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LEGAL ISSUE IN INFORMATION SECURITY (ITN)

LEGAL ISSUE IN INFORMATION SECURITY (ITN) . ANSWER QUESTIONS CORRECTLY ACCORDING TO THE INSTRUCTION WITH RESPECT TO THE MATERIALS ATTACHED .

ITN 267 Assignment 7

Answer the following to the best of your ability in complete sentences with proper spelling and grammar. Be sure to elaborate on your answers and provide support for each of your statements. Your textbook and your own knowledge are your source for answering questions unless otherwise instructed. Format your answers in blue font.

Recall that you must cite any sources and it is never okay to copy from any source. TurnItIn Plagiarism checking is being run against all submissions. Your work must be below a 40% match per question.

Chapter 7 – Corporate Information Security and Privacy Regulation

1. What are the differences and similarities between public and private companies?

2. Summarize the Enron case.

3. Why do we need accurate financial reporting?

4. Explain the Sarbanes-Oxley Act of 2002.

5. Name three or more of the requirements of the PCAOB.

6. Explain the internal controls of SOX Section 404.

7. What is COSO and what are the five components?

8. What is the aim of COBIT?

9. Define the following: Form 10-K, Form 10-Q, and Form 8-K.

10. (Refer to the attached file Sarbanes-Oxley Act if you need further information.) I want you to play the role an internal auditor and you are assigned the task of creating a specific checklist to ensure compliance with Section 404 of the SOX Act. You will need to write an executive summary highlighting compliance details of Section 404 and the need for an ongoing policy to ensure compliance. This summary will be submitted to executive management.

Sarbanes-Oxley Act of 2002

This handout is a reprint of the SEC’s (http://www.sec.gov) Sarbanes-Oxley Act of 2002.

Source: http://www.sec.gov/about/laws/soa2002

URL Last Verified: 2014-05-16

The Sarbanes-Oxley Act of 2002

One Hundred Seventh Congress of the United States of America

AT THE SECOND SESSION

Begun

and

held at the City of Washington

on Wednesday, the twenty-third day of January, two thousand and two

The contents of the act follow:

An Act

To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the

securities laws, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in

Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Sarbanes-Oxley Act of 2002′.

(b) TABLE OF CONTENTS- The table of contents for this Act is as

follows:

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.

Sec. 3. Commission rules and enforcement.

TITLE I–PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD

Sec. 101. Establishment; administrative provisions.

Sec. 102. Registration with the Board.

Sec. 103. Auditing, quality control, and independence standards and rules.

Sec. 104. Inspections of

registered public accounting firms.

Sec. 105. Investigations and disciplinary proceedings.

Sec. 106. Foreign public accounting firms.

Sec. 107. Commission oversight of the Board.

Sec. 108. Accounting standards.

Sec. 109. Funding.

TITLE II–AUDITOR INDEPENDENCE

Sec. 201. Services outside the scope of practice of auditors.

Sec. 202. Preapproval requirements.

Sec. 203. Audit partner rotation.

Sec. 204. Auditor reports to audit committees.

Sec. 205. Conforming amendments.

Sec. 206. Conflicts of

interest.

Sec. 207. Study of mandatory rotation of registered public accounting firms.

Sec. 208. Commission authority.

Sec. 209. Considerations by appropriate State regulatory authorities.

TITLE III–CORPORATE RESPONSIBILITY

Sec. 301. Public company audit committees.

Sec. 302. Corporate responsibility for financial reports.

Sec. 303. Improper influence on conduct of audits.

Sec. 304. Forfeiture of certain bonuses and profits.

Sec. 305. Officer and director bars and penalties.

Sec. 306. Insider trades during pension fund blackout periods.

Sec. 307. Rules of professional responsibility for attorneys.

Sec. 308. Fair funds for investors.

TITLE IV–ENHANCED FINANCIAL DISCLOSURES

Sec. 401. Disclosures in periodic reports.

Sec. 402. Enhanced conflict of interest provisions.

Sec. 403. Disclosures of transactions involving management and principal stockholders.

Sec. 404. Management assessment of internal controls.

(Insert: This section is reviewed in plain English at: A Guide To Sarbanes-Oxley Section

404)

Sec. 405. Exemption.

Sec. 406. Code of

ethics for senior financial officers.

Sec. 407. Disclosure of audit committee financial expert.

Sec. 408. Enhanced review of periodic disclosures by issuers.

Sec. 409. Real time issuer disclosures.

http://www.soxlaw.com/s404.htm

TITLE V–ANALYST CONFLICTS OF INTEREST

Sec. 501. Treatment of securities analysts by registered securities associations

and

national securities exchanges.

TITLE VI–COMMISSION RESOURCES AND AUTHORITY

Sec. 601. Authorization of appropriations.

Sec. 602. Appearance and practice before the

Commission.

Sec. 603. Federal court authority to impose penny stock bars.

Sec. 604. Qualifications of associated persons of brokers and dealers.

TITLE VII–STUDIES AND REPORTS

Sec. 701. GAO study and report regarding consolidation of public accounting firms.

Sec. 702. Commission study and report regarding credit rating agencies.

Sec. 703. Study and report on violators and violations

Sec. 704. Study of enforcement actions.

Sec. 705. Study of investment banks.

TITLE VIII–CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY

Sec. 801. Short title.

Sec. 802. Criminal penalties for altering documents.

Sec. 803. Debts nondischargeable if incurred in violation of securities fraud laws.

Sec. 804. Statute of limitations for securities

fraud.

Sec. 805. Review of Federal Sentencing Guidelines for obstruction of justice and extensive

criminal fraud.

Sec. 806. Protection for employees of publicly traded companies who provide evidence of

fraud.

Sec. 807. Criminal penalties for defrauding shareholders of publicly traded companies.

TITLE IX–WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

Sec. 901. Short title.

Sec. 902. Attempts and conspiracies to commit criminal fraud offenses.

Sec. 903. Criminal penalties for mail and wire fraud.

Sec. 904. Criminal penalties for violations of the Employee Retirement Income Security Act

of 1974.

Sec. 905. Amendment to sentencing guidelines relating to certain white-collar offenses.

Sec. 906. Corporate responsibility for financial reports.

TITLE X–CORPORATE TAX RETURNS

Sec. 1001. Sense of the Senate regarding the signing of corporate tax returns by chief

executive officers.

TITLE XI–CORPORATE FRAUD AND ACCOUNTABILITY

Sec. 1101. Short title..

Sec. 1102. Tampering with a record or otherwise impeding an official proceeding..

Sec. 1103. Temporary freeze authority for the Securities and Exchange Commission.

Sec. 1104. Amendment to the Federal Sentencing Guidelines.

Sec. 1105. Authority of the Commission to prohibit persons from serving as officers

directors.

Sec. 1106. Increased criminal penalties under Securities Exchange Act of 1934.

Sec. 1107. Retaliation against informants.

SEC. 2. DEFINITIONS.

(a) IN GENERAL- In this Act, the following definitions shall apply:

(1) APPROPRIATE STATE REGULATORY AUTHORITY- The term `appropriate State

regulatory authority’ means the State agency or other authority responsible for the licensure

or other regulation of the practice of accounting in the State or States having jurisdiction

over a registered public accounting firm or associated person thereof, with respect to the

matter in question.

(2) AUDIT- The term `audit’ means an examination of the financial statements of any issuer

by an independent public accounting firm in accordance with the rules of the Board or the

Commission (or, for the period preceding the adoption of applicable rules of the Board

under section 103, in accordance with then-applicable generally accepted auditing and

related standards for such purposes), for the purpose of expressing an opinion on such

statements.

(3) AUDIT COMMITTEE- The term `audit committee’ means-

–

(A) a committee (or equivalent body) established by and amongst the board of

directors of an issuer for the purpose of overseeing the accounting and financial

reporting processes of the issuer and audits of the financial statements of the

issuer; and

(B) if no such committee exists with respect to an issuer, the entire board of

directors of the issuer.

(4) AUDIT REPORT- The term `audit report’ means a document or other record–

(A) prepared following an audit performed for purposes of compliance by an issuer

with the requirements of the securities laws; and

(B) in which a public accounting firm either–

(i) sets forth the opinion of that firm regarding a financial statement, report,

or other document; or

(ii) asserts that no such opinion can be expressed.

(5) BOARD- The term `Board’ means the Public Company Accounting Oversight Board

established under section 101.

(6) COMMISSION- The term `Commission’ means the Securities and Exchange

Commission.

(7) ISSUER- The term `issuer’ means an issuer (as defined in section 3 of the Securities

Exchange Act of 1934 (15 U.S.C. 78c)), the securities of which are registered under section

12 of that Act (15 U.S.C. 78l), or that is required to file reports under section 15(d) (15

U.S.C. 78o(d)), or that files or has filed a registration statement that has not yet become

effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not

withdrawn.

(8) NON-AUDIT SERVICES- The term `non-audit services’ means any professional

services provided to an issuer by a registered public accounting firm, other than those

provided to an issuer in connection with an audit or a review of the financial statements of

an issuer.

(9) PERSON ASSOCIATED WITH A PUBLIC ACCOUNTING FIRM-

(A) IN GENERAL- The terms `person associated with a public accounting firm’ (or

with a `registered public accounting firm’) and `associated person of a public

accounting firm’ (or of a `registered public accounting firm’) mean any individual

proprietor, partner, shareholder, principal, accountant, or other professional

employee of a public accounting firm, or any other independent contractor or entity

that, in connection with the preparation or issuance of any audit report–

(i) shares in the profits of, or receives compensation in any other form from,

that firm; or

(ii) participates as agent or otherwise on behalf of such accounting firm in

any activity of that firm.

(B) EXEMPTION AUTHORITY- The Board may, by rule, exempt persons engaged

only in ministerial tasks from the definition in subparagraph (A), to the extent that

the Board determines that any such exemption is consistent with the purposes of

this Act, the public interest, or the protection

of investors.

(10) PROFESSIONAL STANDARDS- The term `professional standards’ means–

(A) accounting principles that are–

(i) established by the standard setting body described in section 19(b) of

the Securities Act of 1933, as amended by this Act, or prescribed by the

Commission under section 19(a) of that Act (15 U.S.C. 17a(s)) or section

13(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78a(m)); and

(ii) relevant to audit reports for particular issuers, or dealt with in the quality

control system of a particular registered public accounting firm; and

(B) auditing standards, standards for attestation engagements, quality control

policies and procedures, ethical and competency standards, and independence

standards (including rules implementing title II) that the Board or the Commission

determines–

(i) relate to the preparation or issuance of audit reports for issuers; and

(ii) are established or adopted by the Board under section 103(a), or are

promulgated as rules of the Commission.

(11) PUBLIC ACCOUNTING FIRM- The term `public accounting firm’ means–

(A) a proprietorship, partnership, incorporated association, corporation, limited

liability company, limited liability partnership, or other legal entity that is engaged in

the practice of public accounting or preparing or issuing audit reports; and

(B) to the extent so designated by the rules of the Board, any associated person of

any entity described in subparagraph (A).

(12) REGISTERED PUBLIC ACCOUNTING FIRM- The term `registered public accounting

firm’ means a public accounting firm registered with the Board in accordance with this Act.

(13) RULES OF THE BOARD- The term `rules of the Board’ means the bylaws and rules of

the Board (as submitted to, and approved, modified, or amended by the Commission, in

accordance with section 107), and those stated policies, practices, and interpretations of

the Board that the Commission, by rule, may deem to be rules of the Board, as necessary

or appropriate in the public interest

or for the protection of investors.

(14) SECURITY- The term `security’ has the same meaning as in section 3(a) of the

Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).

(15) SECURITIES LAWS- The term `securities laws’ means the provisions of law referred to

in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), as

amended by this Act, and includes the rules, regulations, and orders issued by the

Commission thereunder.

(16) STATE- The term `State’ means any State of the United States, the District of

Columbia, Puerto Rico, the Virgin Islands, or any other territory or possession of the United

States.

(b) CONFORMING AMENDMENT- Section 3(a)(47) of the Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(47)) is amended by inserting `the Sarbanes-Oxley Act of 2002,’ before `the Public’.

SEC. 3. COMMISSION RULES AND ENFORCEMENT.

(a) REGULATORY ACTION- The Commission shall promulgate such rules and regulations, as may

be necessary or appropriate in the public interest or for the protection of investors, and in

furtherance of this Act.

(b) ENFORCEMENT-

(1) IN GENERAL- A violation by any person of this Act, any rule or regulation of the

Commission issued under this Act, or any rule of the Board shall be treated for all purposes

in the same manner as a violation of the Securities Exchange Act of 1934 (15 U.S.C. 78a et

seq.) or the rules and regulations issued thereunder, consistent with the provisions of this

Act, and any such person shall be subject to the same penalties, and to the same extent, as

for a violation of that Act or such rules or regulations.

(2) INVESTIGATIONS, INJUNCTIONS, AND PROSECUTION OF OFFENSES- Section 21

of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is

amended–

(A) in subsection (a)(1), by inserting `the rules of the Public Company Accounting

Oversight Board, of which such person is a registered public accounting firm or a

person associated with such a firm,’ after `is a participant,’;

(B) in subsection (d)(1), by inserting `the rules of the Public Company Accounting

Oversight Board, of which such person is a registered public accounting firm or a
person associated with such a firm,’ after `is a participant,’;

Oversight Board, of which such person is a registered public accounting firm or a

person associated with such a firm,’ after `is a participant,’; and

(D) in subsection (f), by inserting `or the Public Company Accounting Oversight

Board’ after `self-regulatory organization’ each place that term appears.

(3) CEASE-AND-DESIST PROCEEDINGS- Section 21C(c)(2) of the Securities Exchange

Act of 1934 (15 U.S.C. 78u-3(c)(2)) is amended by inserting `registered public accounting

firm (as defined in section 2 of the Sarbanes-Oxley Act of 2002),’ after `government

securities dealer,’.

(4) ENFORCEMENT BY FEDERAL BANKING AGENCIES- Section 12(i) of the Securities

Exchange Act of 1934 (15 U.S.C. 78l(i)) is amended by–

(A) striking `sections 12,’ each place it appears and inserting `sections 10A(m), 12,’;

and

(B) striking `and 16,’ each place it appears and inserting `and 16 of this Act, and

sections 302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act

of 2002,’.

construed to impair or limit–

(1) the authority of the Commission to regulate the accounting profession, accounting firms,

or persons associated with such firms for purposes of enforcement of

the

securities laws;

(2) the authority of the Commission to set standards for accounting or auditing practices or

auditor independence, derived from other provisions of the securities laws or the rules or

regulations thereunder, for purposes of the preparation and issuance of any audit report, or

otherwise under applicable law; or

(3) the ability of the Commission to take, on the initiative of the Commission, legal,

administrative, or disciplinary action against any registered public accounting firm or any

associated person thereof.

TITLE I–PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD

SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.

(a) ESTABLISHMENT OF BOARD- There is established the Public Company Accounting

Oversight Board, to oversee the audit of public companies that are subject to the securities

laws, and related matters, in order to protect the interests of investors and further the public

interest in the preparation of informative, accurate, and independent audit reports for

companies the securities of which are sold to, and held by and for, public investors. The

Board shall be a body corporate, operate as a nonprofit corporation, and have succession

until dissolved by an Act of Congress.

(b) STATUS- The Board shall not be an agency or establishment of the United States

Government, and, except as otherwise provided in this Act, shall be subject to, and have all

the powers conferred upon a nonprofit corporation by, the District of Columbia Nonprofit

Corporation Act. No member or person employed by, or agent for, the Board shall be

deemed to be an officer or employee of or agent for the Federal Government by reason of

such service.

section 107, and once a determination is made by the Commission under subsection (d) of

this section–

(1) register public accounting firms that prepare audit reports for issuers, in

accordance with section 102;

(2) establish or adopt, or both, by rule, auditing, quality control, ethics,

independence, and other standards relating to the preparation of audit reports for

issuers, in accordance with section 103;

(3) conduct inspections of registered public accounting firms, in accordance with

section 104 and the rules of the Board;

(4) conduct investigations and disciplinary proceedings concerning, and impose

appropriate sanctions where justified upon, registered public accounting firms and

associated persons of such firms, in accordance with section 105;

(5) perform such other duties or functions as the Board (or the Commission, by rule

or order) determines are necessary or appropriate to promote high professional

standards among, and improve the quality of audit services offered by, registered

public accounting firms and associated persons thereof, or otherwise to carry out

this Act, in order to protect investors, or to further the public interest;

(6) enforce compliance with this Act, the rules of the Board, professional standards,

and the securities laws relating to the preparation and issuance of audit reports and

the obligations and liabilities of accountants with respect thereto, by registered

public accounting firms and associated persons thereof; and

(7) set the budget and manage the operations of the Board and the staff of the Board.

(d) COMMISSION DETERMINATION- The members of the Board shall take such action

(including hiring of staff, proposal of rules, and adoption of initial and transitional auditing

and other professional standards) as may be necessary or appropriate to enable the

Commission to determine, not later than 270 days after the date of enactment of this Act,

that the Board is so organized and has the capacity to carry out the requirements of this title,

and to enforce compliance with this title by registered public accounting firms and

associated persons thereof. The Commission shall be responsible, prior to the appointment

of the Board, for the planning for the establishment and administrative transition to the

Board’s operation.

(e) BOARD MEMBERSHIP-

(1) COMPOSITION- The Board shall have 5 members, appointed from among

prominent individuals of integrity and reputation who have a demonstrated

commitment to the interests of investors and the public, and an understanding of the

responsibilities for and nature of the financial disclosures required of issuers under

the securities laws and the obligations of accountants with respect to the preparation

and issuance of audit reports with respect to such disclosures.

(2) LIMITATION- Two members, and only 2 members, of the Board shall be or have

been certified public accountants pursuant to the laws of 1 or more States, provided

that, if 1 of those 2 members is the chairperson, he or she may not have been a

practicing certified public accountant for at least 5 years prior to his or her

appointment to the Board.

(3) FULL-TIME INDEPENDENT SERVICE- Each member of the Board shall serve on a

full-time basis, and may not, concurrent with service on the Board, be employed by

any other person or engage in any other professional or business activity. No

member of the Board may share in any of the profits of, or receive payments from, a

public accounting firm (or any other person, as determined by rule of the

Commission), other than fixed continuing payments, subject to such conditions as

the Commission may impose, under standard arrangements for the retirement of

members of public accounting firms.

(4) APPOINTMENT OF BOARD MEMBERS-

(A) INITIAL BOARD- Not later than 90 days after the date of enactment of this

Act, the Commission, after consultation with the Chairman of the Board of

Governors of the Federal Reserve System and the Secretary of the Treasury,

shall appoint the chairperson and other initial members of the Board, and

shall designate a term of service for each.

(B) VACANCIES- A vacancy on the Board shall not affect the powers of the

Board, but shall be filled in the same manner as provided for appointments

under

this section.

(5) TERM OF SERVICE-

(A) IN GENERAL- The term of service of each Board member shall be 5 years,

and until a successor is appointed, except that–

(i) the terms of office of the initial Board members (other than the

chairperson) shall expire in annual increments, 1 on each of the first 4

anniversaries of the initial date of appointment; and

(ii) any Board member appointed to fill a vacancy occurring before the

expiration of the term for which the predecessor was appointed shall

be appointed only for the remainder of that term.

(B) TERM LIMITATION- No person may serve as a member of the Board, or as

chairperson of the Board, for more than 2 terms, whether or not such terms

of service are consecutive.

(6) REMOVAL FROM OFFICE- A member of the Board may be removed by the

Commission from office, in accordance with section 107(d)(3), for good cause shown

before the expiration of the term of that member.

(f) POWERS OF THE BOARD- In addition to any authority granted to the Board otherwise in

this Act, the Board shall have the power, subject to section 107–

(1) to sue and be sued, complain and defend, in its corporate name and through its

own counsel, with the approval of the Commission, in any Federal, State, or other

court;

(2) to conduct its operations and maintain offices, and to exercise all other rights and

powers authorized by this Act, in any State, without regard to any qualification,

licensing, or other provision of law in effect in such State (or a political subdivision

thereof);

(3) to lease, purchase, accept gifts or donations of or otherwise acquire, improve,

use, sell, exchange, or convey, all of or an interest in any property, wherever

situated;

(4) to appoint such employees, accountants, attorneys, and other agents as may be

necessary or appropriate, and to determine their qualifications, define their duties,

and fix their salaries or other compensation (at a level that is comparable to private

sector self-regulatory, accounting, technical, supervisory, or other staff or

management positions);

(5) to allocate, assess, and collect accounting support fees established pursuant to

section 109, for the Board, and other fees and charges imposed under this title; and

(6) to enter into contracts, execute instruments, incur liabilities, and do any and all

other acts and things necessary, appropriate, or incidental to the conduct of its

operations and the exercise of its obligations, rights, and powers imposed or granted

this title.

(g) RULES OF THE BOARD- The rules of the Board shall, subject to the approval of the

Commission–

(1) provide for the operation and administration of the Board, the exercise of its

authority, and the performance of its responsibilities under

this Act;

(2) permit, as the Board determines necessary or appropriate, delegation by the

Board of any of its functions to an individual member or employee of the Board, or to

a division of the Board, including functions with respect to hearing, determining,

ordering, certifying, reporting, or otherwise acting as to any matter, except that–

(A) the Board shall retain a discretionary right to review any action pursuant

to any such delegated function, upon its own motion;

(B) a person shall be entitled to a review by the Board with respect to any

matter so delegated, and the decision of the Board upon such review shall be

deemed to be the action of the Board for all purposes (including appeal or

review thereof); and

or if no such review is sought within the time stated in the rules of the Board,

then the action taken by the holder of such delegation shall for all purposes,

including appeal or review thereof, be deemed to be the action of the Board;

(3) establish ethics rules and standards of conduct for Board members and staff,

including a bar on practice before the Board (and the Commission, with respect to

Board-related matters) of 1 year for former members of the Board, and appropriate

periods (not to exceed 1 year) for former staff of the Board; and

(4) provide as otherwise required by this Act.

(h) ANNUAL REPORT TO THE COMMISSION- The Board shall submit an annual report

(including its audited financial statements) to the Commission, and the Commission shall

transmit a copy of that report to the Committee on Banking, Housing, and Urban Affairs of

the Senate, and the Committee on Financial Services of the House of Representatives, not

later than 30 days after the date of receipt of that report by the Commission.

SEC. 102. REGISTRATION WITH THE BOARD.

(a) MANDATORY REGISTRATION- Beginning 180 days after the date of the determination of

the Commission under section 101(d), it shall be unlawful for any person that is not a

registered public accounting firm to prepare or issue, or to participate in the preparation or

issuance of, any audit report with respect to any issuer.

(b) APPLICATIONS FOR REGISTRATION-

(1) FORM OF APPLICATION- A public accounting firm shall use such form as the

Board may prescribe, by rule, to apply for registration under this section.

(2) CONTENTS OF APPLICATIONS- Each public accounting firm shall submit, as part

of its application for registration, in such detail as the Board shall specify–

(A) the names of all issuers for which the firm prepared or issued audit

reports during the immediately preceding calendar year, and for which the

firm expects to prepare or issue audit reports during the current calendar

year;

(B) the annual fees received by the firm from each such issuer for audit

services, other accounting services, and non-audit services, respectively;

fiscal year of the firm as the Board may reasonably request;

(D) a statement of the quality control policies of the firm for its accounting

and auditing practices;

(E) a list of all accountants associated with the firm who participate in or

contribute to the preparation of audit reports, stating the license or

certification number of each such person, as well as the State license

numbers of the firm itself;

(F) information relating to criminal, civil, or administrative actions or

disciplinary proceedings pending against the firm or any associated person

of the firm in connection with any audit report;

(G) copies of any periodic or annual disclosure filed by an issuer with the

Commission during the immediately preceding calendar year which discloses

accounting disagreements between such issuer and the firm in connection

with an audit report furnished or prepared by the firm for such issuer; and

(H) such other information as the rules of the Board or the Commission shall

specify as necessary or appropriate in the public interest or for the protection

of investors.

(3) CONSENTS- Each application for registration under this subsection shall include-

–

(A) a consent executed by the public accounting firm to cooperation in and

compliance with any request for testimony or the production of documents

made by the Board in the furtherance of its authority and responsibilities

under this title (and an agreement to secure and enforce similar consents

from each of the associated persons of the public accounting firm as a

condition of their continued employment by or other association with such

firm); and

(B) a statement that such firm understands and agrees that cooperation and

compliance, as described in the consent required by subparagraph (A), and

the securing and enforcement of such consents from its associated persons,

in accordance with the rules of the Board, shall be a condition to the

continuing effectiveness of the registration of the firm with the Board.

(1) TIMING- The Board shall approve a completed application for registration not later

than 45 days after the date of receipt of the application, in accordance with the rules

of the Board, unless the Board, prior to such date, issues a written notice of

disapproval to, or requests more information from, the prospective registrant.

(2) TREATMENT- A written notice of disapproval of a completed application under

paragraph (1) for registration shall be treated as a disciplinary sanction for purposes

of sections 105(d) and 107(c).

(d) PERIODIC REPORTS- Each registered public accounting firm shall submit an annual

report to the Board, and may be required to report more frequently, as necessary to update

the information contained in its application for registration under this section, and to provide

to the Board such additional information as the Board or the Commission may specify, in

accordance with subsection (b)(2).

(e) PUBLIC AVAILABILITY- Registration applications and annual reports required by this

subsection, or such portions of such applications or reports as may be designated under

rules of the Board, shall be made available for public inspection, subject to rules of the

Board or the Commission, and to applicable laws relating to the confidentiality of

proprietary, personal, or other information contained in such applications or reports,

provided that, in all events, the Board shall protect from public disclosure information

reasonably identified by the subject accounting firm as proprietary information.

(f) REGISTRATION AND ANNUAL FEES- The Board shall assess and collect a registration fee

and an annual fee from each registered public accounting firm, in amounts that are sufficient

to recover the costs of processing and reviewing applications and annual reports.

SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND RULES.

(a) AUDITING, QUALITY CONTROL, AND ETHICS STANDARDS-

(1) IN GENERAL- The Board shall, by rule, establish, including, to the extent it

determines appropriate, through adoption of standards proposed by 1 or more

professional groups of accountants designated pursuant to paragraph (3)(A) or

advisory groups convened pursuant to paragraph (4), and amend or otherwise

modify or alter, such auditing and related attestation standards, such quality control

standards, and such ethics standards to be used by registered public accounting

firms in the preparation and issuance of audit reports, as required by this Act or the

rules of the Commission, or as may be necessary or appropriate in the public interest

or for the protection of investors.

(2) RULE REQUIREMENTS- In carrying out paragraph (1), the Board–

(A) shall include in the auditing standards that it adopts, requirements that

each registered public accounting firm

shall–

(i) prepare, and maintain for a period of not less than 7 years, audit

work papers, and other information related to any audit report, in

sufficient detail to support the conclusions reached in such report;

(ii) provide a concurring or second partner review and approval of

such audit report (and other related information), and concurring

approval in its issuance, by a qualified person (as prescribed by the

Board) associated with the public accounting firm, other than the

person in charge of the audit, or by an independent reviewer (as

prescribed by the Board); and

(iii) describe in each audit report the scope of the auditor’s testing of

the internal control structure and procedures of the issuer, required

by section 404(b), and present (in such report or in a separate report)-

–

(I) the findings of the auditor from such testing;

(II) an evaluation of whether such internal control structure

and procedures–

(aa) include maintenance of records that in

reasonable detail accurately and fairly reflect

the transactions and dispositions of the assets

of the issuer;

(bb) provide reasonable assurance that

transactions are recorded as necessary to

permit preparation of financial statements in

accordance with generally accepted

accounting principles, and that receipts and

expenditures of the issuer are being made only

in accordance with authorizations of

management and directors of the issuer; and

(III) a description, at a minimum, of material weaknesses in

such internal controls, and of any material noncompliance

found on the basis of such testing.

(B) shall include, in the quality control standards that it adopts with respect

to the issuance of audit reports, requirements for every registered public

accounting firm relating

to–

(i) monitoring of professional ethics and independence from issuers

on behalf of which the firm issues audit reports;

(ii) consultation within such firm on accounting and auditing

questions;

(iii) supervision of audit work;

(iv) hiring, professional development, and advancement of personnel;

(v) the acceptance and continuation of engagements;

(vi) internal inspection; and

(vii) such other requirements as the Board may prescribe, subject to

subsection (a)(1).

(3) AUTHORITY TO ADOPT OTHER STANDARDS-

(A) IN GENERAL- In carrying out this subsection, the Board–

(i) may adopt as its rules, subject to the terms of section 107, any

portion of any statement of auditing standards or other professional

standards that the Board determines satisfy the requirements of

paragraph (1), and that were proposed by 1 or more professional

groups of accountants that shall be designated or recognized by the

Board, by rule, for such purpose, pursuant to this paragraph or 1 or

more advisory groups convened pursuant to paragraph (4); and

(ii) notwithstanding clause (i), shall retain full authority to modify,

supplement, revise, or subsequently amend, modify, or repeal, in

whole or in part, any portion of any statement described in clause (i).

(B) INITIAL AND TRANSITIONAL STANDARDS- The Board shall adopt

standards described in subparagraph (A)(i) as initial or transitional

standards, to the extent the Board determines necessary, prior to a

determination of the Commission under section 101(d), and such standards

shall be separately approved by the Commission at the time of that

determination, without regard to the procedures required by section 107 that

otherwise would apply to the approval of rules of the Board.

(4) ADVISORY GROUPS- The Board shall convene, or authorize its staff to convene,

such expert advisory groups as may be appropriate, which may include practicing

accountants and other experts, as well as representatives of other interested groups,

subject to such rules as the Board may prescribe to prevent conflicts of interest, to

make recommendations concerning the content (including proposed drafts) of

auditing, quality control, ethics, independence, or other standards required to be

established under this section.

(b) INDEPENDENCE STANDARDS AND RULES- The Board shall establish such rules as may

be necessary or appropriate in the public interest or for the protection of investors, to

implement, or as authorized under, title II of this Act.

ADVISORY GROUPS-

(1) IN GENERAL- The Board shall cooperate on an ongoing basis with professional

groups of accountants designated under subsection (a)(3)(A) and advisory groups

convened under subsection (a)(4) in the examination of the need for changes in any

standards subject to its authority under subsection (a), recommend issues for

inclusion on the agendas of such designated professional groups of accountants or

advisory groups, and take such other steps as it deems appropriate to increase the

effectiveness of the standard setting process.

(2) BOARD RESPONSES- The Board shall respond in a timely fashion to requests

from designated professional groups of accountants and advisory groups referred to

in paragraph (1) for any changes in standards over which the Board has authority.

(d) EVALUATION OF STANDARD SETTING PROCESS- The Board shall include in the annual

report required by section 101(h) the results of its standard setting responsibilities during

the period to which the report relates, including a discussion of the work of the Board with

any designated professional groups of accountants and advisory groups described in

paragraphs (3)(A) and (4) of subsection (a), and its pending issues agenda for future

standard setting projects.

SEC. 104. INSPECTIONS OF REGISTERED PUBLIC ACCOUNTING FIRMS.

(a) IN GENERAL- The Board shall conduct a continuing program of inspections to assess the

degree of compliance of each registered public accounting firm and associated persons of

that firm with this Act, the rules of the Board, the rules of the Commission, or professional

standards, in connection with its performance of audits, issuance of audit reports, and

related matters involving issuers.

(b) INSPECTION FREQUENCY-

(1) IN GENERAL- Subject to paragraph (2), inspections required by this section shall

be conducted–

(A) annually with respect to each registered public accounting firm that

regularly provides audit reports for more than 100 issuers; and

(B) not less frequently than once every 3 years with respect to each

registered public accounting firm that regularly provides audit reports for 100

or fewer issuers.

(2) ADJUSTMENTS TO SCHEDULES- The Board may, by rule, adjust the inspection

schedules set under paragraph (1) if the Board finds that different inspection

schedules are consistent with the purposes of this Act, the public interest, and the

protection of investors. The Board may conduct special inspections at the request of

the Commission or upon its own motion.

with its rules for such inspections–

(1) identify any act or practice or omission to act by the registered public accounting

firm, or by any associated person thereof, revealed by such inspection that may be in

violation of this Act, the rules of the Board, the rules of the Commission, the firm’s

own quality control policies, or professional standards;

(2) report any such act, practice, or omission, if appropriate, to the Commission and

each appropriate State regulatory authority; and

(3) begin a formal investigation or take disciplinary action, if appropriate, with

respect to any such violation, in accordance with this Act and the rules of the Board.

(d) CONDUCT OF INSPECTIONS- In conducting an inspection of a registered public

accounting firm under this section, the Board shall–

(1) inspect and review selected audit and review engagements of the firm (which may

include audit engagements that are the subject of ongoing litigation or other

controversy between the firm and 1 or more third parties), performed at various

offices and by various associated persons of the firm, as selected by the Board;

(2) evaluate the sufficiency of the quality control system of the firm, and the manner

of the documentation and communication of that system by the firm; and

(3) perform such other testing of the audit, supervisory, and quality control

procedures of the firm as are necessary or appropriate in light of the purpose of the

inspection and the responsibilities of the Board.

(e) RECORD RETENTION- The rules of the Board may require the retention by registered

public accounting firms for inspection purposes of records whose retention is not otherwise

required by section 103 or the rules

issued thereunder.

(f) PROCEDURES FOR REVIEW- The rules of the Board shall provide a procedure for the

review of and response to a draft inspection report by the registered public accounting firm

under inspection. The Board shall take such action with respect to such response as it

considers appropriate (including revising the draft report or continuing or supplementing its

inspection activities before issuing a final report), but the text of any such response,

appropriately redacted to protect information reasonably identified by the accounting firm as

confidential, shall be attached to and made part of the inspection report.

(g) REPORT- A written report of the findings of the Board for each inspection under this

section, subject to subsection (h), shall be–

(1) transmitted, in appropriate detail, to the Commission and each appropriate State

regulatory authority, accompanied by any letter or comments by the Board or the

inspector, and any letter of response from the registered public accounting firm; and

(2) made available in appropriate detail to the public (subject to section 105(b)(5)(A),

and to the protection of such confidential and proprietary information as the Board

may determine to be appropriate, or as may be required by law), except that no

portions of the inspection report that deal with criticisms of or potential defects in

the quality control systems of the firm under inspection shall be made public if those

criticisms or defects are addressed by the firm, to the satisfaction of the Board, not

later than 12 months after the date of the inspection report.

(h) INTERIM COMMISSION REVIEW-

(1) REVIEWABLE MATTERS- A registered public accounting firm may seek review by

the Commission, pursuant to such rules as the Commission shall promulgate, if the

firm–

(A) has provided the Board with a response, pursuant to rules issued by the

Board under subsection (f), to the substance of particular items in a draft

inspection report, and disagrees with the assessments contained in any final

report prepared by the Board following such response; or

(B) disagrees with the determination of the Board that criticisms or defects

identified in an inspection report have not been addressed to the satisfaction

of the Board within 12 months of the date of the inspection report, for

purposes of subsection (g)(2).

(2) TREATMENT OF REVIEW- Any decision of the Commission with respect to a

review under paragraph (1) shall not be reviewable under section 25 of the Securities

Exchange Act of 1934 (15 U.S.C. 78y), or deemed to be `final agency action’ for

purposes of section 704 of title 5, United

States Code.

(3) TIMING- Review under paragraph (1) may be sought during the 30-day period

following the date of the event giving rise to the review under subparagraph (A) or

(B) of

paragraph (1).

SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.

(a) IN GENERAL- The Board shall establish, by rule, subject to the requirements of this

section, fair procedures for the investigation and disciplining of registered public accounting

firms and associated persons of such firms.

(b) INVESTIGATIONS-

(1) AUTHORITY- In accordance with the rules of the Board, the Board may conduct

an investigation of any act or practice, or omission to act, by a registered public

accounting firm, any associated person of such firm, or both, that may violate any

provision of this Act, the rules of the Board, the provisions of the securities laws

relating to the preparation and issuance of audit reports and the obligations and

liabilities of accountants with respect thereto, including the rules of the Commission

issued under this Act, or professional standards, regardless of how the act, practice,

or omission is brought to the attention of the Board.

(2) TESTIMONY AND DOCUMENT PRODUCTION- In addition to such other actions as

the Board determines to be necessary or appropriate, the rules of the

Board may–

(A) require the testimony of the firm or of any person associated with a

registered public accounting firm, with respect to any matter that the Board

considers relevant or material to an investigation;

(B) require the production of audit work papers and any other document or

information in the possession of a registered public accounting firm or any

associated person thereof, wherever domiciled, that the Board considers

relevant or material to the investigation, and may inspect the books and

records of such firm or associated person to verify the accuracy of any

documents or information supplied;

possession of, any other person, including any client of a registered public

accounting firm that the Board considers relevant or material to an

investigation under this section, with appropriate notice, subject to the needs

of the investigation, as permitted under the rules of the Board; and

(D) provide for procedures to seek issuance by the Commission, in a manner

established by the Commission, of a subpoena to require the testimony of,

and production of any document in the possession of, any person, including

any client of a registered public accounting firm, that the Board considers

relevant or material to an investigation under this section.

(3) NONCOOPERATION WITH INVESTIGATIONS-

(A) IN GENERAL- If a registered public accounting firm or any associated

person thereof refuses to testify, produce documents, or otherwise cooperate

with the Board in connection with an investigation under this section, the

Board may–

(i) suspend or bar such person from being associated with a

registered public accounting firm, or require the registered public

accounting firm to end such association;

(ii) suspend or revoke the registration of the public accounting firm;

and

(iii) invoke such other lesser sanctions as the Board considers

appropriate, and as specified by rule of the Board.

(B) PROCEDURE- Any action taken by the Board under this paragraph shall

be subject to the terms of section 107(c).

(4) COORDINATION AND REFERRAL OF INVESTIGATIONS-

(A) COORDINATION- The Board shall notify the Commission of any pending

Board investigation involving a potential violation of the securities laws, and

thereafter coordinate its work with the work of the Commission’s Division of

Enforcement, as necessary to protect an ongoing Commission investigation.

(B) REFERRAL- The Board may refer an investigation under this section–

(i) to the Commission;

(ii) to any other Federal functional regulator (as defined in section 509

of the Gramm-Leach-Bliley Act (15 U.S.C. 6809)), in the case of an

investigation that concerns an audit report for an institution that is

subject to the jurisdiction of such regulator; and

(iii) at the direction of the Commission, to–

(I) the Attorney General of the United States;

(II) the attorney general of 1 or more States; and

(III) the appropriate State regulatory authority.

(5) USE OF DOCUMENTS-

(A) CONFIDENTIALITY- Except as provided in subparagraph (B), all

documents and information prepared or received by or specifically for the

Board, and deliberations of the Board and its employees and agents, in

connection with an inspection under section 104 or with an investigation

under this section, shall be confidential and privileged as an evidentiary

matter (and shall not be subject to civil discovery or other legal process) in

any proceeding in any Federal or State court or administrative agency, and

shall be exempt from disclosure, in the hands of an agency or establishment

of the Federal Government, under the Freedom of Information Act (5 U.S.C.

552a), or otherwise, unless and until presented in connection with a public

proceeding or released in accordance with subsection (c).

(B) AVAILABILITY TO GOVERNMENT AGENCIES- Without the loss of its

status as confidential and privileged in the hands of the Board, all

information referred to in subparagraph (A) may–

(i) be made available to the

Commission; and

(ii) in the discretion of the Board, when determined by the Board to be

necessary to accomplish the purposes of this Act or to protect

investors, be made available to–

(I) the Attorney General of the United States;

(II) the appropriate Federal functional regulator (as defined in

section 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6809)),

other than the Commission, with respect to an audit report for

an institution subject to the jurisdiction of such regulator;

(III) State attorneys general in connection with any criminal

investigation; and

(IV) any appropriate State regulatory authority, each of which

shall maintain such information as confidential and privileged.

(6) IMMUNITY- Any employee of the Board engaged in carrying out an

investigation under this Act shall be immune from any civil liability

arising out of such investigation in the same manner and to the same

extent as an employee of the Federal Government in similar

circumstances.

(1) NOTIFICATION; RECORDKEEPING- The rules of the Board shall provide that in

any proceeding by the Board to determine whether a registered public accounting

firm, or an associated person thereof, should be disciplined, the Board shall–

(A) bring specific charges with respect to the firm or associated person;

(B) notify such firm or associated person of, and provide to the firm or

associated person an opportunity to defend against, such charges; and

(2) PUBLIC HEARINGS- Hearings under this section shall not be public, unless

otherwise ordered by the Board for good cause shown, with the consent of the

parties to such hearing.

(3) SUPPORTING STATEMENT- A determination by the Board to impose a sanction

under this subsection shall be supported by a statement setting forth–

(A) each act or practice in which the registered public accounting firm, or

associated person, has engaged (or omitted to engage), or that forms a basis

for all or a part of such sanction;

(B) the specific provision of this Act, the securities laws, the rules of the

Board, or professional standards which the Board determines has been

violated; and

(4) SANCTIONS- If the Board finds, based on all of the facts and circumstances, that

a registered public accounting firm or associated person thereof has engaged in any

act or practice, or omitted to act, in violation of this Act, the rules of the Board, the

provisions of the

securities laws relating to the preparation and issuance of audit

reports and the obligations and liabilities of accountants with respect thereto,

including the rules of the Commission issued under this Act, or professional

standards, the Board may impose such disciplinary or remedial sanctions as it

determines appropriate, subject to applicable limitations under paragraph (5),

including–

(A) temporary suspension or permanent revocation of registration under this

title;

(B) temporary or permanent suspension or bar of a person from further

association with any registered public accounting firm;

operations of such firm or person (other than in connection with required

additional professional education or training);

(D) a civil money penalty for each such violation, in an amount equal to–

(i) not more than $100,000 for a natural person or $2,000,000 for any

other person; and

(ii) in any case to which paragraph (5) applies, not more than $750,000

for a natural person or $15,000,000 for any other person;

(E) censure;

(F) required additional professional education or training; or

(G) any other appropriate sanction provided for in the rules of the Board.

(5) INTENTIONAL OR OTHER KNOWING CONDUCT- The sanctions and penalties

described in subparagraphs (A) through (C) and (D)(ii) of paragraph (4) shall only

apply to–

(A) intentional or knowing conduct, including reckless conduct, that results

in violation of the applicable statutory, regulatory, or professional standard;

(B) repeated instances of negligent conduct, each resulting in a violation of

the applicable statutory, regulatory, or professional standard.

(6) FAILURE TO SUPERVISE-

(A) IN GENERAL- The Board may impose sanctions under this section on a

registered accounting firm or upon the supervisory personnel of such firm, if

the Board finds that–

(i) the firm has failed reasonably to supervise an associated person,

either as required by the rules of the Board relating to auditing or

quality control standards, or otherwise, with a view to preventing

violations of this Act, the rules of the Board, the provisions of the

securities laws relating to the preparation and issuance of audit

reports and the obligations and liabilities of accountants with respect

thereto, including the rules of the Commission under this Act, or

professional standards; and

(ii) such associated person commits a violation of this Act, or any of

such rules, laws, or standards.

(B) RULE OF CONSTRUCTION- No associated person of a registered public

accounting firm shall be deemed to have failed reasonably to supervise any

other person for purposes of subparagraph (A), if–

(i) there have been established in and for that firm procedures, and a

system for applying such procedures, that comply with applicable

rules of the Board and that would reasonably be expected to prevent

and detect any such violation by such associated person; and

(ii) such person has reasonably discharged the duties and obligations

incumbent upon that person by reason of such procedures and

system, and had no reasonable cause to believe that such procedures

and system were not being complied with.

(7) EFFECT OF SUSPENSION-

(A) ASSOCIATION WITH A PUBLIC ACCOUNTING FIRM- It shall be unlawful

for any person that is suspended or barred from being associated with a

registered public accounting firm under this subsection willfully to become or

remain associated with any registered public accounting firm, or for any

registered public accounting firm that knew, or, in the exercise of reasonable

care should have known, of the suspension or bar, to permit such an

association, without the consent of the

Board or the Commission.

(B) ASSOCIATION WITH AN ISSUER- It shall be unlawful for any person that

is suspended or barred from being associated with an issuer under this

subsection willfully to become or remain associated with any issuer in an

accountancy or a financial management capacity, and for any issuer that

knew, or in the exercise of reasonable care should have known, of such

suspension or bar, to permit such an association, without the consent of the

Board or the Commission.

(d) REPORTING OF SANCTIONS-

(1) RECIPIENTS- If the Board imposes a disciplinary sanction, in accordance with

this section, the Board shall report the sanction to–

(A) the Commission;

(B) any appropriate State regulatory authority or any foreign accountancy

licensing board with which such firm or person is licensed or certified; and

lifted).

(2) CONTENTS- The information reported under paragraph (1) shall include–

(A) the name of the sanctioned person;

(B) a description of the sanction and the basis for its imposition; and

(e) STAY OF SANCTIONS-

(1) IN GENERAL- Application to the Commission for review, or the institution by the

Commission of review, of any disciplinary action of the Board shall operate as a stay

of any such disciplinary action, unless and until the Commission orders (summarily

or after notice and opportunity for hearing on the question of a stay, which hearing

may consist solely of the submission of affidavits or presentation of oral arguments)

that no such stay shall continue to operate.

(2) EXPEDITED PROCEDURES- The Commission shall establish for appropriate

cases an expedited procedure for consideration and determination of the question of

the duration of a stay pending review of any disciplinary action of the Board under

this subsection.

SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.

(a) APPLICABILITY TO CERTAIN FOREIGN FIRMS-

(1) IN GENERAL- Any foreign public accounting firm that prepares or furnishes an

audit report with respect to any issuer, shall be subject to this Act and the rules of

the Board and the Commission issued under this Act, in the same manner and to the

same extent as a public accounting firm that is organized and operates under the

laws of the United States or any State, except that registration pursuant to section

102 shall not by itself provide a basis for subjecting such a foreign public accounting

firm to the jurisdiction of the Federal or State courts, other than with respect to

controversies between such firms and the Board.

(2) BOARD AUTHORITY- The Board may, by rule, determine that a foreign public

accounting firm (or a class of such firms) that does not issue audit reports

nonetheless plays such a substantial role in the preparation and furnishing of such

reports for particular issuers, that it is necessary or appropriate, in light of the

purposes of this Act and in the public interest or for the protection of investors, that

such firm (or class of firms) should be treated as a public accounting firm (or firms)

for purposes of registration under, and oversight by the Board in accordance with,

this title.

(b) PRODUCTION OF AUDIT WORKPAPERS-

(1) CONSENT BY FOREIGN FIRMS- If a foreign public accounting firm issues an

opinion or otherwise performs material services upon which a registered public

accounting firm relies in issuing all or part of any audit report or any opinion

contained in an audit report, that foreign public accounting firm shall be deemed to

have consented–

(A) to produce its audit workpapers for the Board or the Commission in

connection with any investigation by either body with respect to that audit

report; and

(B) to be subject to the jurisdiction of the courts of the United States for

purposes of enforcement of any request for production of such workpapers.

(2) CONSENT BY DOMESTIC FIRMS- A registered public accounting firm that relies

upon the opinion of a foreign public accounting firm, as described in paragraph (1),

shall be deemed–

(A) to have consented to supplying the audit workpapers of that foreign

public accounting firm in response to a request for production by the Board

or the Commission; and

(B) to have secured the agreement of that foreign public accounting firm to

such production, as a condition of its reliance on the opinion of that foreign

public accounting firm.

Commission, may, by rule, regulation, or order, and as the Commission (or Board)

determines necessary or appropriate in the public interest or for the protection of investors,

either unconditionally or upon specified terms and conditions exempt any foreign public

accounting firm, or any class of such firms, from any provision of this Act or the rules of the

Board or the Commission issued under this Act.

(d) DEFINITION- In this section, the term `foreign public accounting firm’ means a public

accounting firm that is organized and operates under the laws of a foreign government or

political subdivision thereof.

SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.

(a) GENERAL OVERSIGHT RESPONSIBILITY- The Commission shall have oversight and

enforcement authority over the Board, as provided in this Act. The provisions of section

17(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(a)(1)), and of section 17(b)(1)

of the Securities Exchange Act of 1934 (15 U.S.C. 78q(b)(1)) shall apply to the Board as fully

as if the Board were a `registered securities association’ for purposes of those sections

17(a)(1) and 17(b)(1).

(b) RULES OF THE BOARD-

(1) DEFINITION- In this section, the term `proposed rule’ means any proposed rule of

the Board, and any modification of any such rule.

(2) PRIOR APPROVAL REQUIRED- No rule of the Board shall become effective

without prior approval of the Commission in accordance with this section, other than

as provided in section 103(a)(3)(B) with respect to initial or transitional standards.

(3) APPROVAL CRITERIA- The Commission shall approve a proposed rule, if it finds

that the rule is consistent with the requirements of this Act and the securities laws,

or is

necessary or appropriate in the public interest or for the protection of investors.

(4) PROPOSED RULE PROCEDURES- The provisions of paragraphs (1) through (3) of

section 19(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) shall govern

the proposed rules of the Board, as fully as if the Board were a `registered securities

association’ for purposes of that section 19(b), except that, for purposes of this

paragraph–

(A) the phrase `consistent with the requirements of this title and the rules and

regulations thereunder applicable to such organization’ in section 19(b)(2) of

that Act shall be deemed to read `consistent with the requirements of title I of

the Sarbanes-Oxley Act of 2002, and the rules and regulations issued

thereunder applicable to such organization, or as necessary or appropriate in

the public interest or for the protection of investors’; and

(B) the phrase `otherwise in furtherance of the purposes of this title’ in

section 19(b)(3)(C) of that Act shall be deemed to read `otherwise in

furtherance of the purposes of title I of the Sarbanes-Oxley Act of 2002′.

(5) COMMISSION AUTHORITY TO AMEND RULES OF THE BOARD- The provisions of

section 19(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78s(c)) shall govern

the abrogation, deletion, or addition to portions of the rules of the Board by the

Commission as fully as if the Board were a `registered securities association’ for

purposes of that section 19(c), except that the phrase `to conform its rules to the

requirements of this title and the rules and regulations thereunder applicable to such

organization, or otherwise in furtherance of the purposes of this title’ in section 19(c)

of that Act shall, for purposes of this paragraph, be deemed to read `to assure the

fair administration of the Public Company Accounting Oversight Board, conform the

rules promulgated by that Board to the requirements of title I of the Sarbanes-Oxley

Act of 2002, or otherwise further the purposes of that Act, the securities laws, and

the rules and regulations thereunder applicable to that Board’.

(1) NOTICE OF SANCTION- The Board shall promptly file notice with the Commission

of any final sanction on any registered public accounting firm or on any associated

person thereof, in such form and containing such information as the Commission, by

rule, may prescribe.

(2) REVIEW OF SANCTIONS- The provisions of sections 19(d)(2) and 19(e)(1) of the

Securities Exchange Act of 1934 (15 U.S.C. 78s (d)(2) and (e)(1)) shall govern the

review by the Commission of final disciplinary sanctions imposed by the Board

(including sanctions imposed under section 105(b)(3) of this Act for noncooperation

in an investigation of the Board), as fully as if the Board were a self-regulatory

organization and the Commission were the appropriate regulatory agency for such

organization for purposes of those sections 19(d)(2) and 19(e)(1), except that, for

purposes of this paragraph–

(A) section 105(e) of this Act (rather than that section 19(d)(2)) shall govern

the extent to which application for, or institution by the Commission on its

own motion of, review of any disciplinary action of the Board operates as a

stay of such action;

(B) references in that section 19(e)(1) to `members’ of such an organization

shall be deemed to be references to registered public accounting firms;

19(e)(1) shall be deemed to read `consistent with the purposes of this title

and title I of the Sarbanes-Oxley Act of 2002′;

(D) references to rules of the Municipal Securities Rulemaking Board in that

section 19(e)(1) shall not apply; and

(E) the reference to section 19(e)(2) of the Securities Exchange Act of 1934

shall refer instead to section 107(c)(3) of this Act.

(3) COMMISSION MODIFICATION AUTHORITY- The Commission may enhance,

modify, cancel, reduce, or require the remission of a sanction imposed by the Board

upon a registered public accounting firm or associated person thereof, if the

Commission, having due regard for the public interest and the protection of

investors, finds, after a proceeding in accordance with this subsection, that the

sanction–

(A) is not necessary or appropriate in furtherance of this Act or the securities

laws; or

(B) is excessive, oppressive, inadequate, or otherwise not appropriate to the

finding or the basis on which the sanction was imposed.

(d) CENSURE OF THE BOARD; OTHER SANCTIONS-

(1) RESCISSION OF BOARD AUTHORITY- The Commission, by rule, consistent with

the public interest, the protection of investors, and the other purposes of this Act

and the securities laws, may relieve the Board of any responsibility to enforce

compliance with any provision of this Act, the securities laws, the rules of the Board,

or professional standards.

(2) CENSURE OF THE BOARD; LIMITATIONS- The Commission may, by order, as it

determines necessary or appropriate in the public interest, for the protection of

investors, or otherwise in furtherance of the purposes of this Act or the securities

laws, censure or impose limitations upon the activities, functions, and operations of

the Board, if the Commission finds, on the record, after notice and opportunity for a

hearing, that the Board–

(A) has violated or is unable to comply with any provision of this Act, the

rules of the Board, or the securities laws; or

(B) without reasonable justification or excuse, has failed to enforce

compliance with any such provision or rule, or any professional standard by

a registered public accounting firm or an associated person thereof.

(3) CENSURE OF BOARD MEMBERS; REMOVAL FROM OFFICE- The Commission

may, as necessary or appropriate in the public interest, for the protection of

investors, or otherwise in furtherance of the purposes of this Act or the securities

laws, remove from office or censure any member of the Board, if the Commission

finds, on the record, after notice and opportunity for a hearing, that such member–

(A) has willfully violated any provision of this Act, the rules of the Board, or

the securities laws;

(B) has willfully abused the authority of that member; or

compliance with any such provision or rule, or any professional standard by

any registered public accounting firm or any associated person thereof.

SEC. 108. ACCOUNTING STANDARDS.

(a) AMENDMENT TO SECURITIES ACT OF 1933- Section 19 of the Securities Act of 1933 (15

U.S.C. 77s) is amended–

(1) by redesignating subsections (b) and (c) as subsections (c) and (d), respectively;

and

(2) by inserting after subsection (a) the

following:

`(b) RECOGNITION OF ACCOUNTING STANDARDS-

`(1) IN GENERAL- In carrying out its authority under subsection (a) and under section

13(b) of the Securities Exchange Act of 1934, the Commission may recognize, as

`generally accepted’ for purposes of the securities laws, any accounting principles

established by a standard setting body–

`(A) that–

`(i) is organized as a private entity;

`(ii) has, for administrative and operational purposes, a board of

trustees (or equivalent body) serving in the public interest, the

majority of whom are not, concurrent with their service on such

board, and have not been during the 2-year period preceding such

service, associated persons of any registered public accounting firm;

`(iii) is funded as provided in section 109 of the Sarbanes-Oxley Act of

2002;

`(iv) has adopted procedures to ensure prompt consideration, by

majority vote of its members, of changes to accounting principles

necessary to reflect emerging accounting issues and changing

business practices; and

`(v) considers, in adopting accounting principles, the need to keep

standards current in order to reflect changes in the business

environment, the extent to which international convergence on high

quality accounting standards is necessary or appropriate in the public

interest and for the protection of investors; and

`(B) that the Commission determines has the capacity to assist the

Commission in fulfilling the requirements of subsection (a) and section 13(b)

of the Securities Exchange Act of 1934, because, at a minimum, the standard

setting body is capable of improving the accuracy and effectiveness of

financial reporting and the protection of investors under the securities laws.

`(2) ANNUAL REPORT- A standard setting body described in paragraph (1) shall

submit an annual report to the Commission and the public, containing audited

financial statements of that standard setting body.’.

(b) COMMISSION AUTHORITY- The Commission shall promulgate such rules and regulations

to carry out section 19(b) of the Securities Act of 1933, as added by this section, as it deems

necessary or appropriate in the public interest or for the protection of investors.

the amendment made by this section, shall be construed to impair or limit the authority of

the Commission to establish accounting principles or standards for purposes of

enforcement of the securities laws.

(d) STUDY AND REPORT ON ADOPTING PRINCIPLES-BASED ACCOUNTING-

(1) STUDY-

(A) IN GENERAL- The Commission shall conduct a study on the adoption by

the United States financial reporting system of a principles-based accounting

system.

(B) STUDY TOPICS- The study required by subparagraph (A) shall include an

examination of–

(i) the extent to which principles-based accounting and financial

reporting exists in the United States;

(ii) the length of time required for change from a rules-based to a

principles-based financial reporting system;

(iii) the feasibility of and proposed methods by which a principles-

based system may be implemented; and

(iv) a thorough economic analysis of the implementation of a

principles-based system.

(2) REPORT- Not later than 1 year after the date of enactment of this Act, the

Commission shall submit a report on the results of the study required by paragraph

(1) to the Committee on Banking, Housing, and Urban Affairs of the Senate and the

Committee

on Financial Services of the House of Representatives.

SEC. 109. FUNDING.

(a) IN GENERAL- The Board, and the standard setting body designated pursuant to section

19(b) of the Securities Act of 1933, as amended by section 108, shall be funded as provided

in this section.

(b) ANNUAL BUDGETS- The Board and the standard setting body referred to in subsection

(a) shall each establish a budget for each fiscal year, which shall be reviewed and approved

according to their respective internal procedures not less than 1 month prior to the

commencement of the fiscal year to which the budget pertains (or at the beginning of the

Board’s first fiscal year, which may be a short fiscal year). The budget of the Board shall be

subject to approval by the Commission. The budget for the first fiscal year of the Board shall

be prepared and approved promptly following the appointment of the initial five Board

members, to permit action by the Board of the organizational tasks contemplated by section

101(d).

(1) RECOVERABLE BUDGET EXPENSES- The budget of the Board (reduced by any

registration or annual fees received under section 102(e) for the year preceding the

year for which the budget is being computed), and all of the budget of the standard

setting body referred to in subsection (a), for each fiscal year of each of those 2

entities, shall be payable from annual accounting support fees, in accordance with

subsections (d) and (e). Accounting support fees and other receipts of the Board and

of such standard-setting body shall not be considered public monies of the United

States.

(2) FUNDS GENERATED FROM THE COLLECTION OF MONETARY PENALTIES-

Subject to the availability in advance in an appropriations Act, and notwithstanding

subsection (i), all funds collected by the Board as a result of the assessment of

monetary penalties shall be used to fund a merit scholarship program for

undergraduate and graduate students enrolled in accredited accounting degree

programs, which program is to be administered by the Board or by an entity or agent

identified by the Board.

(d) ANNUAL ACCOUNTING SUPPORT FEE FOR THE BOARD-

(1) ESTABLISHMENT OF FEE- The Board shall establish, with the approval of the

Commission, a reasonable annual accounting support fee (or a formula for the

computation thereof), as may be necessary or appropriate to establish and maintain

the Board. Such fee may also cover costs incurred in the Board’s first fiscal year

(which may be a short fiscal year), or may be levied separately with respect to such

short fiscal

year.

(2) ASSESSMENTS- The rules of the Board under paragraph (1) shall provide for the

equitable allocation, assessment, and collection by the Board (or an agent appointed

by the Board) of the fee established under paragraph (1), among issuers, in

accordance with subsection (g), allowing for differentiation among classes of

issuers, as appropriate.

(e) ANNUAL ACCOUNTING SUPPORT FEE FOR STANDARD SETTING BODY- The annual

accounting support fee for the standard setting body referred to in subsection (a)–

(1) shall be allocated in accordance with subsection (g), and assessed and collected

against each issuer, on behalf of the standard setting body, by 1 or more appropriate

designated collection agents, as may be necessary or appropriate to pay for the

budget and provide for the expenses of that standard setting body, and to provide for

an independent, stable source of funding for such body, subject to review by the

Commission; and

(2) may differentiate among different classes of issuers.

(f) LIMITATION ON FEE- The amount of fees collected under this section for a fiscal year on

behalf of the Board or the standards setting body, as the case may be, shall not exceed the

recoverable budget expenses of the Board or body, respectively (which may include

operating, capital, and accrued items), referred to in subsection (c)(1).

(g) ALLOCATION OF ACCOUNTING SUPPORT FEES AMONG ISSUERS- Any amount due

from issuers (or a particular class of issuers) under this section to fund the budget of the

Board or the standard setting body referred to in subsection (a) shall be allocated among

and payable by each issuer (or each issuer in a particular class, as applicable) in an amount

equal to the total of such amount, multiplied by a fraction–

(1) the numerator of which is the average monthly equity market capitalization of the

issuer for the 12-month period immediately preceding the beginning of the fiscal year

to which such budget relates; and

(2) the denominator of which is the average monthly equity market capitalization of

all such issuers for such 12-month

period.

(h) CONFORMING AMENDMENTS- Section 13(b)(2) of the Securities Exchange Act of 1934

(15 U.S.C. 78m(b)(2)) is amended–

(1) in subparagraph (A), by striking `and’ at the end; and

(2) in subparagraph (B), by striking the period at the end and inserting

the following:

`; and

`(C) notwithstanding any other provision of law, pay the allocable share of such

issuer of a reasonable annual accounting support fee or fees, determined in

accordance with section 109 of the Sarbanes-Oxley Act of

2002.’.

(i) RULE OF CONSTRUCTION- Nothing in this section shall be construed to render either the

Board, the standard setting body referred to in subsection (a), or both, subject to procedures

in Congress to authorize or appropriate public funds, or to prevent such organization from

utilizing additional sources of revenue for its activities, such as earnings from publication

sales, provided that each additional source of revenue shall not jeopardize, in the judgment

of the Commission, the actual and perceived independence of such organization.

(j) START-UP EXPENSES OF THE BOARD- From the unexpended balances of the

appropriations to the Commission for fiscal year 2003, the Secretary of the Treasury is

authorized to advance to the Board not to exceed the amount necessary to cover the

expenses of the Board during its first fiscal year (which may be a short fiscal year).

TITLE II–AUDITOR INDEPENDENCE

SEC. 201. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.

(a) PROHIBITED ACTIVITIES- Section 10A of the Securities Exchange Act of 1934 (15 U.S.C.

78j-1)

amended by adding at

the

end the following:

`(g) PROHIBITED ACTIVITIES- Except as provided in subsection (h), it shall be unlawful for a

registered public accounting firm (and any associated person of that firm, to the extent

determined appropriate by the Commission) that performs for any issuer any audit required

by this title or the rules of the Commission under this title or, beginning 180 days after the

date of commencement of the operations of the Public Company Accounting Oversight

Board established under section 101 of the Sarbanes-Oxley Act of 2002 (in this section

referred to as the `Board’), the rules of the Board, to provide to that issuer,

contemporaneously with the audit, any non-audit service, including–

`(1) bookkeeping or other services related to the accounting records or financial

statements of the audit client;

`(2) financial information systems design and implementation;

`(3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;

`(4) actuarial services;

`(5) internal audit outsourcing services;

`(6) management functions or human resources;

`(7) broker or dealer, investment adviser, or investment banking services;

`(8) legal services and expert services unrelated to the audit; and

`(9) any other service that the Board determines, by regulation, is impermissible.

`(h) PREAPPROVAL REQUIRED FOR NON-AUDIT SERVICES- A registered public accounting

firm may engage in any non-audit service, including tax services, that is not described in any

of paragraphs (1) through (9) of subsection (g) for an audit client, only if the activity is

approved in advance by the audit committee of the issuer, in accordance with subsection

(i).’.

(b) EXEMPTION AUTHORITY- The Board may, on a case by case basis, exempt any person,

issuer, public accounting firm, or transaction from the prohibition on the provision of

services under section 10A(g) of the Securities Exchange Act of 1934 (as added by this

section), to the extent that such exemption is necessary or appropriate in the public interest

and is consistent with the protection of investors, and subject to review by the Commission

in the same manner as for rules of the Board under section 107.

SEC. 202. PREAPPROVAL REQUIREMENTS.

Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1), as amended by this Act,

is amended

by adding at the end the following:

`(i) PREAPPROVAL REQUIREMENTS-

`(1) IN GENERAL-

`(A) AUDIT COMMITTEE ACTION- All auditing services (which may entail

providing comfort letters in connection with securities underwritings or

statutory audits required for insurance companies for purposes of State law)

and non-audit services, other than as provided in subparagraph (B), provided

to an issuer by the auditor of the issuer shall be preapproved by the audit

committee of the issuer.

`(B) DE MINIMUS EXCEPTION- The preapproval requirement under

subparagraph (A) is waived with respect to the provision of non-audit

services for an issuer, if–

`(i) the aggregate amount of all such non-audit services provided to

the issuer constitutes not more than 5 percent of the total amount of

revenues paid by the issuer to its auditor during the fiscal year in

which the nonaudit services are provided;

`(ii) such services were not recognized by the issuer at the time of the

engagement to be non-audit services; and

`(iii) such services are promptly brought to the attention of the audit

committee of the issuer and approved prior to the completion of the

audit by the audit committee or by 1 or more members of the audit

committee who are members of the board of directors to whom

authority to grant such approvals has been delegated by the audit

committee.

`(2) DISCLOSURE TO INVESTORS- Approval by an audit committee of an issuer

under this subsection of a non-audit service to be performed by the auditor of the

issuer shall be disclosed to investors in periodic reports required by section 13(a).

`(3) DELEGATION AUTHORITY- The audit committee of an issuer may delegate to 1

or more designated members of the audit committee who are independent directors

of the board of directors, the authority to grant preapprovals required by this

subsection. The decisions of any member to whom authority is delegated under this

paragraph to preapprove an activity under this subsection shall be presented to the

full audit committee at each of its scheduled meetings.

`(4) APPROVAL OF AUDIT SERVICES FOR OTHER PURPOSES- In carrying out its

duties under subsection (m)(2), if the audit committee of an issuer approves an audit

service within the scope of the engagement of the auditor, such audit service shall

be deemed to have been preapproved for purposes of this subsection.’.

SEC. 203. AUDIT PARTNER ROTATION.

Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1), as amended by this Act,

is amended by adding at the end the following:

`(j) AUDIT PARTNER ROTATION- It shall be unlawful for a registered public accounting firm

to provide audit services to an issuer if the lead (or coordinating) audit partner (having

primary responsibility for the audit), or the audit partner responsible for reviewing the audit,

has performed audit services for that issuer in each of the 5 previous fiscal years of that

issuer.’.

SEC. 204. AUDITOR REPORTS TO AUDIT COMMITTEES.

Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1), as amended by this Act,

is amended by adding at the end the following:

`(k) REPORTS TO AUDIT COMMITTEES- Each registered public accounting firm that

performs for any issuer any audit required by this title shall timely report to the audit

committee of the issuer–

`(1) all critical accounting policies and practices to be used;

`(2) all alternative treatments of financial information within generally accepted

accounting principles that have been discussed with management officials of the

issuer, ramifications of the use of such alternative disclosures and treatments, and

the treatment preferred by the registered public accounting firm; and

`(3) other material written communications between the registered public accounting

firm and the management of the issuer, such as any management letter or schedule

of unadjusted differences.’.

SEC. 205. CONFORMING AMENDMENTS.

(a) DEFINITIONS- Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is

amended by adding at the end the following:

`(58) AUDIT COMMITTEE- The term `audit committee’ means–

`(A) a committee (or equivalent body) established by and amongst the board

of directors of an issuer for the purpose of overseeing the accounting and

financial reporting processes of the issuer and audits of the financial

statements of the issuer; and

`(B) if no such committee exists with respect to an issuer, the entire board of

directors of the issuer.

`(59) REGISTERED PUBLIC ACCOUNTING FIRM- The term `registered public

accounting firm’ has the same meaning as in section 2 of the Sarbanes-Oxley Act of

2002.’.

(b) AUDITOR REQUIREMENTS- Section 10A of the Securities Exchange Act of 1934 (15

U.S.C. 78j-1) is amended–

(1) by striking `an independent public accountant’ each place that term appears and

inserting `a registered public accounting firm’;

(2) by striking `the independent public accountant’ each place that term appears and

inserting `the registered public accounting firm’;

(3) in subsection (c), by striking `No independent public accountant’ and inserting

`No registered public

accounting firm’; and

(4) in subsection (b)–

(A) by striking `the accountant’ each place that term appears and inserting

`the firm’;

(B) by striking `such accountant’ each place that term appears and inserting

`such firm’; and

report of the firm’.

amended–

(1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by striking `independent public

accountants’ each place that term appears and inserting `a registered public

accounting firm’; and

(2) in subsections (e) and (i) of section 17 (15 U.S.C. 78q), by striking `an independent

public accountant’ each place that term appears and inserting `a registered public

accounting firm’.

(d) CONFORMING AMENDMENT- Section 10A(f) of the Securities Exchange Act of 1934 (15

U.S.C. 78k(f)) is amended–

(1) by striking `DEFINITION’ and inserting `DEFINITIONS’; and

(2) by adding at the end the following: `As used in this section, the term `issuer’

means an issuer (as defined in section 3), the securities of which are registered

under section 12, or that is required to file reports pursuant to section 15(d), or that

files or has filed a registration statement that has not yet become effective under the

Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.’.

SEC. 206. CONFLICTS OF INTEREST.

Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1), as amended by this Act,
is amended by adding at the end the following:

`(l) CONFLICTS OF INTEREST- It shall be unlawful for a registered public accounting firm to

perform for an issuer any audit service required by this title, if a chief executive officer,

controller, chief financial officer, chief accounting officer, or any person serving in an

equivalent position for the issuer, was employed by that registered independent public

accounting firm and participated in any capacity in the audit of that issuer during the 1-year

period preceding the date of the initiation of the audit.’.

SEC. 207. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC ACCOUNTING FIRMS.

(a) STUDY AND REVIEW REQUIRED- The Comptroller General of the United States shall

conduct a study and review of the potential effects of requiring the mandatory rotation of

registered public accounting firms.

(b) REPORT REQUIRED- Not later than 1 year after the date of enactment of this Act, the

Comptroller General shall submit a report to the Committee on Banking, Housing, and Urban

Affairs of the Senate and the Committee on Financial Services of the House of

Representatives on the results of the study and review required by this section.

imposition of a limit on the period of years in which a particular registered public accounting

firm may be the auditor of record for a particular issuer.

SEC. 208. COMMISSION AUTHORITY.

(a) COMMISSION REGULATIONS- Not later than 180 days after the date of enactment of this

Act, the Commission shall issue final regulations to carry out each of subsections (g)

through (l) of section 10A of the Securities Exchange Act of 1934, as added by this title.

(b) AUDITOR INDEPENDENCE- It shall be unlawful for any registered public accounting firm

(or an associated person thereof, as applicable) to prepare or issue any audit report with

respect to any issuer, if the firm or associated person engages in any activity with respect to

that issuer prohibited by any of subsections (g) through (l) of section 10A of the Securities

Exchange Act of 1934, as added by this title, or any rule or regulation of the Commission or

of the Board issued thereunder.

SEC. 209. CONSIDERATIONS BY APPROPRIATE STATE REGULATORY AUTHORITIES.

In supervising nonregistered public accounting firms and their associated persons,

appropriate State regulatory authorities should make an independent determination of the

proper standards applicable, particularly taking into consideration the size and nature of the

business of the accounting firms they supervise and the size and nature of the business of

the clients of those firms. The standards applied by the Board under this Act should not be

presumed to be applicable for purposes of this section for small and medium sized

nonregistered public accounting firms.

TITLE III–CORPORATE RESPONSIBILITY

SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES.

Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by adding at

the end the following:

`(m) STANDARDS RELATING TO AUDIT COMMITTEES-

`(1) COMMISSION RULES-

`(A) IN GENERAL- Effective not later than 270 days after the date of

enactment of this subsection, the Commission shall, by rule, direct the

national securities exchanges and national securities associations to prohibit

the listing of any security of an issuer that is not in compliance with the

requirements of any portion of paragraphs (2) through (6).

`(B) OPPORTUNITY TO CURE DEFECTS- The rules of the Commission under

subparagraph (A) shall provide for appropriate procedures for an issuer to

have an opportunity to cure any defects that would be the basis for a

prohibition under subparagraph (A), before the imposition of such

prohibition.

`(2) RESPONSIBILITIES RELATING TO REGISTERED PUBLIC ACCOUNTING FIRMS-

The audit committee of each issuer, in its capacity as a committee of the board of

directors, shall be directly responsible for the appointment, compensation, and

oversight of the work of any registered public accounting firm employed by that

issuer (including resolution of disagreements between management and the auditor

regarding financial reporting) for the purpose of preparing or issuing an audit report

or related work, and each such registered public accounting firm shall report directly

to the audit committee.

`(3) INDEPENDENCE-

`(A) IN GENERAL- Each member of the audit committee of the issuer shall be

a member of the board of directors of the issuer, and shall otherwise be

independent.

`(B) CRITERIA- In order to be considered to be independent for purposes of

this paragraph, a member of an audit committee of an issuer may not, other

than in his or her capacity as a member of the audit committee, the board of

directors, or any other board committee–

`(i) accept any consulting, advisory, or other compensatory fee from

the issuer; or

`(ii) be an affiliated person of the issuer or any subsidiary thereof.

`(C) EXEMPTION AUTHORITY- The Commission may exempt from the

requirements of subparagraph (B) a particular relationship with respect to

audit committee members, as the Commission determines appropriate in

light of the circumstances.

`(4) COMPLAINTS- Each audit committee shall establish procedures for–

`(A) the receipt, retention, and treatment of complaints received by the issuer

regarding accounting, internal accounting controls, or auditing matters; and

`(B) the confidential, anonymous submission by employees of the issuer of

concerns regarding questionable accounting or auditing matters.

`(5) AUTHORITY TO ENGAGE ADVISERS- Each audit committee shall have the

authority to engage independent counsel and other advisers, as it determines

necessary to carry out its duties.

`(6) FUNDING- Each issuer shall provide for appropriate funding, as determined by

the audit committee, in its capacity as a committee of the board of directors, for

payment of compensation–

`(A) to the registered public accounting firm employed by the issuer for the

purpose of rendering or issuing an audit report; and

`(B) to any advisers employed by the audit committee under paragraph (5).’.

SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

(a) REGULATIONS REQUIRED- The Commission shall, by rule, require, for each company

filing periodic reports under section 13(a) 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;

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) FOREIGN REINCORPORATIONS HAVE NO EFFECT- Nothing in this section 302 shall be

interpreted or applied in any way to allow any issuer to lessen the legal force of the

statement required under this section 302, by an issuer having reincorporated or having

engaged in any other transaction that resulted in the transfer of the corporate domicile or

offices of the issuer from inside the United States to outside of the United States.

after the date of enactment of this Act.

SEC. 303. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.

(a) RULES TO PROHIBIT- It shall be unlawful, in contravention of such rules or regulations

as the Commission shall prescribe as necessary and appropriate in the public interest or for

the protection of investors, for any officer or director of an issuer, or any other person acting

under the direction thereof, to take any action to fraudulently influence, coerce, manipulate,

or mislead any independent public or certified accountant engaged in the performance of an

audit of the financial statements of that issuer for the purpose of rendering such financial

statements materially misleading.

(b) ENFORCEMENT- In any civil proceeding, the Commission shall have exclusive authority

to enforce this section and any rule or regulation issued under this section.

to, and shall not supersede or preempt, any other provision of law or any rule or regulation

issued thereunder.

(d) DEADLINE FOR RULEMAKING- The Commission shall–

(1) propose the rules or regulations required by this section, not later than 90 days

after the date of

enactment of this Act; and

(2) issue final rules or regulations required by this section, not later than 270 days

after that date

of enactment.

SEC. 304. FORFEITURE OF CERTAIN BONUSES AND PROFITS.

(a) ADDITIONAL COMPENSATION PRIOR TO NONCOMPLIANCE WITH COMMISSION

FINANCIAL REPORTING REQUIREMENTS- If an issuer is required to prepare an accounting

restatement due to the material noncompliance of the issuer, as a result of misconduct, with

any financial reporting requirement under the securities laws, the chief executive officer and

chief financial officer of the issuer shall reimburse the issuer for–

(1) any bonus or other incentive-based or equity-based compensation received by

that person from the issuer during the 12-month period following the first public

issuance or filing with the Commission (whichever first occurs) of the financial

document embodying such financial reporting requirement; and

(2) any profits realized from the sale of securities of the issuer during that 12-month

period.

(b) COMMISSION EXEMPTION AUTHORITY- The Commission may exempt any person from

the application of subsection (a), as it deems necessary and appropriate.

SEC. 305. OFFICER AND DIRECTOR BARS AND PENALTIES.

(a) UNFITNESS STANDARD-

(1) SECURITIES EXCHANGE ACT OF 1934- Section 21(d)(2) of the Securities

Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is amended by striking `substantial

unfitness’ and inserting `unfitness’.

(2) SECURITIES ACT OF 1933- Section 20(e) of the Securities Act of 1933 (15 U.S.C.

77t(e)) is amended by striking `substantial unfitness’ and inserting `unfitness’.

(b) EQUITABLE RELIEF- 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:

`(5) EQUITABLE RELIEF- In any action or proceeding brought or instituted by the

Commission under any provision of the securities laws, the Commission may seek, and any

Federal court may grant, any equitable relief that may be appropriate or necessary for the

benefit of investors.’.

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

(a) PROHIBITION OF INSIDER TRADING DURING PENSION FUND BLACKOUT PERIODS-

(1) IN GENERAL- Except to the extent otherwise provided by rule of the Commission

pursuant to paragraph (3), it shall be unlawful for any director or executive officer of

an issuer of any equity security (other than an exempted security), directly or

indirectly, to purchase, sell, or otherwise acquire or transfer any equity security of

the issuer (other than an exempted security) during any blackout period with respect

to such equity security if such director or officer acquires such equity security in

connection with his or her service or employment as a director or executive officer.

(2) REMEDY-

(A) IN GENERAL- Any profit realized by a director or executive officer referred

to in paragraph (1) from any purchase, sale, or other acquisition or transfer in

violation of this subsection shall inure to and be recoverable by the issuer,

irrespective of any intention on the part of such director or executive officer

in entering into the trans

action.

(B) ACTIONS TO RECOVER PROFITS- An action to recover profits in

accordance with this subsection may be instituted at law or in equity in any

court of competent jurisdiction by the issuer, or by the owner of any security

of the issuer in the name and in behalf of the issuer if the issuer fails or

refuses to bring such action within 60 days after the date of request, or fails

diligently to prosecute the action thereafter, except that no such suit shall be

brought more than 2 years after the date on which such profit was realized.

(3) RULEMAKING AUTHORIZED- The Commission shall, in consultation with the

Secretary of Labor, issue rules to clarify the application of this subsection and to

prevent evasion thereof. Such rules shall provide for the application of the

requirements of paragraph (1) with respect to entities treated as a single employer

with respect to an issuer under section 414(b), (c), (m), or (o) of the Internal Revenue

Code of 1986 to the extent necessary to clarify the application of such requirements

and to prevent evasion thereof. Such rules may also provide for appropriate

exceptions from the requirements of this subsection, including exceptions for

purchases pursuant to an automatic dividend reinvestment program or purchases or

sales made pursuant to an advance election.

(4) BLACKOUT PERIOD- For purposes of this subsection, the term `blackout period’,

with respect to the equity securities of any issuer–

(A) means any period of more than 3 consecutive business days during

which the ability of not fewer than 50 percent of the participants or

beneficiaries under all individual account plans maintained by the issuer to

purchase, sell, or otherwise acquire or transfer an interest in any equity of

such issuer held in such an individual account plan is temporarily suspended

by the issuer or by a fiduciary of the plan; and

(B) does not include, under regulations which shall be prescribed by the

Commission–

(i) a regularly scheduled period in which the participants and

beneficiaries may not purchase, sell, or otherwise acquire or transfer

an interest in any equity of such issuer, if such period is–

(I) incorporated into the individual account plan; and

(II) timely disclosed to employees before becoming

participants under 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

individual account plan by reason of a corporate merger, acquisition,

divestiture, or similar transaction involving the plan or plan sponsor.

(5) INDIVIDUAL ACCOUNT PLAN- For purposes of this subsection, the term

`individual account plan’ has the meaning provided in section 3(34) of the Employee

Retirement Income Security Act of 1974 (29 U.S.C. 1002(34), except that such term

shall not include a one-participant retirement plan (within the meaning of section

101(i)(8)(B) of such Act (29 U.S.C. 1021(i)(8)(B))).

(6) NOTICE TO DIRECTORS, EXECUTIVE OFFICERS, AND THE COMMISSION- In any

case in which a director or executive officer is subject to the requirements of this

subsection in connection with a blackout period (as defined in paragraph (4)) with

respect to any equity securities, the issuer of such equity securities shall timely

notify such director or officer and the Securities and Exchange Commission of such

blackout period.

(b) NOTICE REQUIREMENTS TO PARTICIPANTS AND BENEFICIARIES UNDER ERISA-

(1) IN GENERAL- Section 101 of the Employee Retirement Income Security Act of

1974 (29 U.S.C. 1021) is amended by redesignating the second subsection (h) as

subsection (j), and by inserting after the first subsection (h) the following new

subsection:

`(i) NOTICE OF BLACKOUT PERIODS TO PARTICIPANT OR BENEFICIARY UNDER

INDIVIDUAL ACCOUNT PLAN-

`(1) DUTIES OF PLAN ADMINISTRATOR- In advance of the commencement of any

blackout period with respect to an individual account plan, the plan administrator

shall notify the plan participants and beneficiaries who are affected by such action in

accordance with this subsection.

`(2) NOTICE REQUIREMENTS-

`(A) IN GENERAL- The notices described in paragraph (1) shall be written in a

manner calculated to be understood by the average plan participant and shall

include–

`(i) the reasons for the blackout period,

`(ii) an identification of the investments and other rights affected,

`(iii) the expected beginning date and length of the blackout period,

`(iv) in the case of investments affected, a statement that the

participant or beneficiary should evaluate the appropriateness of their

current investment decisions in light of their inability to direct or

diversify assets credited to their accounts during the blackout period,

and

`(v) such other matters as the Secretary may require by regulation.

`(B) NOTICE TO PARTICIPANTS AND BENEFICIARIES- Except as otherwise

provided in this subsection, notices described in paragraph (1) shall be

furnished to all participants and beneficiaries under the plan to whom the

blackout period applies at least 30 days in advance of the blackout period.

`(C) EXCEPTION TO 30-DAY NOTICE REQUIREMENT- In any case in which–

`(i) a deferral of the blackout period would violate the requirements of

subparagraph (A) or (B) of section 404(a)(1), and a fiduciary of the

plan reasonably so determines in writing, or

`(ii) the inability to provide the 30-day advance notice is due to events

that were unforeseeable or circumstances beyond the reasonable

control of the plan administrator, and a fiduciary of the plan

reasonably so determines in writing,

subparagraph (B) shall not apply, and the notice shall be furnished to all

participants and beneficiaries under the plan to whom the blackout period

applies as soon as reasonably possible under the circumstances unless such

a notice in advance of the termination of the blackout period is impracticable.

`(D) WRITTEN NOTICE- The notice required to be provided under this

subsection shall be in writing, except that such notice may be in electronic or

other form to the extent that such form is reasonably accessible to the

recipient.

`(E) NOTICE TO ISSUERS OF EMPLOYER SECURITIES SUBJECT TO

BLACKOUT PERIOD- In the case of any blackout period in connection with an

individual account plan, the plan administrator shall provide timely notice of

such blackout period to the issuer of any employer securities subject to such

blackout period.

`(3) EXCEPTION FOR BLACKOUT PERIODS WITH LIMITED APPLICABILITY- In any

case in which the blackout period applies only to 1 or more participants or

beneficiaries in connection with a merger, acquisition, divestiture, or similar

transaction involving the plan or plan sponsor and occurs solely in connection with

becoming or ceasing to be a participant or beneficiary under the plan by reason of

such merger, acquisition, divestiture, or transaction, the requirement of this

subsection that the notice be provided to all participants and beneficiaries shall be

treated as met if the notice required under paragraph (1) is provided to such

participants or beneficiaries to whom the blackout period applies as soon as

reasonably practicable.

`(4) CHANGES IN LENGTH OF BLACKOUT PERIOD- If, following the furnishing of the

notice pursuant to this subsection, there is a change in the beginning date or length

of the blackout period (specified in such notice pursuant to paragraph (2)(A)(iii)), the

administrator shall provide affected participants and beneficiaries notice of the

change as soon as reasonably practicable. In relation to the extended blackout

period, such notice shall meet the requirements of paragraph (2)(D) and shall specify

any material change in the matters referred to in clauses (i) through (v) of paragraph

(2)(A).

`(5) REGULATORY EXCEPTIONS- The Secretary may provide by regulation for

additional exceptions to the requirements of this subsection which the Secretary

determines are in the interests of participants and beneficiaries.

`(6) GUIDANCE AND MODEL NOTICES- The Secretary shall issue guidance and

model notices which meet the requirements of this subsection.

`(7) BLACKOUT PERIOD- For purposes of this subsection–

`(A) IN GENERAL- The term `blackout period’ means, in connection with an

individual account plan, any period for which any ability of participants or

beneficiaries under the plan, which is otherwise available under the terms of

such plan, to direct or diversify assets credited to their accounts, to obtain

loans from the plan, or to obtain distributions from the plan is temporarily

suspended, limited, or restricted, if such suspension, limitation, or restriction

is for any period of more than 3 consecutive business days.

`(B) EXCLUSIONS- The term `blackout period’ does not include a suspension,

limitation, or restriction–

`(i) which occurs by reason of the application of the securities laws

(as defined in section 3(a)(47) of the Securities Exchange Act of 1934),

`(ii) which is a change to the plan which provides for a regularly

scheduled suspension, limitation, or restriction which is disclosed to

participants or beneficiaries through any summary of material

modifications, any materials describing specific investment

alternatives under the plan, or any changes thereto, or

`(iii) which applies only to 1 or more individuals, each of whom is the

participant, an alternate payee (as defined in section 206(d)(3)(K)), or

any other beneficiary pursuant to a qualified domestic relations order

(as defined in section 206(d)(3)(B)(i)).

`(8) INDIVIDUAL ACCOUNT PLAN-

`(A) IN GENERAL- For purposes of this subsection, the term `individual

account plan’ shall have the meaning provided such term in section 3(34),

except that such term shall not include a one-participant retirement plan.

`(B) ONE-PARTICIPANT RETIREMENT PLAN- For purposes of subparagraph

(A), the term `one-participant retirement plan’ means a retirement plan that–

`(i) on the first day of the plan year–

`(I) covered only the employer (and the employer’s spouse)

and the employer owned the entire business (whether or not

incorporated), or

`(II) covered only one or more partners (and their spouses) in a

business partnership (including partners in an S or C

corporation (as defined in section 1361(a) of the Internal

Revenue Code of 1986)),

`(ii) meets the minimum coverage requirements of section 410(b) of

the Internal Revenue Code of 1986 (as in effect on the date of the

enactment of this paragraph) without being combined with any other

plan of the business that covers the employees of the business,

`(iii) does not provide benefits to anyone except the employer (and the

employer’s spouse) or the partners (and their spouses),

`(iv) does not cover a business that is a member of an affiliated

service group, a controlled group of corporations, or a group of

businesses under common control, and

`(v) does not cover a business that leases employees.’.

(2) ISSUANCE OF INITIAL GUIDANCE AND MODEL NOTICE- The Secretary of Labor

shall issue initial guidance and a model notice pursuant to section 101(i)(6) of the

Employee Retirement Income Security Act of 1974 (as added by this subsection) not

later than January 1, 2003. Not later than 75 days after the date of the enactment of

this Act, the Secretary shall promulgate interim final rules necessary to carry out the

amendments made by this subsection.

(3) CIVIL PENALTIES FOR FAILURE TO PROVIDE NOTICE- Section 502 of such Act

(29 U.S.C. 1132) is amended–

(A) in subsection (a)(6), by striking `(5), or (6)’ and inserting `(5), (6), or (7)’;

(B) by redesignating paragraph (7) of subsection (c) as paragraph (8); and

paragraph:

`(7) The Secretary may assess a civil penalty against a plan administrator of up to $100 a day

from the date of the plan administrator’s failure or refusal to provide notice to participants

and beneficiaries in accordance with section 101(i). For purposes of this paragraph, each

violation with respect to any single participant or beneficiary shall be treated as a separate

violation.’.

(3) PLAN AMENDMENTS- If any amendment made by this subsection requires an

amendment to any plan, such plan amendment shall not be required to be made

before the first plan year beginning on or after the effective date of this section, if–

(A) during the period after such amendment made by this subsection takes

effect and before such first plan year, the plan is operated in good faith

compliance with the requirements of such amendment made by this

subsection, and

(B) such plan amendment applies retroactively to the period after such

amendment made by this subsection takes effect and before such first plan

year.

thereby) shall take effect 180 days after the date of the enactment of this Act. Good faith

compliance with the requirements of such provisions in advance of the issuance of

applicable regulations thereunder shall be treated as compliance with such provisions.

SEC. 307. RULES OF PROFESSIONAL RESPONSIBILITY FOR ATTORNEYS.

Not later than 180 days after the date of enactment of this Act, the Commission shall issue

rules, in the public interest and for the protection of investors, setting forth minimum

standards of professional conduct for attorneys appearing and practicing before the

Commission in any way in the representation of issuers, including a rule–

(1) requiring an attorney to report evidence of a material violation of securities law or

breach of fiduciary duty or similar violation by the company or any agent thereof, to

the chief legal counsel or the chief executive officer of the company (or the

equivalent thereof); and

(2) if the counsel or officer does not appropriately respond to the evidence (adopting,

as necessary, appropriate remedial measures or sanctions with respect to the

violation), requiring the attorney to report the evidence to the audit committee of the

board of directors of the issuer or to another committee of the board of directors

comprised solely of directors not employed directly or indirectly by the issuer, or to

the board of directors.

SEC. 308. FAIR FUNDS FOR INVESTORS.

(a) CIVIL PENALTIES ADDED TO DISGORGEMENT FUNDS FOR THE RELIEF OF VICTIMS- If

in any judicial or administrative action brought by the Commission under the securities laws

(as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C.

78c(a)(47)) the Commission obtains an order requiring disgorgement against any person for

a violation of such laws or the rules or regulations thereunder, or such person agrees in

settlement of any such action to such disgorgement, and the Commission also obtains

pursuant to such laws a civil penalty against such person, the amount of such civil penalty

shall, on the motion or at the direction of the Commission, be added to and become part of

the disgorgement fund for the benefit of the victims of such violation.

(b) 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 a disgorgement fund described in subsection (a). Such 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 (a).

(1) SUBJECT OF STUDY- The Commission shall review and analyze–

(A) enforcement actions by the Commission over the five years preceding the

date of the enactment of this Act that have included proceedings to obtain

civil penalties or disgorgements to identify areas where such proceedings

may be utilized to efficiently, effectively, and fairly provide restitution for

injured investors; and

(B) other methods to more efficiently, effectively, and fairly provide restitution

to injured investors, including methods to improve the collection rates for

civil penalties and disgorgements.

(2) 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 after of the date

of the 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 actions that are recommended or that may be necessary to address

concerns identified in the study.

(d) CONFORMING AMENDMENTS- Each of the following provisions is amended by inserting

`, except as otherwise provided in section 308 of the Sarbanes-Oxley Act of 2002′ after

`Treasury of the United States’:

(1) Section 21(d)(3)(C)(i) of the Securities Exchange Act of 1934 (15 U.S.C.

78u(d)(3)(C)(i)).

(2) Section 21A(d)(1) of such Act (15 U.S.C. 78u-1(d)(1)).

(3) Section 20(d)(3)(A) of the Securities Act of 1933 (15 U.S.C. 77t(d)(3)(A)).

(4) Section 42(e)(3)(A) of the Investment Company Act of 1940 (15 U.S.C. 80a-

41(e)(3)(A)).

(5) Section 209(e)(3)(A) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-

9(e)(3)(A)).

(e) DEFINITION- As used in this section, the term `disgorgement fund’ means a fund

established in any administrative or judicial proceeding described in subsection (a).

TITLE IV–ENHANCED FINANCIAL DISCLOSURES

SEC. 401. DISCLOSURES IN PERIODIC REPORTS.

(a) DISCLOSURES REQUIRED- Section 13 of the Securities Exchange Act of 1934 (15 U.S.C.

78m) is amended by adding at the end the following:

`(i) ACCURACY OF FINANCIAL REPORTS- Each financial report that contains financial

statements, and that is required to be prepared in accordance with (or reconciled to)

generally accepted accounting principles under this title and filed with the Commission shall

reflect all material correcting adjustments that have been identified by a registered public

accounting firm in accordance with generally accepted accounting principles and the rules

and regulations of the Commission.

`(j) OFF-BALANCE SHEET TRANSACTIONS- Not later than 180 days after the date of

enactment of the Sarbanes-Oxley Act of 2002, the Commission shall issue final rules

providing that each annual and quarterly financial report required to be filed with the

Commission shall disclose all material off-balance sheet transactions, arrangements,

obligations (including contingent obligations), and other relationships of the issuer with

unconsolidated entities or other persons, that may have a material current or future effect on

financial condition, changes in financial condition, results of operations, liquidity, capital

expenditures, capital resources, or significant components of revenues or expenses.’.

(b) COMMISSION RULES ON PRO FORMA FIGURES- Not later than 180 days after the date of

enactment of the Sarbanes-Oxley Act fo 2002, the Commission shall issue final rules

providing that pro forma financial information included in any periodic or other report filed

with the Commission pursuant to the securities laws, or in any public disclosure or press or

other release, shall be presented in a manner that–

(1) does not contain an untrue statement of a material fact or omit to state a material

fact necessary in order to make the pro forma financial information, in light of the

circumstances under which it is presented, not misleading; and

(2) reconciles it with the financial condition and results of operations of the issuer

under generally accepted accounting principles.

(1) STUDY REQUIRED- The Commission shall, not later than 1 year after the effective

date of adoption of off-balance sheet disclosure rules required by section 13(j) of the

Securities Exchange Act of 1934, as added by this section, complete a study of

filings by issuers and their disclosures to determine–

(A) the extent of off-balance sheet transactions, including assets, liabilities,

leases, losses, and the use of special purpose entities; and

(B) whether generally accepted accounting rules result in financial

statements of issuers reflecting the economics of such off-balance sheet

transactions to investors in a transparent fashion.

(2) REPORT AND RECOMMENDATIONS- Not later than 6 months after the date of

completion of the study required by paragraph (1), the Commission shall submit a

report to the President, the Committee on Banking, Housing, and Urban Affairs of the

Senate, and the Committee on Financial Services of the House of Representatives,

setting forth–

(A) the amount or an estimate of the amount of off-balance sheet

transactions, including assets, liabilities, leases, and losses of, and the use

of special purpose entities by, issuers filing periodic reports pursuant to

section 13 or 15 of the Securities Exchange Act of 1934;

(B) the extent to which special purpose entities are used to facilitate off-

balance sheet transactions;

Commission result in financial statements of issuers reflecting the

economics of such transactions to investors in a transparent fashion;

(D) whether generally accepted accounting principles specifically result in the

consolidation of special purpose entities sponsored by an issuer in cases in

which the issuer has the majority of the risks and rewards of the special

purpose entity; and

(E) any recommendations of the Commission for improving the transparency

and quality of reporting off-balance sheet transactions in the financial

statements and disclosures required to be filed by an issuer with the

Commission.

SEC. 402. ENHANCED CONFLICT OF INTEREST PROVISIONS.

(a) PROHIBITION ON PERSONAL LOANS TO EXECUTIVES- Section 13 of the Securities

Exchange Act of 1934 (15 U.S.C. 78m), as amended by this Act, is amended by adding at the

end the following:

`(k) PROHIBITION ON PERSONAL LOANS TO EXECUTIVES-

`(1) IN GENERAL- It shall be unlawful for any issuer (as defined in section 2 of the

Sarbanes-Oxley Act of 2002), directly or indirectly, including through any subsidiary,

to extend or maintain credit, to arrange for the extension of credit, or to renew an

extension of credit, in the form of a personal loan to or for any director or executive

officer (or equivalent thereof) of that issuer. An extension of credit maintained by the

issuer on the date of enactment of this subsection shall not be subject to the

provisions of this subsection, provided that there is no material modification to any

term of any such extension of credit or any renewal of any such extension of credit

on or after that date of enactment.

`(2) LIMITATION- Paragraph (1) does not preclude any home improvement and

manufactured home loans (as that term is defined in section 5 of the Home Owners’

Loan Act (12 U.S.C. 1464)), consumer credit (as defined in section 103 of the Truth in

Lending Act (15 U.S.C. 1602)), or any extension of credit under an open end credit

plan (as defined in section 103 of the Truth in Lending Act (15 U.S.C. 1602)), or a

charge card (as defined in section 127(c)(4)(e) of the Truth in Lending Act (15 U.S.C.

1637(c)(4)(e)), or any extension of credit by a broker or dealer registered under

section 15 of this title to an employee of that broker or dealer to buy, trade, or carry

securities, that is permitted under rules or regulations of the Board of Governors of

the Federal Reserve System pursuant to section 7 of this title (other than an

extension of credit that would be used to purchase the stock of that issuer), that is–

`(A) made or provided in the ordinary course of the consumer credit business

of such issuer;

`(B) of a type that is generally made available by such issuer to the public;

and

`(C) made by such issuer on market terms, or terms that are no more

favorable than those offered by the issuer to the general public for such

extensions of credit.

`(3) RULE OF CONSTRUCTION FOR CERTAIN LOANS- Paragraph (1) does not apply

to any loan made or maintained by an insured depository institution (as defined in

section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)), if the loan is subject

to the insider lending restrictions of section 22(h) of the Federal Reserve Act (12

U.S.C. 375b).’.

SEC. 403. DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND PRINCIPAL

STOCKHOLDERS.

(a) AMENDMENT- Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) is

amended by striking the heading of such section and subsection (a) and inserting the

following:

`SEC. 16. DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS.

`(a) DISCLOSURES REQUIRED-

`(1) DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS REQUIRED TO FILE-

Every 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 pursuant to section 12, or who is a director or an officer of the issuer of

such security, shall file the statements required by this subsection with the

Commission (and, if such security is registered on a national securities exchange,

also with the exchange).

`(2) TIME OF FILING- The statements required by this subsection shall be filed–

`(A) at the time of the registration of such security on a national securities

exchange or by the effective date of a registration statement filed pursuant to

section 12(g);

`(B) within 10 days after he or she becomes such beneficial owner, director,

or officer;

`(C) if there has been a change in such ownership, or if such person shall

have purchased or sold a security-based swap agreement (as defined in

section 206(b) of the Gramm-Leach-Bliley Act (15 U.S.C. 78c note)) involving

such equity security, before the end of the second business day following the

day on which the subject transaction has been executed, or at such other

time as the Commission shall establish, by rule, in any case in which the

Commission determines that such 2-day period is not feasible.

`(3) CONTENTS OF STATEMENTS- A statement filed–

`(A) under subparagraph (A) or (B) of paragraph (2) shall contain a statement

of the amount of all equity securities of such issuer of which the filing person

is the beneficial owner; and

`(B) under subparagraph (C) of such paragraph shall indicate ownership by

the filing person at the date of filing, any such changes in such ownership,

and such purchases and sales of the security-based swap agreements as

have occurred since the most recent such filing under such subparagraph.

`(4) ELECTRONIC FILING AND AVAILABILITY- Beginning not later than 1 year after

the date of enactment of the Sarbanes-Oxley Act of 2002–

`(A) a statement filed under subparagraph (C) of paragraph (2) shall be filed

electronically;

`(B) the Commission shall provide each such statement on a publicly

accessible Internet site not later than the end of the business day following

that filing; and

`(C) the issuer (if the issuer maintains a corporate website) shall provide that

statement on that corporate website, not later than the end of the business

day following that filing.’.

(b) EFFECTIVE DATE- The amendment made by this section shall be effective 30 days after

the date of the enactment of this Act.

SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS.

(a) RULES REQUIRED- The Commission shall prescribe rules requiring each annual report

required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or

78o(d)) to contain an internal control report, which shall–

(1) state the responsibility of management for establishing and maintaining an

adequate internal control structure and procedures for financial reporting; and

(2) contain an assessment, as of the end of the most recent fiscal year of the issuer,

of the effectiveness of the internal control structure and procedures of the issuer for

financial reporting.

(b) INTERNAL CONTROL EVALUATION AND REPORTING- With respect to the internal

control assessment required by subsection (a), each registered public accounting firm that

prepares or issues the audit report for the issuer shall attest to, and report on, the

assessment made by the management of the issuer. An attestation made under this

subsection shall be made in accordance with standards for attestation engagements issued

or adopted by the Board. Any such attestation shall not be the subject of a separate

engagement.

SEC. 405. EXEMPTION.

Nothing in section 401, 402, or 404, the amendments made by those sections, or the rules of

the Commission under those sections shall apply to any investment company registered

under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8).

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

(a) CODE OF ETHICS DISCLOSURE- The Commission shall issue rules to require each

issuer, together with periodic reports required pursuant to section 13(a) or 15(d) of the

Securities Exchange Act of 1934, to disclose whether or not, and if not, the reason therefor,

such issuer has adopted a code of ethics for senior financial officers, applicable to its

principal financial officer and comptroller or principal accounting officer, or persons

performing similar functions.

(b) CHANGES IN CODES OF ETHICS- The Commission shall revise its regulations

concerning matters requiring prompt disclosure on Form 8-K (or any successor thereto) to

require the immediate disclosure, by means of the filing of such form, dissemination by the

Internet or by other electronic means, by any issuer of any change in or waiver of the code of

ethics for senior financial officers.

reasonably necessary to promote–

(1) honest and ethical conduct, including the ethical handling of actual or apparent

conflicts of interest between personal and professional relationships;

(2) full, fair, accurate, timely, and understandable disclosure in the periodic reports

required to be filed by the issuer; and

(3) compliance with applicable governmental rules and regulations.

(d) DEADLINE FOR RULEMAKING- The Commission shall–

(1) propose rules to implement this section, not later than 90 days after the date of

enactment of this Act; and

(2) issue final rules to implement this section, not later than 180 days after that date

of enactment.

SEC. 407. DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT.

(a) RULES DEFINING `FINANCIAL EXPERT’- The Commission shall issue rules, as necessary

or appropriate in the public interest and consistent with the protection of investors, to

require each issuer, together with periodic reports required pursuant to sections 13(a) and

15(d) of the Securities Exchange Act of 1934, to disclose whether or not, and if not, the

reasons therefor, the audit committee of that issuer is comprised of at least 1 member who is

a financial expert, as such term is defined by the Commission.

(b) CONSIDERATIONS- In defining the term `financial expert’ for purposes of subsection (a),

the Commission shall consider whether a person has, through education and experience as

a public accountant or auditor or a principal financial officer, comptroller, or principal

accounting officer of an issuer, or from a position involving the performance of similar

functions–

(1) an understanding of generally accepted accounting principles and financial

statements;

(2) experience in–

(A) the preparation or auditing of financial statements of generally

comparable issuers; and

(B) the application of such principles in connection with the accounting for

estimates, accruals, and reserves;

(3) experience with internal accounting controls; and

(4) an understanding of audit committee functions.

(1) propose rules to implement this section, not later than 90 days after the date of
enactment of this Act; and
(2) issue final rules to implement this section, not later than 180 days after that date
of enactment.

SEC. 408. ENHANCED REVIEW OF PERIODIC DISCLOSURES BY ISSUERS.

(a) REGULAR AND SYSTEMATIC REVIEW- The Commission shall review disclosures made

by issuers reporting under section 13(a) of the Securities Exchange Act of 1934 (including

reports filed on Form 10-K), and which have a class of securities listed on a national

securities exchange or traded on an automated quotation facility of a national securities

association, on a regular and systematic basis for the protection of investors. Such review

shall include a review of an issuer’s financial statement.

(b) REVIEW CRITERIA- For purposes of scheduling the reviews required by subsection (a),

the Commission shall consider, among other factors–

(1) issuers that have issued material restatements of financial results;

(2) issuers that experience significant volatility in their stock price as compared to

other issuers;

(3) issuers with the largest market capitalization;

(4) emerging companies with disparities in price to earning ratios;

(5) issuers whose operations significantly affect any material sector of the economy;

and

(6) any other factors that the Commission may consider relevant.

section 13(a) or 15(d) of the Securities Exchange Act of 1934 be reviewed under this section

less frequently than once every 3 years.

SEC. 409. REAL TIME ISSUER DISCLOSURES.

Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as amended by this Act,

is amended by adding at the end the following:

`(l) REAL TIME ISSUER DISCLOSURES- Each issuer reporting under section 13(a) or 15(d)

shall disclose to the public on a rapid and current basis such additional information

concerning material changes in the financial condition or operations of the issuer, in plain

English, which may include trend and qualitative information and graphic presentations, as

the Commission determines, by rule, is necessary or useful for the protection of investors

and in the public interest.’.

TITLE V–ANALYST CONFLICTS OF INTEREST

SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED SECURITIES ASSOCIATIONS AND

NATIONAL SECURITIES EXCHANGES.

(a) RULES REGARDING SECURITIES ANALYSTS- The Securities Exchange Act of 1934 (15

U.S.C. 78a et seq.) is amended by inserting after section 15C the following new section:

`SEC. 15D. SECURITIES ANALYSTS AND RESEARCH REPORTS.

`(a) ANALYST PROTECTIONS- The Commission, or upon the authorization and direction of

the Commission, a registered securities association or national securities exchange, shall

have adopted, not later than 1 year after the date of enactment of this section, rules

reasonably designed to address conflicts of interest that can arise when securities analysts

recommend equity securities in research reports and public appearances, in order to

improve the objectivity of research and provide investors with more useful and reliable

information, including rules designed–

`(1) to foster greater public confidence in securities research, and to protect the

objectivity and independence of securities analysts, by–

`(A) restricting the prepublication clearance or approval of research reports

by persons employed by the broker or dealer who are engaged in investment

banking activities, or persons not directly responsible for investment

research, other than legal or compliance staff;

`(B) limiting the supervision and compensatory evaluation of securities

analysts to officials employed by the broker or dealer who are not engaged in

investment banking activities; and

`(C) requiring that a broker or dealer and persons employed by a broker or

dealer who are involved with investment banking activities may not, directly

or indirectly, retaliate against or threaten to retaliate against any securities

analyst employed by that broker or dealer or its affiliates as a result of an

adverse, negative, or otherwise unfavorable research report that may

adversely affect the present or prospective investment banking relationship

of the broker or dealer with the issuer that is the subject of the research

report, except that such rules may not limit the authority of a broker or dealer

to discipline a securities analyst for causes other than such research report

in accordance with the policies and procedures of the firm;

`(2) to define periods during which brokers or dealers who have participated, or are

to participate, in a public offering of securities as underwriters or dealers should not

publish or otherwise distribute research reports relating to such securities or to the

issuer of such securities;

`(3) to establish structural and institutional safeguards within registered brokers or

dealers to assure that securities analysts are separated by appropriate informational

partitions within the firm from the review, pressure, or oversight of those whose

involvement in investment banking activities might potentially bias their judgment or

supervision; and

`(4) to address such other issues as the Commission, or such association or

exchange, determines appropriate.

`(b) DISCLOSURE- The Commission, or upon the authorization and direction of the

Commission, a registered securities association or national securities exchange, shall have

adopted, not later than 1 year after the date of enactment of this section, rules reasonably

designed to require each securities analyst to disclose in public appearances, and each

registered broker or dealer to disclose in each research report, as applicable, conflicts of

interest that are known or should have been known by the securities analyst or the broker or

dealer, to exist at the time of the appearance or the date of distribution of the report,

including–

`(1) the extent to which the securities analyst has debt or equity investments in the

issuer that is the subject of the appearance or research report;

`(2) whether any compensation has been received by the registered broker or dealer,

or any affiliate thereof, including the securities analyst, from the issuer that is the

subject of the appearance or research report, subject to such exemptions as the

Commission may determine appropriate and necessary to prevent disclosure by

virtue of this paragraph of material non-public information regarding specific

potential future investment banking transactions of such issuer, as is appropriate in

the public interest and consistent with the protection of investors;

`(3) whether an issuer, the securities of which are recommended in the appearance or

research report, currently is, or during the 1-year period preceding the date of the

appearance or date of distribution of the report has been, a client of the registered

broker or dealer, and if so, stating the types of services provided to the issuer;

`(4) whether the securities analyst received compensation with respect to a research

report, based upon (among any other factors) the investment banking revenues

(either generally or specifically earned from the issuer being analyzed) of the

registered broker or dealer; and

`(5) such other disclosures of conflicts of interest that are material to investors,

research analysts, or the broker or dealer as the Commission, or such association or

exchange, determines appropriate.

`(c) DEFINITIONS- In this section–

`(1) the term `securities analyst’ means any associated person of a registered broker

or dealer that is principally responsible for, and any associated person who reports

directly or indirectly to a securities analyst in connection with, the preparation of the

substance of a research report, whether or not any such person has the job title of

`securities analyst’; and

`(2) the term `research report’ means a written or electronic communication that

includes an analysis of equity securities of individual companies or industries, and

that provides information reasonably sufficient upon which to base an investment

decision.’.

(b) ENFORCEMENT- Section 21B(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-

2(a)) is amended by inserting `15D,’ before `15B’.

or direct a registered securities association or national securities exchange to promulgate

and amend its rules, to carry out section 15D of the Securities Exchange Act of 1934, as

added by this section, as is necessary for the protection of investors and in the public

interest.

TITLE VI–COMMISSION RESOURCES AND AUTHORITY

SEC. 601. AUTHORIZATION OF APPROPRIATIONS.

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

follows:

`SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

`In addition to any other funds authorized to be appropriated to the Commission, there are

authorized to be appropriated to carry out the functions, powers, and duties of the

Commission, $776,000,000 for fiscal year 2003, of which–

`(1) $102,700,000 shall be available to fund additional compensation, including

salaries and benefits, as authorized in the Investor and Capital Markets Fee Relief Act

(Public Law 107-123; 115 Stat. 2390 et seq.);

`(2) $108,400,000 shall be available for information technology, security

enhancements, and recovery and mitigation activities in light of the terrorist attacks

of September 11, 2001; and

`(3) $98,000,000 shall be available to add not fewer than an additional 200 qualified

professionals to provide enhanced oversight of auditors and audit services required

by the Federal securities laws, and to improve Commission investigative and

disciplinary efforts with respect to such auditors and services, as well as for

additional professional support staff necessary to strengthen the programs of the

Commission involving Full Disclosure and Prevention and Suppression of Fraud, risk

management, industry technology review, compliance, inspections, examinations,

market regulation, and investment management.’.

SEC. 602. APPEARANCE AND PRACTICE BEFORE THE COMMISSION.

The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after

section 4B the following:

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

`(a) AUTHORITY TO CENSURE- The Commission may censure any person, or deny,

temporarily or permanently, to any person the privilege of appearing or practicing before the

Commission in any way, if that person is found by the Commission, after notice and

opportunity for hearing in the matter–

`(1) not to possess the requisite qualifications to represent others;

`(2) to be lacking in character or integrity, or to have engaged in unethical or

improper professional conduct; or

`(3) to have willfully violated, or willfully aided and abetted the violation of, any

provision of the securities laws or the rules and regulations issued thereunder.

`(b) DEFINITION- With respect to any registered public accounting firm or associated person,

for purposes of this section, the term `improper professional conduct’ means–

`(1) intentional or knowing conduct, including reckless conduct, that results in a

violation of applicable professional standards; and

`(2) negligent conduct in the form of–

`(A) a single instance of highly unreasonable conduct that results in a

violation of applicable professional standards in circumstances in which the

registered public accounting firm or associated person knows, or should

know, that heightened scrutiny is warranted; or

`(B) repeated instances of unreasonable conduct, each resulting in a violation

of applicable professional standards, that indicate a lack of competence to

practice before the Commission.’.

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

(a) Securities Exchange Act of 1934- Section 21(d) of the Securities Exchange Act of 1934 (15

U.S.C. 78u(d)), as amended by this Act, is amended by adding at the end the following:

`(6) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM PARTICIPATING IN AN

OFFERING OF PENNY STOCK-

`(A) IN GENERAL- In any proceeding under paragraph (1) against any person

participating in, or, at the time of the alleged misconduct who was participating in, an

offering of penny stock, the court may prohibit that person from participating in an

offering of penny stock, conditionally or unconditionally, and permanently or for

such period of time as the court shall determine.

`(B) DEFINITION- For purposes of this paragraph, the term `person participating in an

offering of penny stock’ includes any person engaging in activities with a broker,

dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce

the purchase or sale of, any penny stock. The Commission may, by rule or

regulation, define such term to include other activities, and may, by rule, regulation,

or order, exempt any person or class of persons, in whole or in part, conditionally or

unconditionally, from inclusion in such term.’.

(b) Securities Act of 1933- Section 20 of the Securities Act of 1933 (15 U.S.C. 77t) is amended

by adding at the end the following:

`(g) AUTHORITY OF A COURT TO PROHIBIT PERSONS FROM PARTICIPATING IN AN

OFFERING OF PENNY STOCK-

`(1) IN GENERAL- In any proceeding under subsection (a) against any person

participating in, or, at the time of the alleged misconduct, who was participating in,

an offering of penny stock, the court may prohibit that person from participating in

an offering of penny stock, conditionally or unconditionally, and permanently or for

such period of time as the court shall determine.

`(2) DEFINITION- For purposes of this subsection, the term `person participating in

an offering of penny stock’ includes any person engaging in activities with a broker,

dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce
the purchase or sale of, any penny stock. The Commission may, by rule or
regulation, define such term to include other activities, and may, by rule, regulation,
or order, exempt any person or class of persons, in whole or in part, conditionally or
unconditionally, from inclusion in such term.’.

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

(a) BROKERS AND DEALERS- Section 15(b)(4) of the Securities Exchange Act of 1934 (15

U.S.C. 78o) is amended–

(1) by striking subparagraph (F) and inserting the following:

`(F) is subject to any order of the Commission barring or suspending the right of the

person to be associated with a broker or dealer;’; and

(2) in subparagraph (G), by striking the period at the end and inserting the following:

`; or

`(H) is subject to any final order of a State securities commission (or any agency or

officer performing like functions), State authority that supervises or examines banks,

savings associations, or credit unions, State insurance commission (or any agency

or office performing like functions), an appropriate Federal banking agency (as

defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or the

National Credit Union Administration, that–

`(i) bars such person from association with an entity regulated by such

commission, authority, agency, or officer, or from engaging in the business

of securities, insurance, banking, savings association activities, or credit

union activities; or

`(ii) constitutes a final order based on violations of any laws or regulations

that prohibit fraudulent, manipulative, or deceptive conduct.’.

(b) INVESTMENT ADVISERS- Section 203(e) of the Investment Advisers Act of 1940 (15

U.S.C. 80b-3(e)) is amended–

(1) by striking paragraph (7) and inserting the following:

`(7) is subject to any order of the Commission barring or suspending the right of the

person to be associated with an investment adviser;’;

(2) in paragraph (8), by striking the period at the end and inserting `; or’; and

(3) by adding at the end the following:

`(9) is subject to any final order of a State securities commission (or any agency or

officer performing like functions), State authority that supervises or examines banks,
savings associations, or credit unions, State insurance commission (or any agency
or office performing like functions), an appropriate Federal banking agency (as
defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or the
National Credit Union Administration, that–

`(A) bars such person from association with an entity regulated by such

commission, authority, agency, or officer, or from engaging in the business

of securities, insurance, banking, savings association activities, or credit
union activities; or

`(B) constitutes a final order based on violations of any laws or regulations

that prohibit fraudulent, manipulative, or deceptive conduct.’.

(1) SECURITIES EXCHANGE ACT OF 1934- The Securities Exchange Act of 1934 (15

U.S.C. 78a et seq.) is amended–

(A) in section 3(a)(39)(F) (15 U.S.C. 78c(a)(39)(F))–

(i) by striking `or (G)’ and inserting `(H),

or (G)’; and

(ii) by inserting `, or is subject to an order or finding,’ before

`enumerated’;

(B) in each of section 15(b)(6)(A)(i) (15 U.S.C. 78o(b)(6)(A)(i)), paragraphs (2)

and (4) of section 15B(c) (15 U.S.C. 78o-4(c)), and subparagraphs (A) and (C)

of section 15C(c)(1) (15 U.S.C. 78o-5(c)(1))–

(i) by striking `or (G)’ each place that term appears and inserting `(H),

or (G)’; and

(ii) by striking `or omission’ each place that term appears, and

inserting `, or is subject to an order or finding,’; and

1(c))–

(i) by striking `or (G)’ each place that term appears and inserting `(H),
or (G)’; and
(ii) by inserting `, or is subject to an order or finding,’ before

`enumerated’ each place that term appears.

(2) INVESTMENT ADVISERS ACT OF 1940- Section 203(f) of the Investment Advisers

Act of 1940 (15 U.S.C. 80b-3(f)) is amended–

(A) by striking `or (8)’ and inserting `(8), or (9)’; and

(B) by inserting `or (3)’ after `paragraph (2)’.

TITLE VII–STUDIES AND REPORTS

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

(a) STUDY REQUIRED- The Comptroller General of the United States shall conduct a study–

(1) to identify–

(A) the factors that have led to the consolidation of public accounting firms

since 1989 and the consequent reduction in the number of firms capable of

providing audit services to large national and multi-national business

organizations that

are subject to the securities laws;

(B) the present and future impact of the condition described in subparagraph

(A) on capital formation and securities markets, both domestic and

international; and

ways to increase competition and the number of firms capable of providing

audit services to large national and multinational business organizations that

are subject to the securities laws;

(2) of the problems, if any, faced by business organizations that have resulted from

limited competition among public accounting firms, including–

(A) higher costs;

(B) lower quality of services;

(D) lack of choice; and

(3) whether and to what extent Federal or State regulations impede competition

among public accounting firms.

(b) CONSULTATION- In planning and conducting the study under this section, the

Comptroller General shall consult with–

(1) the Commission;

(2) the regulatory agencies that perform functions similar to the Commission within

the other member countries of the Group of Seven Industrialized Nations;

(3) the Department of Justice; and

(4) any other public or private sector organization that the Comptroller General

considers appropriate.

Comptroller General shall submit a report on the results of the study required by this section

to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee

on Financial Services of the House of Representatives.

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

(a) STUDY REQUIRED-

(1) IN GENERAL- The Commission shall conduct a study of the role and function of

credit rating agencies in the operation of the securities market.

(2) AREAS OF CONSIDERATION- The study required by this subsection shall

examine–

(A) the role of credit rating agencies in the evaluation of issuers of securities;

(B) the importance of that role to investors and the functioning of the

securities markets;

financial resources and risks of issuers of securities;

(D) any barriers to entry into the business of acting as a credit rating agency,

and any measures needed to remove such barriers;

(E) any measures which may be required to improve the dissemination of

information concerning such resources and risks when credit rating agencies

announce credit ratings; and

(F) any conflicts of interest in the operation of credit rating agencies and

measures to prevent such conflicts or ameliorate the consequences of such

conflicts.

(b) REPORT REQUIRED- The Commission shall submit a report on the study required by

subsection (a) to the President, the Committee on Financial Services of the House of

Representatives, and the Committee on Banking, Housing, and Urban Affairs of the Senate

not later than 180 days after the date of enactment of this Act.

SEC. 703. STUDY AND REPORT ON VIOLATORS AND VIOLATIONS.

(a) STUDY- The Commission shall conduct a study to determine, based upon information for

the period from January 1, 1998, to December 31, 2001–

(1) the number of securities professionals, defined as public accountants, public

accounting firms, investment bankers, investment advisers, brokers, dealers,

attorneys, and other securities professionals practicing before the Commission–

(A) who have been found to have aided and abetted a violation of the Federal

securities laws, including rules or regulations promulgated thereunder

(collectively referred to in this section as `Federal securities laws’), but who

have not been sanctioned, disciplined, or otherwise penalized as a primary

violator in any administrative action or civil proceeding, including in any

settlement of such an action or proceeding (referred to in this section as

`aiders and abettors’); and

(B) who have been found to have been primary violators of the Federal

securities laws;

(2) a description of the Federal securities laws violations committed by aiders and

abettors and by primary violators, including–

(A) the specific provision of the Federal securities laws violated;

(B) the specific sanctions and penalties imposed upon such aiders and

abettors and primary violators, including the amount of any monetary

penalties assessed upon and collected from such persons;

either as an aider or abettor or as a primary violator; and

(D) whether, as to each such violator, disciplinary sanctions have been

imposed, including any censure, suspension, temporary bar, or permanent

bar to practice before the Commission; and

(3) the amount of disgorgement, restitution, or any other fines or payments that the

Commission has assessed upon and collected from, aiders and abettors and from

primary violators.

(b) REPORT- A report based upon the study conducted pursuant to subsection (a) shall be

submitted to the Committee on Banking, Housing, and Urban Affairs of the Senate, and the

Committee on Financial Services of the House of Representatives not later than 6 months

after the date of enactment of this Act.

SEC. 704. 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 5-year period preceding the date of

enactment of this Act, 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, not later than 180 days after 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. 705. STUDY OF INVESTMENT BANKS.

(a) GAO STUDY- The Comptroller General of the United States shall conduct a study on

whether investment banks and financial advisers assisted public companies in manipulating

their earnings and obfuscating their true financial condition. The study should address the

rule of investment banks and financial advisers–

(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 financial 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 fiberoptic cable capacity, in the 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 Comptroller General shall report to Congress not later than 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.

TITLE VIII–CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY

SEC. 801. SHORT TITLE.

This title may be cited as the `Corporate and Criminal Fraud Accountability Act of 2002′.

SEC. 802. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.

(a) IN GENERAL- Chapter 73 of title 18, United States Code, is amended by adding at the end

the following:

`Sec. 1519. Destruction, alteration, or falsification of records in Federal investigations and bankruptcy

`Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a

false entry in any record, document, or tangible object with the intent to impede, obstruct, or

influence the investigation or proper administration of any matter within the jurisdiction of

any department or agency of the United States or any case filed under title 11, or in relation

to or contemplation of any such matter or case, shall be fined under this title, imprisoned not

more than 20 years, or both.

`Sec. 1520. Destruction of corporate audit records

`(a)(1) Any accountant who conducts an audit of an issuer of securities to which section

10A(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1(a)) applies, shall maintain all

audit or review workpapers for a period of 5 years from the end of the fiscal period in which

the audit or review was concluded.

`(2) The Securities and Exchange Commission shall promulgate, within 180 days, after

adequate notice and an opportunity for comment, such rules and regulations, as are

reasonably necessary, relating to the retention of relevant records such as workpapers,

documents that form the basis of an audit or review, memoranda, correspondence,

communications, other documents, and records (including electronic records) which are

created, sent, or received in connection with an audit or review and contain conclusions,

opinions, analyses, or financial data relating to such an audit or review, which is conducted

by any accountant who conducts an audit of an issuer of securities to which section 10A(a)

of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1(a)) applies. The Commission may,

from time to time, amend or supplement the rules and regulations that it is required to

promulgate under this section, after adequate notice and an opportunity for comment, in

order to ensure that such rules and regulations adequately comport with the purposes of

this section.

`(b) Whoever knowingly and willfully violates subsection (a)(1), or any rule or regulation

promulgated by the Securities and Exchange Commission under subsection (a)(2), shall be

fined under this title, imprisoned not more than 10 years, or both.

`(c) Nothing in this section shall be deemed to diminish or relieve any person of any other

duty or obligation imposed by Federal or State law or regulation to maintain, or refrain from

destroying, any document.’.

(b) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 73 of title 18,

United States Code, is amended by adding at the end the following new items:

`1519. Destruction, alteration, or falsification of records in Federal investigations and

bankruptcy.

`1520. Destruction of corporate audit records.’.

SEC. 803. DEBTS NONDISCHARGEABLE IF INCURRED IN VIOLATION OF SECURITIES FRAUD LAWS.

Section 523(a) of title 11, United States Code, is amended–

(1) in paragraph (17), by striking `or’ after the semicolon;

(2) in paragraph (18), by striking the period at the end and inserting `; or’; and

(3) by adding at the end, the following:

`(19) that–

`(A) is for–

`(i) the violation of any of the Federal securities laws (as that term is

defined in section 3(a)(47) of the Securities Exchange Act of 1934),

any of the State securities laws, or any regulation or order issued

under such Federal or State securities laws; or

`(ii) common law fraud, deceit, or manipulation in connection with the

purchase or sale of any security; and

`(B) results from–

`(i) any judgment, order, consent order, or decree entered in any

Federal or State judicial or administrative proceeding;

`(ii) any settlement agreement entered into by the debtor; or

`(iii) any court or administrative order for any damages, fine, penalty,

citation, restitutionary payment, disgorgement payment, attorney fee,

cost, or other payment owed by the debtor.’.

SEC. 804. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.

(a) IN GENERAL- Section 1658 of title 28, United States Code, is amended–

(1) by inserting `(a)’ before `Except’; and

(2) by adding at the end the following:

`(b) Notwithstanding subsection (a), a private right of action that involves a claim of fraud,

deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning

the securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(47)), may be brought not later than the earlier of–

`(1) 2 years after the discovery of the facts constituting the violation; or

`(2) 5 years after such violation.’.

(b) EFFECTIVE DATE- The limitations period provided by section 1658(b) of title 28, United

States Code, as added by this section, shall apply to all proceedings addressed by this

section that are commenced on or after the date of enactment of this Act.

action.

SEC. 805. REVIEW OF FEDERAL SENTENCING GUIDELINES FOR OBSTRUCTION OF JUSTICE AND

EXTENSIVE CRIMINAL FRAUD.

(a) ENHANCEMENT OF FRAUD AND OBSTRUCTION OF JUSTICE SENTENCES- Pursuant to

section 994 of title 28, United States Code, and in accordance with this section, the United

States Sentencing Commission shall review and amend, as appropriate, the Federal

Sentencing Guidelines and related policy statements to ensure that–

(1) the base offense level and existing enhancements contained in United States

Sentencing Guideline 2J1.2 relating to obstruction of justice are sufficient to deter

and

punish that activity;

(2) the enhancements and specific offense characteristics relating to obstruction of

justice are adequate in cases where–

(A) the destruction, alteration, or fabrication of evidence involves–

(i) a large amount of evidence, a large number of participants, or is

otherwise extensive;

(ii) the selection of evidence that is particularly probative or essential

to the investigation; or

(iii) more than minimal planning; or

(B) the offense involved abuse of a special skill or a position of trust;

(3) the guideline offense levels and enhancements for violations of section 1519 or

1520 of title 18, United States Code, as added by this title, are sufficient to deter and

punish that activity;

(4) a specific offense characteristic enhancing sentencing is provided under United

States Sentencing Guideline 2B1.1 (as in effect on the date of enactment of this Act)

for a fraud offense that endangers the solvency or financial security of a substantial

number of victims; and

(5) the guidelines that apply to organizations in United States Sentencing Guidelines,

chapter 8, are sufficient to deter and punish organizational criminal misconduct.

(b) EMERGENCY AUTHORITY AND DEADLINE FOR COMMISSION ACTION- The United

States Sentencing Commission is requested to promulgate the guidelines or amendments

provided for under this section as soon as practicable, and in any event not later than 180

days after the date of enactment of this Act, in accordance with the prcedures set forth in

section 219(a) of the Sentencing Reform Act of 1987, as though the authority under that Act

had not expired.

SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES WHO PROVIDE EVIDENCE

OF FRAUD.

(a) IN GENERAL- Chapter 73 of title 18, United States Code, is amended by inserting after

section 1514 the following:

`Sec. 1514A. Civil action to protect against retaliation in fraud cases

`(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED

COMPANIES- No company with a class of securities registered under section 12 of the

Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under

section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer,

employee, contractor, subcontractor, or agent of such company, may discharge, demote,

suspend, threaten, harass, or in any other manner discriminate against an employee in the

terms and conditions of employment because of any lawful act done by the employee–

`(1) to provide information, cause information to be provided, or otherwise assist in

an investigation regarding any conduct which the employee reasonably believes

constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of

the Securities and Exchange Commission, or any provision of Federal law relating to

fraud against shareholders, when the information or assistance is provided to or the

investigation is conducted by–

`(A) a Federal regulatory or law enforcement agency;

`(B) any Member of Congress or any committee of Congress; or

`(C) a person with supervisory authority over the employee (or such other

person working for the employer who has the authority to investigate,

discover, or terminate misconduct); or

`(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding

filed or about to be filed (with any knowledge of the employer) relating to an alleged

violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities

and Exchange Commission, or any provision of Federal law relating to fraud against

shareholders.

`(b) ENFORCEMENT ACTION-

`(1) IN GENERAL- A person who alleges discharge or other discrimination by any

person in violation of subsection (a) may seek relief under subsection (c), by–

`(A) filing a complaint with the Secretary of Labor; or

`(B) if the Secretary has not issued a final decision within 180 days of the

filing of the complaint and there is no showing that such delay is due to the

bad faith of the claimant, bringing an action at law or equity for de novo

review in the appropriate district court of the United States, which shall have

jurisdiction over such an action without regard to the amount in controversy.

`(2) PROCEDURE-

`(A) IN GENERAL- An action under paragraph (1)(A) shall be governed under

the rules and procedures set forth in section 42121(b) of title 49, United

States Code.

`(B) EXCEPTION- Notification made under section 42121(b)(1) of title 49,

United States Code, shall be made to the person named in the complaint and

to the employer.

`(C) BURDENS OF PROOF- An action brought under paragraph (1)(B) shall be

governed by the legal burdens of proof set forth in section 42121(b) of title

49, United States Code.

`(D) STATUTE OF LIMITATIONS- An action under paragraph (1) shall be

commenced not later than 90 days after the date on which the violation

occurs.

`(c) REMEDIES-

`(1) IN GENERAL- An employee prevailing in any action under subsection (b)(1) shall

be entitled to all relief necessary to make the employee whole.

`(2) COMPENSATORY DAMAGES- Relief for any action under paragraph (1) shall

include–

`(A) reinstatement with the same seniority status that the employee would

have had, but for the discrimination;

`(B) the amount of back pay, with interest; and

`(C) compensation for any special damages sustained as a result of the

discrimination, including litigation costs, expert witness fees, and reasonable

attorney fees.

`(d) RIGHTS RETAINED BY EMPLOYEE- Nothing in this section shall be deemed to diminish

the rights, privileges, or remedies of any employee under any Federal or State law, or under

any collective bargaining agreement.’.

(b) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 73 of title 18,

United States Code, is amended by inserting after the item relating to section 1514 the

following new item:

`1514A. Civil action to protect against retaliation in fraud cases.’.

SEC. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS OF PUBLICLY TRADED

COMPANIES.

(a) IN GENERAL- Chapter 63 of title 18, United States Code, is amended by adding at the end

the following:

`Sec. 1348. Securities fraud

`Whoever knowingly executes, or attempts to execute, a scheme or artifice–

`(1) to defraud any person in connection with any security of an issuer with a class of

securities registered under section 12 of the Securities Exchange Act of 1934 (15

U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities

Exchange Act of 1934 (15 U.S.C. 78o(d)); or

`(2) to obtain, by means of false or fraudulent pretenses, representations, or

promises, any money or property in connection with the purchase or sale of any

security of an issuer with a class of securities registered under section 12 of the

Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports

under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d));

shall be fined under this title, or imprisoned not more than 25 years, or both.’.

(b) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 63 of title 18,

United States Code, is amended by adding at the end the following new item:

`1348. Securities fraud.’.

TITLE IX–WHITE-COLLAR CRIME PENALTY ENHANCEMENTS

SEC. 901. SHORT TITLE.

This title may be cited as the `White-Collar Crime Penalty Enhancement Act of 2002′.

SEC. 902. ATTEMPTS AND CONSPIRACIES TO COMMIT CRIMINAL FRAUD

OFFENSES.

(a) IN GENERAL- Chapter 63 of title 18, United States Code, is amended by inserting after

section 1348 as added by this Act the following:

`Sec. 1349. Attempt and conspiracy

`Any person who attempts or conspires to commit any offense under this chapter shall be

subject to the same penalties as those prescribed for the offense, the commission of which

was the object of the attempt or conspiracy.

(b) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 63 of title 18,
United States Code, is amended by adding at the end the following new item:

`1349. Attempt and conspiracy.’.

SEC. 903. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

(a) MAIL FRAUD- Section 1341 of title 18, United States Code, is amended by striking `five’

and inserting `20′.

(b) WIRE FRAUD- Section 1343 of title 18, United States Code, is amended by striking `five’

and inserting `20′.

SEC. 904. CRIMINAL PENALTIES FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY

ACT OF 1974.

Section 501 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1131) is

amended–

(1) by striking `$5,000′ and inserting `$100,000′;

(2) by striking `one year’ and inserting `10 years’; and

(3) by striking `$100,000′ and inserting `$500,000′.

SEC. 905. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-COLLAR

OFFENSES.

(a) DIRECTIVE TO THE UNITED STATES SENTENCING COMMISSION- Pursuant to its

authority under section 994(p) of title 18, United States Code, and in accordance with this

section, the United States Sentencing Commission shall review and, as appropriate, amend

the Federal Sentencing Guidelines and related policy statements to implement the

provisions of this Act.

(b) REQUIREMENTS- In carrying out this section, the Sentencing Commission shall–

(1) ensure that the sentencing guidelines and policy statements reflect the serious

nature of the offenses and the penalties set forth in this Act, the growing incidence of

serious fraud offenses which are identified above, and the need to modify the

sentencing guidelines and policy statements to deter, prevent, and punish such

offenses;

(2) consider the extent to which the guidelines and policy statements adequately

address whether the guideline offense levels and enhancements for violations of the

sections amended by this Act are sufficient to deter and punish such offenses, and

specifically, are adequate in view of the statutory increases in penalties contained in

this Act;

(3) assure reasonable consistency with other relevant directives and sentencing

guidelines;

(4) account for any additional aggravating or mitigating circumstances that might

justify exceptions to the generally applicable sentencing ranges;

(5) make any necessary conforming changes to the sentencing guidelines; and

(6) assure that the guidelines adequately meet the purposes of sentencing, as set

forth in section 3553(a)(2) of title 18, United States Code.

States Sentencing Commission is requested to promulgate the guidelines or amendments
provided for under this section as soon as practicable, and in any event not later than 180

days after the date of enactment of this Act, in accordance with the procedures set forth in

section 219(a) of the Sentencing Reform Act of 1987, as though the authority under that Act
had not expired.

SEC. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

(a) IN GENERAL- Chapter 63 of title 18, United States Code, is amended by inserting after

section 1349, as created by this Act, the following:

`Sec. 1350. Failure of corporate officers to certify financial reports

(a) CERTIFICATION OF PERIODIC FINANCIAL REPORTS- Each periodic report containing

financial statements filed by an issuer with the Securities Exchange Commission pursuant to

section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d))

shall be accompanied by a written statement by the chief executive officer and chief financial

officer (or equivalent thereof) of the issuer.

`(b) CONTENT- The statement required under subsection (a) shall certify that the periodic

report containing the financial statements fully complies with the requirements of section

13(a) or 15(d) of the Securities Exchange Act pf 1934 (15 U.S.C. 78m or 78o(d)) and that

information contained in the periodic report fairly presents, in all material respects, the

financial condition and results of operations of the issuer.

`(c) CRIMINAL PENALTIES- Whoever–

`(1) certifies any statement as set forth in subsections (a) and (b) of this section

knowing that the periodic report accompanying the statement does not comport with

all the requirements set forth in this section shall be fined not more than $1,000,000

or imprisoned not more than 10 years, or both; or

`(2) willfully certifies any statement as set forth in subsections (a) and (b) of this

section knowing that the periodic report accompanying the statement does not

comport with all the requirements set forth in this section shall be fined not more

than $5,000,000, or imprisoned not more than 20 years, or both.’.

(b) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 63 of title 18,

United States Code, is amended by adding at the end the following:

`1350. Failure of corporate officers to certify financial reports.’.

TITLE X–CORPORATE TAX RETURNS

SEC. 1001. SENSE OF THE SENATE REGARDING THE SIGNING OF CORPORATE TAX RETURNS BY CHIEF

EXECUTIVE OFFICERS.

It is the sense of the Senate that the Federal income tax return of a corporation should be

signed by the chief executive officer of such corporation.

TITLE XI–CORPORATE FRAUD ACCOUNTABILITY

SEC. 1101. SHORT TITLE.

This title may be cited as the `Corporate Fraud Accountability Act of 2002′.

SEC. 1102. TAMPERING WITH A RECORD OR OTHERWISE IMPEDING AN OFFICIAL PROCEEDING.

Section 1512 of title 18, United States Code, is amended–

(1) by redesignating subsections (c) through (i) as subsections (d) through (j),

respectively; and

(2) by inserting after subsection (b) the following new subsection:

`(c) Whoever corruptly–

`(1) alters, destroys, mutilates, or conceals a record, document, or other object, or

attempts to do so, with the intent to impair the object’s integrity or availability for use

in an official proceeding; or

`(2) otherwise obstructs, influences, or impedes any official proceeding, or attempts

to do so,

shall be fined under this title or imprisoned not more than 20 years, or both.’.

SEC. 1103. TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE COMMISSION.

(a) IN GENERAL- Section 21C(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c))

is amended by adding at the end the following:

`(3) TEMPORARY FREEZE-

`(A) IN GENERAL-

`(i) ISSUANCE OF TEMPORARY ORDER- Whenever, during the course

of a lawful investigation involving possible violations of the Federal

securities laws by an issuer of publicly traded securities or any of its

directors, officers, partners, controlling persons, agents, or

employees, it shall appear to the Commission that it is likely that the

issuer will make extraordinary payments (whether compensation or

otherwise) to any of the foregoing persons, the Commission may

petition a Federal district court for a temporary order requiring the

issuer to escrow, subject to court supervision, those payments in an

interest-bearing account

for 45 days.

`(ii) STANDARD- A temporary order shall be entered under clause (i),

only after notice and opportunity for a hearing, unless the court

determines that notice and hearing prior to entry of the order would

be impracticable or contrary to the public interest.

`(iii) EFFECTIVE PERIOD- A temporary order issued under clause (i)

shall–

`(I) become effective immediately;

`(II) be served upon the parties subject to it; and

`(III) unless set aside, limited or suspended by a court of

competent jurisdiction, shall remain effective and enforceable

for 45 days.

`(iv) EXTENSIONS AUTHORIZED- The effective period of an order

under this subparagraph may be extended by the court upon good

cause shown for not longer than 45 additional days, provided that the

combined period of the order shall not exceed 90 days.

`(B) PROCESS ON DETERMINATION OF VIOLATIONS-

`(i) VIOLATIONS CHARGED- If the issuer or other person described in

subparagraph (A) is charged with any violation of the Federal

securities laws before the expiration of the effective period of a

temporary order under subparagraph (A) (including any applicable

extension period), the order shall remain in effect, subject to court

approval, until the conclusion of any legal proceedings related

thereto, and the affected issuer or other person, shall have the right to

petition the court for review of the order.

`(ii) VIOLATIONS NOT CHARGED- If the issuer or other person

described in subparagraph (A) is not charged with any violation of the

Federal securities laws before the expiration of the effective period of

a temporary order under subparagraph (A) (including any applicable

extension period), the escrow shall terminate at the expiration of the

45-day effective period (or the expiration of any extension period, as

applicable), and the disputed payments (with accrued interest) shall

be returned to the issuer or other affected person.’.

(b) TECHNICAL AMENDMENT- Section 21C(c)(2) of the Securities Exchange Act of 1934 (15

U.S.C. 78u-3(c)(2)) is amended by striking `This’ and inserting `paragraph (1)’.

SEC. 1104. AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES.

(a) REQUEST FOR IMMEDIATE CONSIDERATION BY THE UNITED STATES SENTENCING

COMMISSION- Pursuant to its authority under section 994(p) of title 28, United States Code,

and in accordance with this section, the United States Sentencing Commission is requested

to–

(1) promptly review the sentencing guidelines applicable to securities and

accounting fraud and related offenses;

(2) expeditiously consider the promulgation of new sentencing guidelines or

amendments to existing sentencing guidelines to provide an enhancement for

officers or directors of publicly traded corporations who commit fraud and related

offenses; and

(3) submit to Congress an explanation of actions taken by the Sentencing

Commission pursuant to paragraph (2) and any additional policy recommendations

the Sentencing Commission may have for combating offenses described in

paragraph (1).

(b) CONSIDERATIONS IN REVIEW- In carrying out this section, the Sentencing Commission

is requested to–

(1) ensure that the sentencing guidelines and policy statements reflect the serious

nature of securities, pension, and accounting fraud and the need for aggressive and

appropriate law enforcement action to prevent such offenses;

(2) assure reasonable consistency with other relevant directives and with other

guidelines;

(3) account for any aggravating or mitigating circumstances that might justify

exceptions, including circumstances for which the sentencing guidelines currently

provide sentencing enhancements;

(4) ensure that guideline offense levels and enhancements for an obstruction of

justice offense are adequate in cases where documents or other physical evidence

are actually destroyed or fabricated;

(5) ensure that the guideline offense levels and enhancements under United States

Sentencing Guideline 2B1.1 (as in effect on the date of enactment of this Act) are

sufficient for a fraud offense when the number of victims adversely involved is

significantly greater than 50;

(6) make any necessary conforming changes to the sentencing guidelines; and

(7) assure that the guidelines adequately meet the purposes of sentencing as set

forth in section 3553 (a)(2) of title 18, United States Code.

(c) EMERGENCY AUTHORITY AND DEADLINE FOR COMMISSION ACTION- The United
States Sentencing Commission is requested to promulgate the guidelines or amendments

provided for under this section as soon as practicable, and in any event not later than the

180 days after the date of enactment of this Act, in accordance with the procedures sent

forth in section 21(a) of the Sentencing Reform Act of 1987, as though the authority under

that Act had not expired.

SEC. 1105. AUTHORITY OF THE COMMISSION TO PROHIBIT PERSONS FROM SERVING AS OFFICERS OR

DIRECTORS.

(a) 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:

`(f) AUTHORITY OF THE COMMISSION 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) 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, or that is required

to file reports pursuant to section 15(d), if the conduct of that person demonstrates unfitness

to serve as an officer or director of any

such issuer.’.

(b) 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 of the following:

`(f) AUTHORITY OF THE COMMISSION 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) 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 the Securities

Exchange Act of 1934, or that is required to file reports pursuant to section 15(d) of that Act,

if the conduct of that person demonstrates unfitness to serve as an officer or director of any

such issuer.’.

SEC. 1106. INCREASED CRIMINAL PENALTIES UNDER SECURITIES EXCHANGE ACT OF 1934.

Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78ff(a)) is amended–

(1) by striking `$1,000,000, or imprisoned not more than 10 years’ and inserting

`$5,000,000, or imprisoned not more than 20 years’; and

(2) by striking `$2,500,000′ and inserting `$25,000,000′.

SEC. 1107. RETALIATION AGAINST INFORMANTS.

(a) IN GENERAL- Section 1513 of title 18, United States Code, is amended by adding at the

end the following:

`(e) Whoever knowingly, with the intent to retaliate, takes any action harmful to any person,

including interference with the lawful employment or livelihood of any person, for providing

to a law enforcement officer any truthful information relating to the commission or possible

commission of any Federal offense, shall be fined under this title or imprisoned not more

than 10 years, or both.’.

legal_ts_sarbanesoxleyact_MK

Legal Issues.L8.TS1
COVER PAGE
PREFACE
TABLE OF CONTENTS
EXECUTIVE BRANCH DIRECTIVES REGARDING CLASSIFICATION AND
FEDERAL LAWS APPLICABLE TO ALL GOVERNMENT AGENCIES REGARDING
EXPORT CONTROLS
NUCLEAR NONPROLIFERATION
MISSILE TECHNOLOGY
DEPARTMENT OF DEFENSE
DEPARTMENT OF ENERGY
FEDERAL AVIATION ADMINISTRATION
NUCLEAR REGULATORY COMMISSION
DEPARTMENT OF STATE
TRANSPORTATION SECURITY ADMINISTRATION

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