplinary
proceeding shall be inadmissible in any
proceeding in any State or Federal
court or before any State or Federal
administrative agency.
(ii) Treatment of certain
documents.--Submissions to the public
regulatory organization by or on behalf
of a public accounting firm or person
associated with such a firm or on
behalf of any other participant in a
public regulatory organization
proceeding, including documents
generated by the public regulatory
organization itself, shall be
inadmissible to the same extent as the
material described in clause (i), if
such submission--
(I) is prepared specifically
for the purpose of the public
regulatory organization
proceedings; and
(II) addresses the merits of
the issues under investigation
by the public regulatory
organization.
(C) Availability and admissibility of
information.--
(i) In general.--All information
referred to in subparagraphs (A) and
(B) shall be--
(I) available to the
Commission;
(II) available to any other
Federal department or agency in
connection with the exercise of
its regulatory authority to the
extent that such information
would be available to such
agency from the Commission as a
result of a Commission
enforcement investigation;
(III) available to Federal
and State authorities in
connection with any criminal
investigation or proceeding;
(IV) admissible in any action
brought by the Commission or
any other Federal department or
agency pursuant to its
regulatory authority, to the
extent that such information
would be available to such
agency from the Commission as a
result of a Commission
enforcement investigation and
in any criminal action; and
(V) available to State
licensing public regulatory
organizations to the extent
authorized in paragraph (6).
(ii) Other limitations.--Any
documents or other information provided
to the Commission or other authorities
pursuant to clause (i) shall be subject
to the limitations on discovery and
admissibility set forth in
subparagraphs (A) and (B).
(6) Participation by state licensing public
regulatory organizations.--
(A) Notice.--When the public regulatory
organization institutes an investigation
pursuant to paragraph (2)(A), it shall notify
the State licensing public regulatory
organizations in the States in which the public
accounting firm or person associated with such
firm engaged in the act or failure to act
alleged to have violated professional
standards, of the pendency of the
investigation, and shall invite the State
licensing public regulatory organizations to
participate in the investigation.
(B) Acceptance by state public regulatory
organization.--If a State licensing public
regulatory organization elects to join in the
investigation, its representatives shall
participate, pursuant to rules established by
the public regulatory organization, in
investigating the matter and in presenting the
evidence justifying the charges in any hearing
pursuant to paragraph (3)(A).
(C) State sanctions permitted.--If the public
regulatory organization or the Commission
imposes a sanction upon a public accounting
firm or person associated with such a firm, and
that determination either is not subjected to
judicial review or is upheld on judicial
review, a State licensing public regulatory
organization may impose a sanction on the basis
of the public regulatory organization's report
pursuant to paragraph (4). Any sanction imposed
by the State licensing public regulatory
organization under this clause shall be
inadmissible in any proceeding in any State or
Federal court or before any State or Federal
administrative agency.
(g) Review and Approval of Rules.--
(1) Submission, publication, and comment.--Each
recognized public regulatory organization shall file
with the Commission, in accordance with such rules as
the Commission may prescribe, copies of any proposed
rule or any proposed change in, addition to, or
deletion from the rules of such recognized public
regulatory organization (hereinafter in this subsection
collectively referred to as a ``proposed rule change'')
accompanied by a concise general statement of the basis
and purpose of such proposed rule change. The
Commission shall, upon the filing of any proposed rule
change, publish notice thereof together with the terms
of substance of the proposed rule change or a
description of the subjects and issues involved. The
Commission shall give interested persons an opportunity
to submit written data, views, and arguments concerning
such proposed rule change. No proposed rule change
shall take effect unless approved by the Commission or
otherwise permitted in accordance with the provisions
of this subsection.
(2) Approval or proceedings.--Within 35 days of the
date of publication of notice of the filing of a
proposed rule change in accordance with paragraph (1)
of this subsection, or within such longer period as the
Commission may designate up to 90 days of such date if
it finds such longer period to be appropriate and
publishes its reasons for so finding or as to which the
recognized public regulatory organization consents, the
Commission shall--
(A) by order approve such proposed rule
change; or
(B) institute proceedings to determine
whether the proposed rule change should be
disapproved. Such proceedings shall include
notice of the grounds for disapproval under
consideration and opportunity for hearing and
be concluded within 180 days of the date of
publication of notice of the filing of the
proposed rule change. At the conclusion of such
proceedings the Commission, by order, shall
approve or disapprove such proposed rule
change. The Commission may extend the time for
conclusion of such proceedings for up to 60
days if it finds good cause for such extension
and publishes its reasons for so finding or for
such longer period as to which the recognized
public regulatory organization consents.
(3) Basis for approval or disapproval.--The
Commission shall approve a proposed rule change of a
recognized public regulatory organization if it finds
that such proposed rule change is consistent with the
requirements of this Act and the rules and regulations
thereunder applicable to such organization. The
Commission shall disapprove a proposed rule change of a
recognized public regulatory organization if it does
not make such finding. The Commission shall not approve
any proposed rule change prior to the 30th day after
the date of publication of notice of the filing
thereof, unless the Commission finds good cause for so
doing and publishes its reasons for so finding.
(4) Rules effective upon filing.--
(A) Notwithstanding the provisions of
paragraph (2) of this subsection, a proposed
rule change may take effect upon filing with
the Commission if designated by the recognized
public regulatory organization as (i)
constituting a stated policy, practice, or
interpretation with respect to the meaning,
administration, or enforcement of an existing
rule of the recognized public regulatory
organization, (ii) establishing or changing a
due, fee, or other charge imposed by the
recognized public regulatory organization, or
(iii) concerned solely with the administration
of the recognized public regulatory
organization or other matters which the
Commission, by rule, consistent with the public
interest and the purposes of this subsection,
may specify as outside the provisions of such
paragraph (2).
(B) Notwithstanding any other provision of
this subsection, a proposed rule change may be
put into effect summarily if it appears to the
Commission that such action is necessary for
the protection of investors, or otherwise in
accordance with the purposes of this title. Any
proposed rule change so put into effect shall
be filed promptly thereafter in accordance with
the provisions of paragraph (1) of this
subsection.
(C) Any proposed rule change of a recognized
public regulatory organization which has taken
effect pursuant to subparagraph (A) or (B) of
this paragraph may be enforced by such
organization to the extent it is not
inconsistent with the provisions of this Act,
the securities laws, the rules and regulations
thereunder, and applicable Federal and State
law. At any time within 60 days of the date of
filing of such a proposed rule change in
accordance with the provisions of paragraph (1)
of this subsection, the Commission summarily
may abrogate the change in the rules of the
recognized public regulatory organization made
thereby and require that the proposed rule
change be refiled in accordance with the
provisions of paragraph (1) of this subsection
and reviewed in accordance with the provisions
of paragraph (2) of this subsection, if it
appears to the Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors, or
otherwise in furtherance of the purposes of
this Act. Commission action pursuant to the
preceding sentence shall not affect the
validity or force of the rule change during the
period it was in effect, shall not be subject
to court review, and shall not be deemed to be
``final agency action'' for purposes of section
704 of title 5, United States Code.
(h) Commission Action To Change Rules.--The Commission, by
rule, may abrogate, add to, and delete from (hereinafter in
this subsection collectively referred to as ``amend'') the
rules of a recognized public regulatory organization as the
Commission deems necessary or appropriate to insure the fair
administration of the recognized public regulatory
organization, to conform its rules to requirements of this Act,
the securities laws, and the rules and regulations thereunder
applicable to such organization, or otherwise in furtherance of
the purposes of this Act, in the following manner:
(1) The Commission shall notify the recognized public
regulatory organization and publish notice of the
proposed rulemaking in the Federal Register. The notice
shall include the text of the proposed amendment to the
rules of the recognized public regulatory organization
and a statement of the Commission's reasons, including
any pertinent facts, for commencing such proposed
rulemaking.
(2) The Commission shall give interested persons an
opportunity for the oral presentation of data, views,
and arguments, in addition to an opportunity to make
written submissions. A transcript shall be kept of any
oral presentation.
(3) A rule adopted pursuant to this subsection shall
incorporate the text of the amendment to the rules of
the recognized public regulatory organization and a
statement of the Commission's basis for and purpose in
so amending such rules. This statement shall include an
identification of any facts on which the Commission
considers its determination so to amend the rules of
the recognized public regulatory agency to be based,
including the reasons for the Commission's conclusions
as to any of such facts which were disputed in the
rulemaking.
(4)(A) Except as provided in paragraphs (1) through
(3) of this subsection, rulemaking under this
subsection shall be in accordance with the procedures
specified in section 553 of title 5, United States
Code, for rulemaking not on the record.
(B) Nothing in this subsection shall be construed to
impair or limit the Commission's power to make, or to
modify or alter the procedures the Commission may
follow in making, rules and regulations pursuant to any
other authority under the securities laws.
(C) Any amendment to the rules of a recognized public
regulatory organization made by the Commission pursuant
to this subsection shall be considered for all purposes
to be part of the rules of such recognized public
regulatory organization and shall not be considered to
be a rule of the Commission.
(i) Commission Oversight of the PRO.--
(1) Records and examinations.--A public regulatory
organization shall make and keep for prescribed periods
such records, furnish such copies thereof, and make and
disseminate such reports as the Commission, by rule,
prescribes 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.
(2) Additional duties; special reviews.--A public
regulatory organization shall perform such other duties
or functions as the Commission, by rule or order,
determines are necessary or appropriate in the public
interest or for the protection of investors and to
carry out the purposes of this Act and the securities
laws, including conducting a special review of a
particular public accounting firm's quality control
system or a special review of a particular aspect of
some or all public accounting firms' quality control
systems.
(3) Annual report; proposed budget.--
(A) Submission of annual report and budget.--
A public regulatory organization shall submit
an annual report and its proposed budget to the
Commission for review and approval, by order,
at such times and in such form as the
Commission shall prescribe.
(B) Contents of annual report.--Each annual
report required by subparagraph (A) shall
include--
(i) a detailed description of the
activities of the public regulatory
organization;
(ii) the audited financial statements
of the public regulatory organization;
(iii) a detailed explanation of the
fees and charges imposed by the public
regulatory organization under
subsection (b)(9); and
(iv) such other matters as the public
regulatory organization or the
Commission deems appropriate.
(C) Transmittal of annual report to
congress.--The Commission shall transmit each
approved annual report received under
subparagraph (A) to the Committee on Financial
Services of the United States House of
Representatives and the Committee on Banking,
Housing, and Urban Affairs of the United States
Senate. At the same time it transmits a public
regulatory organization's annual report under
this subparagraph, the Commission shall include
a written statement of its views of the
functioning and operations of the public
regulatory organization.
(D) Public availability.--Following
transmittal of each approved annual report
under subparagraph (C), the Commission and the
public regulatory organization shall make the
approved annual report publicly available.
(4) Disapproval of election of pro member.--The
Commission is authorized, by order, if in its opinion
such action is 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, to disapprove the election of any
member of a public regulatory organization if the
Commission determines, after notice and opportunity for
hearing, that the person elected is unfit to serve on
the public regulatory organization.
(j) Clarification of Application of PRO Authority.--The
authority granted to any such organization in this section
shall only apply to the actions of accountants related to the
certification of financial statements required by securities
laws and not other actions or actions for other clients of the
accounting firm or any accountant that does not certify
financial statements for publicly traded companies.
(k) Deadline for Rulemaking.--The Commission shall--
(1) within 90 days after the date of enactment of
this Act, propose, and
(2) within 270 days after such date, prescribe,
rules to implement this section.
(l) Effective Date; Transition Provisions.--
(1) Effective date.--Except as provided in paragraph
(2), subsection (a) of this section shall be effective
with respect to any certified financial statement for
any fiscal year that ends more than one year after the
Commission recognizes a public regulatory organization
pursuant to this section.
(2) Delay in establishment of board.--If the
Commission has failed to recognize any public
regulatory organization pursuant to this section within
one year after the date of enactment of this Act, the
Commission shall perform the duties of such
organization with respect to any certified financial
statement for any fiscal year that ends before one year
after any such board is recognized by the Commission.
SEC. 3. 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, director, or
affiliated person of an issuer of any security registered under
section 12 of the Securities Exchange Act of 1934 (15 U.S.C.
78l) 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 such issuer for the purpose of
rendering such financial statements materially misleading. In
any civil proceeding, the Commission shall have exclusive
authority to enforce this section and any rule or regulation
hereunder.
(b) 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
thereunder.
(c) Deadline for Rulemaking.--The Commission shall--
(1) within 90 days after the date of enactment of
this Act, propose, and
(2) within 270 days after such date, prescribe,
the rules or regulations required by this section.
SEC. 4. REAL-TIME DISCLOSURE OF FINANCIAL INFORMATION.
(a) Real-Time Issuer Disclosures Required.--
(1) Obligations.--Every issuer of a security
registered under section 12 of the Securities Exchange
Act of 1934 (15 U.S.C. 78l) shall file with the
Commission and disclose to the public, on a rapid and
essentially contemporaneous basis, such information
concerning the financial condition or operations of
such issuer as the Commission determines by rule is
necessary in the public interest and for the protection
of investors. Such rule shall--
(A) specify the events or circumstances
giving rise to the obligation to disclose or
update a disclosure;
(B) establish requirements regarding the
rapidity and timeliness of such disclosure;
(C) identify the means whereby the disclosure
required shall be made, which shall ensure the
broad, rapid, and accurate dissemination of the
information to the public via electronic or
other communications device;
(D) identify the content of the information
to be disclosed; and
(E) without limiting the Commission's general
exemptive authority, specify any exemptions or
exceptions from such requirements.
(2) Enforcement.--The Commission shall have exclusive
authority to enforce this section and any rule or
regulation hereunder in civil proceedings.
(b) Electronic Disclosure of Insider Transactions.--
(1) Disclosures of trading.--The Commission shall, by
rule, require--
(A) that a disclosure required by section 16
of the Securities Exchange Act of 1934 (15
U.S.C. 78p) of the sale of any securities of an
issuer, or any security futures product (as
defined in section 3(a)(56) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(56))) or
any security-based swap agreement (as defined
in section 206B of the Gramm-Leach-Bliley Act)
that is based in whole or in part on the
securities of such issuer, by an officer or
director of the issuer of those securities, or
by a beneficial owner of such securities, shall
be made available electronically to the
Commission and to the issuer by such officer,
director, or beneficial owner before the end of
the next business day after the day on which
the transaction occurs;
(B) that the information in such disclosure
be made available electronically to the public
by the Commission, to the extent permitted
under applicable law, upon receipt, but in no
case later than the end of the next business
day after the day on which the disclosure is
received under subparagraph (A); and
(C) that, in any case in which the issuer
maintains a corporate website, such information
shall be made available by such issuer on that
website, before the end of the next business
day after the day on which the disclosure is
received by the Commission under subparagraph
(A).
(2) Transactions included.--The rule prescribed under
paragraph (1) shall require the disclosure of the
following transactions:
(A) Direct or indirect sales or other
transfers of securities of the issuer (or any
interest therein) to the issuer or an affiliate
of the issuer.
(B) Loans or other extensions of credit
extended to an officer, director, or other
person affiliated with the issuer on terms or
conditions not otherwise available to the
public.
(3) Other formats; forms.--In the rule prescribed
under paragraph (1), the Commission shall provide that
electronic filing and disclosure shall be in lieu of
any other format required for such disclosures on the
day before the date of enactment of this subsection.
The Commission shall revise such forms and schedules
required to be filed with the Commission pursuant to
paragraph (1) as necessary to facilitate such
electronic filing and disclosure.
SEC. 5. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS PROHIBITED.
(a) Prohibition.--It shall be unlawful for any person who is
directly or indirectly the beneficial owner of more than 10
percent of any class of any equity security (other than an
exempted security) which is registered under section 12 of the
Securities Exchange Act of 1934 (15 U.S.C. 78l) or who is a
director or an officer of the issuer of such security, directly
or indirectly, to purchase (or otherwise acquire) or sell (or
otherwise transfer) any equity security of any issuer (other
than an exempted security), during any blackout period with
respect to such equity security.
(b) Remedy.--Any profit realized by such beneficial owner,
director, or officer from any purchase (or other acquisition)
or sale (or other transfer) in violation of this section shall
inure to and be recoverable by the issuer irrespective of any
intention on the part of such beneficial owner, director, or
officer in entering into the transaction. Suit to recover such
profit 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 shall fail or refuse to bring such suit within 60
days after request or shall fail diligently to prosecute the
same thereafter; but no such suit shall be brought more than 2
years after the date such profit was realized. This subsection
shall not be construed to cover any transaction where such
beneficial owner was not such both at the time of the purchase
and sale, or the sale and purchase, of the security or
security-based swap (as defined in section 206B of the Gramm-
Leach-Bliley Act) involved, or any transaction or transactions
which the Commission by rules and regulations may exempt as not
comprehended within the purposes of this subsection.
(c) Rulemaking Permitted.--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.
(d) Definition.--For purposes of this section, the term
``beneficial owner'' has the meaning provided such term in
rules or regulations issued by the Securities and Exchange
Commission under section 16 of the Securities Exchange Act of
1934 (15 U.S.C. 78p).
SEC. 6. IMPROVED TRANSPARENCY OF CORPORATE DISCLOSURES.
(a) Modification of Regulations Required.--The Commission
shall revise its regulations under the securities laws
pertaining to the disclosures required in periodic financial
reports and registration statements to require such reports to
include adequate and appropriate disclosure of--
(1) the issuer's off-balance sheet transactions and
relationships with unconsolidated entities or other
persons, to the extent they are not disclosed in the
financial statements and are reasonably likely to
materially affect the liquidity or the availability of,
or requirements for, capital resources, or the
financial condition or results of operations of the
issuer; and
(2) loans extended to officers, directors, or other
persons affiliated with the issuer on terms or
conditions that are not otherwise available to the
public.
(b) Deadline for Rulemaking.--The Commission shall--
(1) within 90 days after the date of enactment of
this Act, propose, and
(2) within 270 days after such date, prescribe,
the revisions to its regulations required by subsection (a).
(c) Analysis Required.--
(1) Transparency, completeness, and usefulness of
financial statements.--The Commission shall conduct an
analysis of the extent to which, consistent with the
protection of investors and the public interest,
disclosure of additional or reorganized information may
be required to improve the transparency, completeness,
or usefulness of financial statements and other
corporate disclosures filed under the securities laws.
(2) Alternatives to be considered.--In conducting the
analysis required by paragraph (1), the Commission
shall consider--
(A) requiring the identification of the key
accounting principles that are most important
to the issuer's reported financial condition
and results of operation, and that require
management's most difficult, subjective, or
complex judgments;
(B) requiring an explanation, where material,
of how different available accounting
principles applied, the judgments made in their
application, and the likelihood of materially
different reported results if different
assumptions or conditions were to prevail;
(C) in the case of any issuer engaged in the
business of trading non-exchange traded
contracts, requiring an explanation of such
trading activities when such activities require
the issuer to account for contracts at fair
value, but for which a lack of market price
quotations necessitates the use of fair value
estimation techniques;
(D) establishing requirements relating to the
presentation of information in clear and
understandable format and language; and
(E) requiring such other disclosures,
included in the financial statements or in
other disclosure by the issuer, as would in the
Commission's view improve the transparency of
such issuer's financial statements and other
required corporate disclosures.
(3) Rules required.--If the Commission, on the basis
of the analysis required by this subsection, determines
that it is necessary in the public interest or for the
protection of investors and would improve the
transparency of issuer financial statements, the
Commission may prescribe rules reflecting the results
of such analysis and the considerations required by
paragraph (2). In prescribing such rules, the
Commission may seek to minimize the paperwork and cost
burden on the issuer consistent with achieving the
public interest and investor protection purposes of
such rules.
SEC. 7. IMPROVEMENTS IN REPORTING ON INSIDER TRANSACTIONS AND
RELATIONSHIPS.
(a) Specific Objectives.--The Commission shall initiate a
proceeding to propose changes in its rules and regulations with
respect to financial reporting to improve the transparency and
clarity of the information available to investors and to
require increased financial disclosure with respect to the
following:
(1) Insider relationships and transactions.--
Relationships and transactions--
(A) between the issuer, affiliates of the
issuer, and officers, directors, or employees
of the issuer or such affiliates; and
(B) between officers, directors, employees,
or affiliates of the issuer and entities that
are not otherwise affiliated with the issuer,
to the extent such arrangement or transaction creates a
conflict of interest for such persons. Such disclosure
shall provide a description of such elements of the
transaction as are necessary for an understanding of
the business purpose and economic substance of such
transaction (including contingencies). The disclosure
shall provide sufficient information to determine the
effect on the issuer's financial statements and
describe compensation arrangements of interested
parties to such transactions.
(2) Relationships with philanthropic organizations.--
Relationships between the registrant or any executive
officer of the registrant and any not-for-profit
organization on whose board a director or immediate
family member serves or of which a director or
immediate family member serves as an officer or in a
similar capacity. Relationships that shall be disclosed
include contributions to the organization in excess of
$10,000 made by the registrant or any executive officer
in the last five years and any other activity
undertaken by the registrant or any executive officer
that provides a material benefit to the organization.
Material benefit includes lobbying.
(3) Insider-controlled affiliates.--Relationships in
which the registrant or any executive officer exercises
significant control over an entity in which a director
or immediate family member owns an equity interest or
to which a director or immediate family member has
extended credit. Significant control should be defined
with reference to the contractual and governance
arrangements between the registrant or executive
officer, as the case may be, and the entity.
(4) Joint ownership.--Joint ownership by a registrant
or executive officer and a director or immediate family
member of any real or personal property.
(5) Provision of services by related persons.--The
provision of any professional services, including
legal, financial advisory or medical services, by a
director or immediate family member to any executive
officer of the registrant in the last five years.
(b) Deadlines.--The Commission shall complete the rulemaking
required by this section within 180 days after the date of
enactment of this Act.
SEC. 8. ENHANCED OVERSIGHT OF PERIODIC DISCLOSURES BY ISSUERS.
(a) Regular and Systematic Review.--The Securities and
Exchange Commission shall review disclosures made by issuers
pursuant to the Securities Exchange Act of 1934 (including
reports filed on form 10-K) on a basis that is more regular and
systematic than that in practice on the date of enactment on
this Act. Such review shall include a review of an issuer's
financial statements.
(b) Risk Rating System.--For purposes of the reviews required
by subsection (a), the Commission shall establish a risk rating
system whereby issuers receive a risk rating by the Commission,
which shall be used to determine the frequency of such reviews.
In designing such a risk rating system the Commission shall
consider, among other factors the following:
(1) Emerging companies with disparities in price to
earning ratios.
(2) Issuers with the largest market capitalization.
(3) Issuers whose operations significantly impact any
material sector of the economy.
(4) Systemic factors such as the effect on niche
markets or important subsectors of the economy.
(5) Issuers that experience significant volatility in
their stock price as compared to other issuers.
(6) Any other factor the Commission may consider
relevant.
(c) Minimum Review Period.--In no event shall an issuer be
reviewed less than once every three years by the Commission.
(d) Prohibition of Disclosure of Risk Rating.--
Notwithstanding any other provision of law, the Commission
shall not disclose the risk rating of any issuer described in
subsection (b).
SEC. 9. RETENTION OF RECORDS.
(a) Duty To Retain Records.--Any independent public or
certified accountant who certifies a financial statement as
required by the securities laws or any rule or regulation
thereunder shall prepare and maintain for a period of no less
than 7 years, final audit work papers and other information
related to any accountants report on such financial statements
in sufficient detail to support the opinion or assertion
reached in such accountants report. The Commission may
prescribe rules specifying the application and requirements of
this section.
(b) Accountant's Report.--For purposes of subsection (a), the
term ``accountant's report'' means a document in which an
accountant identifies a financial statement and sets forth his
opinion regarding such financial statement or an assertion that
an opinion cannot be expressed.
SEC. 10. REMOVAL OF UNFIT CORPORATE OFFICERS.
(a) Removal in Judicial Proceedings.--
(1) 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 inserting
``unfitness''.
(2) 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''.
(b) Removal in Administrative Proceedings.--
(1) Securities act of 1933.--Section 8A of the
Securities Act of 1933 (15 U.S.C. 77h-1) is amended by
adding at the end the following new subsection:
``(f) Authority To Prohibit Persons From Serving as Officers
or Directors.--In any cease-and-desist proceeding under
subsection (a), the Commission may issue an order to prohibit,
conditionally or unconditionally, and permanently or for such
period of time as it shall determine, any person who has
violated section 17(a)(1) of this title from acting as an
officer or director of any issuer that has a class of
securities registered pursuant to section 12 of the Securities
Exchange Act of 1934 or that is required to file reports
pursuant to section 15(d) of that Act if the person's conduct
demonstrates unfitness to serve as an officer or director of
any such issuer.''.
(2) Securities exchange act of 1934.--Section 21C of
the Securities Exchange Act of 1934 (15 U.S.C. 78u-3)
is amended by adding at the end the following new
subsection:
``(f) Authority To Prohibit Persons From Serving as Officers
or Directors.--In any cease-and-desist proceeding under
subsection (a), the Commission may issue an order to prohibit,
conditionally or unconditionally, and permanently or for such
period of time as it shall determine, any person who has
violated section 10(b) of this title or the rules or
regulations thereunder from acting as an officer or director of
any issuer that has a class of securities registered pursuant
to section 12 of this title or that is required to file reports
pursuant to section 15(d) of this title if the person's conduct
demonstrates unfitness to serve as an officer or director of
any such issuer.''.
SEC. 11. DISGORGEMENT REQUIRED.
(a) Administrative Actions.--Within 30 days after the date of
enactment of this Act, the Securities and Exchange Commission
shall prescribe regulations to require disgorgement, in a
proceeding pursuant to its authority under section 21A, 21B, or
21C (15 U.S.C. 78u-1, 78u-2, 78u-3), of salaries, commissions,
fees, bonuses, options, profits from securities transactions,
and losses avoided through securities transactions obtained by
an officer or director of an issuer during or for a fiscal year
or other reporting period if such officer or director engaged
in misconduct resulting in, or made or caused to be made in,
the filing of a financial statement for such fiscal year or
reporting period which--
(1) was at the time, and in the light of the
circumstances under which it was made, false or
misleading with respect to any material fact; or
(2) omitted to state a material fact necessary in
order to make the statements made, in the light of the
circumstances in which they were made, not misleading,
(b) Judicial Proceedings.--Section 21(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended by adding at
the end the following new paragraph:
``(5) Additional disgorgement authority.--In any
action or proceeding brought or instituted by the
Commission under the securities laws against any
person--
``(A) for engaging in misconduct resulting
in, or making or causing to be made in, the
filing of a financial statement which--
``(i) was at the time, and in the
light of the circumstances under which
it was made, false or misleading with
respect to any material fact; or
``(ii) omitted to state a material
fact necessary in order to make the
statements made, in the light of the
circumstances in which they were made,
not misleading; or
``(B) for engaging in, causing, or aiding and
abetting any other violation of the securities
laws or the rules and regulations thereunder,
such person, in addition to being subject to any other
appropriate order, may be required to disgorge any or
all benefits received from any source in connection
with the conduct constituting, causing, or aiding and
abetting the violation, including (but not limited to)
salary, commissions, fees, bonuses, options, profits
from securities transactions, and losses avoided
through securities transactions.''.
SEC. 12. CEO AND CFO ACCOUNTABILITY FOR DISCLOSURE.
(a) Regulations Required.--The Securities and Exchange
Commission shall by rule require, for each company filing
periodic reports under section 13 or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the
principal executive officer or officers and the principal
financial officer or officers, or persons performing similar
functions, certify in each annual or quarterly report filed or
submitted under either such section of such Act that--
(1) the signing officer has reviewed the report;
(2) based on the officer's knowledge, the report does
not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to
make the statements made, in light of the circumstances
under which such statements were made, not misleading;
(3) based on such officer's knowledge, the financial
statements, and other financial information included in
the report, fairly present in all material respects the
financial condition and results of operations of the
issuer as of, and for, the periods presented in the
report;
(4) the signing officers--
(A) are responsible for establishing and
maintaining internal controls;
(B) have designed such internal controls to
ensure that material information relating to
the issuer and its consolidated subsidiaries is
made known to such officers by others within
those entities, particularly during the period
in which the periodic reports are being
prepared;
(C) have evaluated the effectiveness of the
issuer's internal controls as of a date within
90 days prior to the report; and
(D) have presented in the report their
conclusions about the effectiveness of their
internal controls based on their evaluation as
of that date;
(5) the signing officers have disclosed to the
issuer's auditors and the audit committee of the board
of directors (or persons fulfilling the equivalent
function)--
(A) all significant deficiencies in the
design or operation of internal controls which
could adversely affect the issuer's ability to
record, process, summarize, and report
financial data and have identified for the
issuer's auditors any material weaknesses in
internal controls; and
(B) any fraud, whether or not material, that
involves management or other employees who have
a significant role in the issuer's internal
controls; and
(6) the signing officers have indicated in the report
whether or not there were significant changes in
internal controls or in other factors that could
significantly affect internal controls subsequent to
the date of their evaluation, including any corrective
actions with regard to significant deficiencies and
material weaknesses.
(b) Deadline.--The rules required by subsection (a) shall be
effective not later than 30 days after the date of enactment of
this Act.
SEC. 13. SECURITIES AND EXCHANGE COMMISSION AUTHORITY TO PROVIDE
RELIEF.
(a) Proceeds of Enron and Andersen Enforcement Actions.--If
in any administrative or judicial proceeding brought by the
Securities and Exchange Commission against--
(1) the Enron Corporation, any subsidiary or
affiliate of such Corporation, or any officer,
director, or principal shareholder of such Corporation,
subsidiary, or affiliate for any violation of the
securities laws; or
(2) Arthur Andersen L.L.C., any subsidiary or
affiliate of Arthur Andersen L.L.C., or any general or
limited partner of Arthur Andersen L.L.C., or such
subsidiary or affiliate, for any violation of the
securities laws with respect to any services performed
for or in relation to the Enron Corporation, any
subsidiary or affiliate of such Corporation, or any
officer, director, or principal shareholder of such
Corporation, subsidiary, or affiliate;
the Commission obtains an order providing for an accounting and
disgorgement of funds, such disgorgement fund (including any
addition to such fund required or permitted under this section)
shall be allocated in accordance with the requirements of this
section.
(b) Priority for Former Enron Employees.--The Commission
shall, by order, establish an allocation system for the
disgorgement fund. Such system shall provide that, in
allocating the disgorgement fund amount the victims of the
securities laws violations described in subsection (a), the
first priority shall be given to individuals who were employed
by the Enron Corporation, or a subsidiary or affiliate of such
Corporation, and who were participants in an individual account
plan established by such Corporation, subsidiary, or affiliate.
Such allocations among such individuals shall be in proportion
to the extent to which the nonforfeitable accrued benefit of
each such individual under the plan was invested in the
securities of such Corporation, subsidiary, or affiliate.
(c) Addition of Civil Penalties.--If, in any proceeding
described in subsection (a), the Commission assesses and
collects any civil penalty, the Commission shall,
notwithstanding section 21(d)(3)(C)(i) or 21A(d)(1) of the
Securities Exchange Act of 1934, or any other provision of the
securities laws, be payable to the disgorgement fund.
(d) Acceptance of Additional Donations.--The Commission is
authorized to accept, hold, administer, and utilize gifts,
bequests and devises of property, both real and personal, to
the United States for the disgorgement fund. Gifts, bequests,
and devises of money and proceeds from sales of other property
received as gifts, bequests, or devises shall be deposited in
the disgorgement fund and shall be available for allocation in
accordance with subsection (b).
(e) Definitions.--As used in this section:
(1) Disgorgement fund.--The term ``disgorgement
fund'' means a disgorgement fund established in any
administrative or judicial proceeding described in
subsection (a).
(2) Subsidiary or affiliate.--The term ``subsidiary
or affiliate'' when used in relation to a person means
any entity that controls, is controlled by, or is under
common control with such person.
(3) Officer, director, or principal shareholder.--The
term ``officer, director, or principal shareholder''
when used in relation to the Enron Corporation, or any
subsidiary or affiliate of such Corporation, means any
person that is subject to the requirements of section
16 of the Securities Exchange Act of 1934 (15 U.S.C.
78p) in relation to the Enron Corporation, or any
subsidiary or affiliate of such Corporation.
(4) Nonforfeitable; accrued benefit; individual
account plan.--The terms ``nonforfeitable'', ``accrued
benefit'', and ``individual account plan'' have the
meanings provided such terms, respectively, in
paragraphs (19), (23), and (34) of section 3 of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1002(19), (23), (34)).
SEC. 14. AUTHORIZATION OF APPROPRIATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION.
In addition to any other funds authorized to be appropriated
to the Securities and Exchange 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) not less that $134,000,000 shall be available for
the Division of Corporate Finance and for the Office of
Chief Accountant;
(2) not less than $326,000,000 shall be available for
the Division of Enforcement; and
(3) not less than $76,000,000 shall be available to
implement section 8 of the Investor and Capital Markets
Fee Relief Act, relating to pay comparability.
SEC. 15. ANALYST CONFLICTS OF INTEREST.
(a) Study and Review Required.--The Securities and Exchange
Commission shall conduct a study and review of any final rules
by any self-regulatory organization registered with the
Commission pursuant to section 19 of the Securities Exchange
Act of 1934 (15 U.S.C. 78s) related to matters involving equity
research analysts conflicts of interest. Such study and report
shall include a review of the effectiveness of such final rules
in addressing matters relating to the objectivity and integrity
of equity research analyst reports and recommendations.
(b) Report Required.--The Securities and Exchange Commission
shall submit a report to the Committee on Financial Services of
the House of Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate on such study and
review no later than 180 days after any such final rules by any
self-regulatory organization registered with the Commission
pursuant to section 19 of the Securities Exchange Act of 1934
are approved by the Commission. Such report shall include
recommendations to the Congress, including any recommendations
for additional self-regulatory organization rulemaking
regarding matters involving equity research analysts. The
Commission shall annually submit an update on such review.
(c) Additional Rules Required.--Unless the final rules
reviewed by the Commission under subsections (a) and (b)
contain the following provisions, the Commission shall, by
rule--
(1) prohibit equity research analysts from--
(A) holding any beneficial interest in any
equity security (as such term in defined in
section 3(a)(11) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(11)) in any issuer
covered by such analyst; and
(B) receiving compensation based on the
investment banking revenues of the firm with
which the analyst is associated, or on the
investment banking revenues of such firm and
its affiliates, except that this prohibition
shall not prohibit such an analyst from
receiving compensation based on the overall
revenues of such firm or of such firm and its
affiliates;
(2) prohibit the investment banking department of
such firm from having any input in the compensation,
hiring, firing, or promotion of analysts; and
(3) require such self-regulatory organizations--
(A) to establish criteria for evaluating
analyst research quality; and
(B) to require analyst compensation to be
based principally on the quality of the equity
research analyst's research.
SEC. 16. INDEPENDENT DIRECTORS.
(a) Rulemaking Required.--The Commission shall adopt rules,
effective no later than 6 months after the date of enactment of
this Act, to require that the independent directors on the
board of directors of any issuer of securities registered under
section 12 of the Securities Exchange Act of 1934 (15 U.S.C.
78l) be nominated for election by a nominating committee that
is composed exclusively of other independent directors of such
issuer.
(b) Independence.--The rules required by subsection (a) shall
require the same degree of independence for service on the
nominating committee of an issuer as is required for purposes
of service on the audit committee of an issuer by the listing
standards concerning corporate governance of the exchange or
association on which the securities of such issuer are listed.
SEC. 17. ENFORCEMENT OF AUDIT COMMITTEE GOVERNANCE PRACTICES.
The Commission shall revise its regulations pertaining to
auditor independence to require that an accountant shall not be
considered to be independent for purposes of certifying the
financial statements or other documents of an issuer required
to be filed with the Commission under the securities laws
unless--
(1) an issuer's auditor is appointed by and reports
directly to the audit committee of the board of
directors or, in the absence of an audit committee, the
board committee performing equivalent functions or the
entire board of directors;
(2) the audit committee meets with the accountants
engaged to perform such audit on a regular basis, at
least quarterly; and
(3) the audit committee is provided with the
opportunity to meet with such accountants without the
attendance at such meetings of any officer, director,
or other member of the issuer's senior management.
SEC. 18. REVIEW OF CORPORATE GOVERNANCE PRACTICES.
(a) Study of Corporate Practices.--The Commission shall
conduct a study and review of current corporate governance
standards and practices to determine whether such standards and
practices are serving the best interests of shareholders. Such
study and review shall include an analysis of--
(1) whether current standards and practices promote
full disclosure of relevant information to
shareholders;
(2) whether corporate codes of ethics are adequate to
protect shareholders, and to what extent deviations
from such codes are tolerated;
(3) to what extent conflicts of interests are
aggressively reviewed, and whether adequate means for
redressing such conflicts exist;
(4) to what extent sufficient legal protections exist
or should be adopted to ensure that any manager who
attempts to manipulate or unduly influence an audit
will be subject to appropriate sanction and liability,
including liability to investors or shareholders
pursuing a private cause of action for such
manipulation or undue influence;
(5) whether rules, standards, and practices relating
to determining whether independent directors are in
fact independent are adequate;
(6) whether rules, standards, and practices relating
to the independence of directors serving on audit
committees are uniformly applied and adequate to
protect investor interests;
(7) whether the duties and responsibilities of audit
committees should be established by the Commission; and
(8) what further or additional practices or standards
might best protect investors and promote the interests
of shareholders.
(b) Participation of State Regulators.--In conducting the
study required under subsection (a), the Commission shall seek
the views of the securities and corporate regulators of the
various States.
(c) Report Required.--The Commission shall submit a report on
the analysis required under subsection (a) as a part of the
Commission's next annual report submitted after the date of
enactment of this Act.
SEC. 19. STUDY OF ENFORCEMENT ACTIONS.
(a) Study Required.--The Commission shall review and analyze
all enforcement actions by the Commission involving violations
of reporting requirements imposed under the securities laws,
and restatements of financial statements, over the last five
years to identify areas of reporting that are most susceptible
to fraud, inappropriate manipulation, or inappropriate earnings
management, such as revenue recognition and the accounting
treatment of off-balance sheet special purpose entities.
(b) Report Required.--The Commission shall report its
findings to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate within 180 days of the date of
enactment of this Act and shall use such findings to revise its
rules and regulations, as necessary. The report shall include a
discussion of regulatory or legislative steps that are
recommended or that may be necessary to address concerns
identified in the study.
SEC. 20. STUDY OF CREDIT RATING AGENCIES.
(a) Study Required.--The Commission shall conduct a study of
the role and function of credit rating agencies in the
operation of the securities market. Such study shall examine--
(1) the role of the credit rating agencies in the
evaluation of issuers of securities;
(2) the importance of that role to investors and the
functioning of the securities markets;
(3) any impediments to the accurate appraisal by
credit rating agencies of the financial resources and
risks of issuers of securities;
(4) any measures which may be required to improve the
dissemination of information concerning such resources
and risks when credit rating agencies announce credit
ratings;
(5) any barriers to entry into the business of acting
as a credit rating agency, and any measures needed to
remove such barriers; and
(6) 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 analysis 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 within 180 days after the date of
enactment of this Act. The report shall include a discussion of
regulatory or legislative steps that are recommended or that
may be necessary to address concerns identified in the study.
SEC. 21. STUDY OF INVESTMENT BANKS
(a) GAO Study.--The Comptroller General shall conduct a study
on whether investment banks and financial advisors assisted
public companies in manipulating their earnings and obfuscating
their true financial condition. The study should address the
role of the investment banks--
(1) in the collapse of the Enron Corporation,
including with respect to the design and implementation
of derivatives transactions, transactions involving
special purpose vehicles, and other financing
arrangements that may have had the effect of altering
the company's reported financial statements in ways
that obscured the true financial picture of the
company;
(2) in the failure of Global Crossing, including with
respect to transactions involving swaps of fiber optic
cable capacity, in designing transactions that may have
had the effect of altering the company's reported
financial statements in ways that obscured the true
financial picture of the company; and
(3) generally, in creating and marketing transactions
which may have been designed solely to enable companies
to manipulate revenue streams, obtain loans, or move
liabilities off balance sheets without altering the
economic and business risks faced by the companies or
any other mechanism to obscure a company's financial
picture.
(b) Report.--The General Accounting Office shall report to
the Congress within 180 days after the date of enactment of
this Act on the results of the study required by this section.
The report shall include a discussion of regulatory or
legislative steps that are recommended or that may be necessary
to address concerns identified in the study.
SEC. 22. STUDY OF MODEL RULES FOR ATTORNEYS OF ISSUERS.
(a) In General.--The Comptroller General shall conduct a
study of the Model Rules of Professional Conduct promulgated by
the American Bar Association and rules of professional conduct
applicable to attorneys established by the Commission to
determine--
(1) whether such rules provide sufficient guidance to
attorneys representing corporate clients who are
issuers required to file periodic disclosures under
section 13 or 15 of the Securities Exchange Act of 1934
(15 U.S.C. 78m, 78o), as to the ethical
responsibilities of such attorneys to--
(A) warn clients of possible fraudulent or
illegal activities of such clients and possible
consequences of such activities;
(B) disclose such fraudulent or illegal
activities to appropriate regulatory or law
enforcement authorities; and
(C) manage potential conflicts of interests
with clients; and
(2) whether such rules provide sufficient protection
to corporate shareholders, especially with regards to
conflicts of interest between attorneys and their
corporate clients.
(b) Report Required.--The Comptroller General shall report to
the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate on the results of the study
required by this section. Such report shall include any
recommendations of the General Accounting Office with regards
to--
(1) possible changes to the Model Rules and the rules
of professional conduct applicable to attorneys
established by the Commission to provide increased
protection to shareholders;
(2) whether restrictions should be imposed to require
that an attorney, having represented a corporation or
having been employed by a firm which represented a
corporation, may not be employed as general counsel to
that corporation until a certain period of time has
expired; and
(3) regulatory or legislative steps that are
recommended or that may be necessary to address
concerns identified in the study.
SEC. 23. ENFORCEMENT AUTHORITY.
For the purposes of enforcing and carrying out this Act, the
Commission shall have all of the authorities granted to the
Commission under the securities laws. Actions of the Commission
under this Act, including actions on rules or regulations,
shall be subject to review in the same manner as actions under
the securities laws.
SEC. 24. EXCLUSION FOR INVESTMENT COMPANIES.
Sections 4, 6, 9, and 15 of this Act shall not apply to an
investment company registered under section 8 of the Investment
Company Act of 1940 (15 U.S.C. 80a-8).
SEC. 25. DEFINITIONS.
As used in this Act:
(1) Blackout period.--The term ``blackout period''
with respect to the equity securities of any issuer--
(A) means any period during which the ability
of at least fifty percent of the participants
or beneficiaries under all applicable
individual account plans maintained by the
issuer to purchase (or otherwise acquire) or
sell (or otherwise transfer) an interest in any
equity of such issuer is suspended by the
issuer or a fiduciary of the plan; but
(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.
(2) Boards of accountancy of the states.--The term
``boards of accountancy of the States'' means any
organization or association chartered or approved under
the law of any State with responsibility for the
registration, supervision, or regulation of
accountants.
(3) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(4) Individual account plan.--The term ``individual
account plan'' has the meaning provided such term in
section 3(34) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(34)).
(5) Issuer.--The term ``issuer'' shall have the
meaning set forth in section 2(a)(4) of the Securities
Act of 1933 (15 U.S.C. 77b(a)(4)).
(6) Person associated with an accountant.--The term
``person associated with an accountant'' means any
partner, officer, director, or manager of such
accountant (or any person occupying a similar status or
performing similar functions), any person directly or
indirectly controlling, controlled by, or under common
control with such accountant, or any employee of such
accountant who performs a supervisory role in the
auditing process.
(7) Public regulatory organization.--The term
``public regulatory organization'' means the public
regulatory organization established by the Commission
under subsection (b) of section 2.
(8) Securities laws.--The term ``securities laws''
means the Securities Act of 1933 (15 U.S.C. 77a et
seq.), the Securities Exchange Act of 1934 (15 U.S.C.
78a et seq.), the Trust Indenture Act of 1939 (15
U.S.C. 77aaa et seq.), the Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.), the Investment Advisers
Act of 1940 (15 U.S.C. 80b et seq.), and the Securities
Investor Protection Act of 1970 (15 U.S.C. 78aaa et
seq.), notwithstanding any contrary provision of any
such Act.