[House Report 107-418]
[From the U.S. Government Publishing Office]


107th Congress   }                                             {   Report
                         HOUSE OF REPRESENTATIVES
 2d Session      }                                             {  107-418

======================================================================



. 
   PROVIDING FOR CONSIDERATION OF H.R. 3763, CORPORATE AND AUDITING 
      ACCOUNTABILITY, RESPONSIBILITY, AND TRANSPARENCY ACT OF 2002

                                _______
                                

   April 23, 2002.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

   Mr. Sessions, from the Committee on Rules, submitted the following

                              R E P O R T

                           
                       [To accompany H. Res. 395]

    The Committee on Rules, having had under consideration 
House Resolution 395, by a nonrecord vote, report the same to 
the House with the recommendation that the resolution be 
adopted.

                SUMMARY OF PROVISIONS OF THE RESOLUTION

    The resolution provides for the consideration of H.R. 3763, 
the Corporate and Auditing Accountability, Responsibility, and 
Transparency Act of 2002, under a structured rule. The rule 
provides one hour of debate equally divided and controlled by 
the chairman and ranking minority member of the Committee on 
Financial Services. The rule waives all points of order against 
consideration of the bill.
    The rule provides that the amendment in the nature of a 
substitute recommended by the Committee on Financial Services 
now printed in the bill shall be considered as an original bill 
for the purpose of amendment and shall be considered as read. 
The rule waives all points of order against the bill, as 
amended.
    The rule makes in order only those amendments printed in 
this report. The rule provides that the amendments printed in 
this report shall be considered only in the order printed, may 
be offered only by a Member designated, shall be considered as 
read, shall be debatable for the time specified equally divided 
and controlled by the proponent and an opponent, shall not be 
subject to amendment, and shall not be subject to a demand for 
division of the question in the House or in the Committee of 
the Whole. The rule waives all points of order against the 
amendments printed in this report.
    Finally, the rule provides one motion to recommit with or 
without instructions.
    The waiver of all points of order includes a waiver of 
clause 3 of rule XIII (requiring the inclusion of certain 
information or statements in the committee report), because a 
CBO cost estimate was not yet available when the Financial 
Services Committee filed H. Rept. 107-414. The waiver of all 
points of order also includes a waiver of clause 4(a) of rule 
XIII (requiring a three-day layover of the committee report), 
because H. Rept. 107-414 was filed on Monday, April 22 and the 
House could consider the bill as early as Wednesday, April 24.

           SUMMARY OF AMENDMENTS MADE IN ORDER UNDER THE RULE

    Oxley--Manager's Amendment. Makes various technical and 
conforming changes, strikes provisions requiring companies 
listed on the stock exchanges to a code of ethics for senior 
corporate officers due to workability issues, and retains 
provisions regarding disclosure of changes in issuer codes of 
conduct. (10 minutes)
    Capuano--Clarifies that two members of the public 
regulatory organization (PRO) must be individuals licensed to 
practice public accounting, two members may be individuals 
licensed to practice public accounting if they have not 
practiced within two years of being appointed, and one member 
must not be licensed to practice public accounting. Specifies 
that all members of the PRO board must meet a standard of 
financial literacy as determined by the SEC. (20 minutes)
    Sherman--Requires auditors of publicly-traded companies to 
meet a minimum net capital requirement of not less than one-
half of the annual audit revenue received by the accountant 
from issuers registered with the SEC. (20 minutes)
    Kucinich--Substitute. Creates the Federal Bureau of Audits 
(FBA) to monitor corporate America's books by auditing all 
publicly-traded companies. This new agency will be a part of 
the Securities and Exchange Commission (SEC), but maintain 
appropriate independence. The SEC will set the basic rules of 
auditing by incorporating the generally accepted auditing 
standards rules and making further refinements that are 
``necessary and appropriate in the public interest and for the 
protection of investors.'' The FBA's integrity will be ensured 
by several conflict of interest provisions to ensure that 
American taxpayers, investors, and employees get an accurate 
assessment of a corporation. (20 minutes)
    LaFalce--Substitute. Replaces the regulatory structure in 
the bill with one that requires establishment of a public 
regulator with specified duties and authority, modifies 
definitions of non-audit services to make the two bands on non-
audit services included in the bill effective, provides for 
approval of non-audit services by the audit committee, replaces 
the executive responsibility provisions in the bill to require 
executive certification of financial statements, to improve the 
ability of the SEC to bar officers and directors from future 
service in public companies. Enables the SEC to obtain 
disgorgement of stock bonuses from executives who have 
falsified financial statements. Places limits on analyst 
conflicts of interest and improves corporate governance by 
giving audit committees oversight of auditors. Establishes an 
independent nominating committee for independent directors. (40 
minutes)

            TEXT OF AMENDMENTS MADE IN ORDER UNDER THE RULE

  1. An Amendment To Be Offered by Representative Oxley of Ohio, or a 
                   Designee, Debatable for 10 Minutes

  Page 9, line 24, strike ``study'' and insert ``reviews''.
  Page 11, line 10, insert ``or'' after ``review''.
  Page 11, line 17, strike ``board'' and insert 
``organization''.
  Page 33, line 7, strike ``Definition'' and insert 
``Definitions''; on line 8, strike ``term `beneficial owner' 
has the meaning'' and insert ``terms `officer', `director', and 
`beneficial owner' have the meanings''; and line 9, strike 
``term'' and insert ``terms''.
  Page 39, strike line 5 and all that follows through page 40, 
line 9; and on page 40, line 10, strike ``(d) Changes in Codes 
of Conduct.--''.
  Page 42, lines 9 and 11, strike ``accountants report'' and 
insert ``accountant's report''.
  Page 42, line 17, insert ``or her'' after ``his'', and 
beginning on line 18, strike ``an opinion cannot be expressed'' 
and insert ``he or she cannot express an opinion''.
  Page 53, line 23, strike ``the role played by'' and insert 
``whether'', and on line 24, strike ``in assisting'' and insert 
``assisted''.
  Page 54, line 18, insert ``which may have been'' before 
``designed solely''.
  Page 57, line 9, insert ``7, 8,'' after ``6,''.
                              ----------                              


      2. An Amendment To Be Offered by Representative Capuano of 
         Massachusetts, or a Designee, Debatable for 20 Minutes

  Page 3, beginning on line 21, strike paragraph (1) of section 
2(b) through page 4, line 9, and insert the following:
          (1)(A) The board of such organization shall be 
        comprised of five members--
                  (i) two of whom shall be persons who are 
                licensed to practice public accounting and who 
                have recent experience in auditing public 
                companies;
                  (ii) two of whom may be persons who are 
                licensed to practice public accounting, if such 
                person has not worked in the accounting 
                profession for any of the last two years prior 
                to the date of such person's appointment to the 
                board; and
                  (iii) one of whom shall be a person who has 
                never been licensed to practice public 
                accounting.
          (B) Each member of the board of such organization 
        shall be a person who meets such standards of financial 
        literacy as are determined by the Commission.
                              ----------                              


3. An Amendment To Be Offered by Representative Sherman of California, 
                or a Designee, Debatable for 20 Minutes

  In section 21 strike ``and 15'' and insert ``and 16'' and 
after section 13, insert the following new section (and 
redesignate the succeeding sections and conform the table of 
contents accordingly):

SEC. 14. AUDITOR MINIMUM CAPITAL.

  (a) Regulation Required.--The Commission shall revise its 
regulations pertaining to auditor independence to require that 
an accountant shall not be considered independent unless such 
accountant complies with such capital adequacy standards as the 
Commission shall prescribe by regulation.
  (b) Minimum Standard.--The capital adequacy standards 
established by the Commission pursuant to this section shall 
require that the net capital of an accountant be equal to not 
less than one-half of the annual audit revenue received by such 
accountant from issuers registered with the Commission.
  (c) Treatment of Capital and Revenue.--For purposes of this 
section--
          (1) net capital shall include the sum of capital, 
        reserves, and malpractice insurance available to the 
        accountant for the performance of audit functions; and
          (2) annual audit revenue shall include the sum of all 
        audit fees received by the accountant, but shall not 
        include any fees for non-audit services, as such terms 
        are defined in regulations of the Commission in effect 
        on the date of enactment of this Act.
                              ----------                              


    4. An Amendment in the Nature of a Substitute To Be Offered by 
   Representative Kucinich of Ohio, or a Designee, Debatable for 20 
                                Minutes

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Investor, Shareholder, and 
Employee Protection Act of 2002''.

SEC. 2. FINDINGS.

  The Congress finds the following:
          (1) The failure of accounting firms to provide 
        accurate audits of its clients is not a new or isolated 
        problem.
          (2) Accounting firms have been implicated in failed 
        audits that have cost investors billions of dollars 
        when earnings restatements sent stock prices tumbling.
          (3) Auditors have an inherent conflict of interest. 
        They are hired, and fired, by their audit clients.
          (4) This conflict of interest pressures auditors to 
        sign off on substandard financial statements rather 
        than risk losing a large client.
          (5) Auditing a public company for the benefit of 
        small as well as large investors requires independence.
          (6) Therefore the only truly independent audit is one 
        by a governmental agency.
          (7) The Federal Bureau of Audits, closely regulated 
        by the Commission, will provide honest audits of all 
        publicly traded companies.

SEC. 3. ESTABLISHMENT OF BUREAU.

  (a) Establishment.--There is hereby established within the 
Commission an independent regulatory agency to be known as the 
Federal Bureau of Audits.
  (b) Function of the Bureau.--The Bureau shall conduct an 
annual audit of the financial statements that are required to 
be submitted by reporting issuers and to be certified under the 
securities laws or the rules or regulations thereunder.
  (c) Officers.--
          (1) Bureau Head.--The head of the Bureau shall be a 
        Director, who shall be appointed by the President, by 
        and with the advice and consent of the Senate.
          (2) Additional Officers.--There shall also be in the 
        Bureau a Deputy Director and an Inspector General, each 
        of whom shall be appointed by the President, by and 
        with the advice and consent of the Senate.
          (3) Terms.--The Director, Deputy Director, and 
        Inspector General shall be appointed for terms of 12 
        years, except that--
                  (A) the first term of office of the Deputy 
                Director shall be eight years; and
                  (B) the first term of office of the Inspector 
                General shall be 4 years.
  (d) Independence.--Except as provided in sections 4 and 5, in 
the performance of their functions, the officers, employees, or 
other personnel of the Bureau shall not be responsible to or 
subject to the supervision or direction of any officer, 
employee, or agent of any other part of the Commission.
  (e) Administrative Support.--The Commission shall provide to 
the Bureau such support and facilities as the Director 
determines it needs to carry out its functions.
  (f) Rules.--The Bureau is authorized to establish such 
procedural and administrative rules as are necessary to the 
exercise of its functions, but the Bureau may not establish any 
auditing standards within the jurisdiction of the Commission 
under sections 4 and 5.
  (g) Additional Authority.--In carrying out any of its 
functions, the Bureau shall have the power to hold hearings, 
sign and issue subpoenas, administer oaths, examine witnesses, 
and receive evidence at any place in the United States it may 
designate. The Bureau may, by one or more of its officers or by 
such agents as it may designate, conduct any hearing or other 
inquiry necessary or appropriate to its functions, except that 
nothing in this subsection shall be deemed to supersede the 
provisions of section 556 of title 5, United States Code 
relating to hearing examiners.
  (h) Conflict of Interest Provisions.--A person previously 
employed by the Bureau may not accept employment or 
compensation from an issuer audited by the Bureau or an 
accountant that provides audit related services to an issuer 
audited by the Bureau for 10 years after the last day of 
employment at the Bureau. Any current employee of the Bureau 
shall be required to place all investments in a blind trust, in 
accordance with regulations prescribed by the Commission. The 
employees of the Bureau who conduct the audits shall be exempt 
from the civil service pay system under section 4802 of title 
5, United States Code, and shall be paid salaries that are 
competitive with similar private sector employment.
  (i) Legal Representation.--Except as provided in section 518 
of title 28, United States Code, relating to litigation before 
the Supreme Court, attorneys designated by the Director of the 
Bureau may appear for, and represent the Bureau in, any civil 
action brought in connection with any function carried out by 
the Bureau pursuant to this Act or as otherwise authorized by 
law.

SEC. 4. ASSUMPTION OF AUTHORITY BY COMMISSION OVER AUDITING STANDARDS.

  (a) Assumption of Authority.--Pursuant to its authority under 
the securities laws to require the certification, in accordance 
with the rules of the Commission, of financial statements and 
other documents of reporting issuers of securities, the 
Commission shall, by rule, establish and revise as necessary 
auditing standards for audits of such financial statements.
  (b) Incorporation of Current Standards.--In adopting auditing 
standards under this section, the Commission shall incorporate 
generally accepted auditing standards in effect on the date of 
enactment of this Act, with such modifications as the 
Commission determines are necessary and appropriate in the 
public interest and for the protection of investors.
  (c) Additional Requirements for Rules.--The rules prescribed 
by the Commission under subsection (a)--
          (1) shall be available for public comment for not 
        less than 90 days;
          (2) shall be prescribed not less than 180 days after 
        the date of enactment of this Act; and
          (3) shall be effective on the first January 1 that 
        occurs after the end of such 180 days.

SEC. 5. FEES FOR THE RECOVERY OF COSTS OF OPERATIONS.

  (a) In General.--The Commission shall in accordance with this 
section assess and collect a fee on each reporting issuer whose 
financial statements are audited by the Bureau. This section 
applies as of the first fiscal year that begins after the date 
of enactment of this Act (referred to in this section as the 
``first applicable fiscal year'').
  (b) Total Fee Revenues; Individual Fee Amounts.--The total 
fee revenues collected under subsection (a) for a fiscal year 
shall be the amounts appropriated under subsection (d)(2) for 
such fiscal year. Individual fees shall be assessed by the 
Commission on the basis of an estimate by the Commission of the 
amount necessary to ensure that the sum of the fees collected 
for such fiscal year equals the amount so appropriated.
  (c) Fee Waiver or Reduction.--The Commission shall grant a 
waiver from or a reduction of a fee assessed under subsection 
(a) if the Commission finds that the fee to be paid will exceed 
the anticipated present and future costs of the operations of 
the Bureau.
  (d) Crediting and Availability of Fees.--
          (1) In general.--Fees collected for a fiscal year 
        pursuant to subsection (a) shall be credited to the 
        appropriation account for salaries and expenses of the 
        Bureau and shall be available until expended without 
        fiscal year limitation.
          (2) Appropriations.--
                  (A) First fiscal year.--For the first 
                applicable fiscal year, there shall be 
                available for the salaries and expenses of the 
                Bureau $5,150,000,000.
                  (B) Subsequent fiscal years.--For each of the 
                four fiscal years following the first 
                applicable fiscal year, there shall be 
                available for the salaries and expenses of the 
                Bureau an amount equal to the amount made 
                available by paragraph (1) for the first 
                applicable fiscal year, multiplied by the 
                adjustment factor for such fiscal year (as 
                defined in subsection (f)).
  (e) Collection of Unpaid Fees.--In any case where the 
Commission does not receive payment of a fee assessed under 
subsection (a) within 30 days after it is due, such fee shall 
be treated as a claim of the United States Government subject 
to subchapter II of chapter 37 of title 31, United States Code.
  (f) Definition of Adjustment Factor.--For purposes of this 
section, the term ``adjustment factor'' applicable to a fiscal 
year is the lower of--
          (1) the Consumer Price Index for all urban consumers 
        (all items; United States city average) for April of 
        the preceding fiscal year divided by such Index for 
        April of the first applicable fiscal year; or
          (2) the total of discretionary budget authority 
        provided for programs in categories other than the 
        defense category for the immediately preceding fiscal 
        year (as reported in the Office of Management and 
        Budget sequestration preview report, if available, 
        required under section 254(c) of the Balanced Budget 
        and Emergency Deficit Control Act of 1985) divided by 
        such budget authority for the first applicable fiscal 
        year (as reported in the Office of Management and 
        Budget final sequestration report submitted for such 
        year).
For purposes of this subsection, the terms ``budget authority'' 
and ``category'' have the meaning given such terms in the 
Balanced Budget and Emergency Deficit Control Act of 1985.

SEC. 6. DEFINITIONS.

  As used in this Act:
          (1) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
          (2) Securities laws.--The term ``securities laws'' 
        means the Securities Act of 1933 (15 U.S.C. 77a et 
        seq.), the Securities Exchange Act of 1934 (15 U.S.C. 
        78a et seq.), the Trust Indenture Act of 1939 (15 
        U.S.C. 77aaa et seq.), the Investment Company Act of 
        1940 (15 U.S.C. 80a-1 et seq.), the Investment Advisers 
        Act of 1940 (15 U.S.C. 80b et seq.), and the Securities 
        Investor Protection Act of 1970 (15 U.S.C. 78aaa et 
        seq.).
          (3) Reporting issuer.--The term ``reporting issuer'' 
        means any registrant under section 12 of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78l) or any other 
        issuer required to file periodic reports under section 
        13 or 15 of such Act (15 U.S.C. 78m, 78o).
                              ----------                              


    5. An Amendment in the Nature of a Substitute To Be Offered by 
  Representative LaFalce of New York, or a Designee, Debatable for 40 
                                Minutes

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Corporate 
and Auditing Accountability, Responsibility, and Transparency 
Act of 2002''.
  (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Auditor oversight.
Sec. 3. Improper influence on conduct of audits.
Sec. 4. Real-time disclosure of financial information.
Sec. 5. Insider trades during pension fund blackout periods prohibited.
Sec. 6. Improved transparency of corporate disclosures.
Sec. 7. Improvements in reporting on insider transactions and 
          relationships.
Sec. 8. Enhanced oversight of periodic disclosures by issuers.
Sec. 9. Retention of records.
Sec. 10. Removal of unfit corporate officers.
Sec. 11. Disgorgement required.
Sec. 12. CEO and CFO accountability for disclosure.
Sec. 13. Securities and Exchange Commission authority to provide relief.
Sec. 14. Authorization of appropriations of the Securities and Exchange 
          Commission.
Sec. 15. Analyst conflicts of interest.
Sec. 16. Independent directors.
Sec. 17. Enforcement of audit committee governance practices.
Sec. 18. Review of corporate governance practices.
Sec. 19. Study of enforcement actions.
Sec. 20. Study of credit rating agencies.
Sec. 21. Study of investment banks
Sec. 22. Study of model rules for attorneys of issuers.
Sec. 23. Enforcement authority.
Sec. 24. Exclusion for investment companies.
Sec. 25. Definitions.

SEC. 2. AUDITOR OVERSIGHT.

  (a) Certified Financial Statement Requirements.--If a 
financial statement is required by the securities laws or any 
rule or regulation thereunder to be certified by an independent 
public or certified accountant, an accountant shall not be 
considered to be qualified to certify such financial statement, 
and the Securities and Exchange Commission shall not accept a 
financial statement certified by an accountant, unless such 
accountant--
          (1) is subject to a system of review by a public 
        regulatory organization that complies with the 
        requirements of this section and the rules prescribed 
        by the Commission under this section; and
          (2) has not been determined in the most recent review 
        completed under such system to be not qualified to 
        certify such a statement.
  (b) Establishment of PRO.--
          (1) Establishment required.--Not later than 90 days 
        after the date of enactment of this section, the 
        Commission shall establish a public regulatory 
        organization to perform the duties set forth in this 
        section.
          (2) Chairman.--The Chairman of the public regulatory 
        organization shall be appointed by the Commission for a 
        term of 5 years.
          (3) Appointment of public regulatory organization 
        members.--There shall be 6 additional public regulatory 
        organization members, who shall be selected jointly by 
        the Chairman of the public regulatory organization and 
        the Chairman of the Commission.
          (4) Accountant members.--Up to 2 of the members may 
        be present or former certified public accountants, 
        provided such members--
                  (A) are not currently in public practices;
                  (B) have not been a person associated with a 
                public accounting firm for a period of at least 
                3 years; and
                  (C) agree to not be a person associated with 
                a public accounting firm or to receive 
                consulting fees from a public accounting firm 
                for a period of 5 years after leaving the 
                public regulatory organization.
          (5) Nominations.--In making appointments of members, 
        the Chairman of the public regulatory organization and 
        the Chairman of the Commission shall consult with, and 
        make appointments from nominations received from--
                  (A) institutional investors;
                  (B) public employee pension plans;
                  (C) pension plans organized pursuant to the 
                Employee Retirement Income Security Act of 
                1974; and
                  (D) pension plans organized pursuant to the 
                Taft-Hartley Act.
          (6) Terms.--The members of the public regulatory 
        organization shall have terms of 4 years, except that 
        the Chairman of the public regulatory organization and 
        the Chairman of the Commission shall adopt procedures 
        for staggering the initial terms of the members first 
        so appointed to provide for a reasonable overlapping of 
        the terms of office of subsequently elected members.
          (7) Full-time basis.--The members of the public 
        regulatory organization shall serve on a full-time 
        basis, severing all business ties with former firms or 
        employers prior to beginning service on the public 
        regulatory organization.
          (8) Rules.--Following selection of the initial 
        members of the public regulatory organization, the 
        public regulatory organization shall propose and adopt 
        rules, which shall provide for--
                  (A) the operation and administration of the 
                public regulatory organization, including the 
                compensation of the members of the public 
                regulatory organization, which shall be at a 
                level comparable to similar professional 
                positions in the private sector;
                  (B) the appointment and compensation of such 
                employees, attorneys, and consultants as may be 
                necessary or appropriate to carry out the 
                public regulatory organization's functions 
                under this section;
                  (C) the registration of public accounting 
                firms with the public regulatory organization 
                pursuant to subsections (d); and
                  (D) the matters described in subsections (e) 
                and (f).
          (9) Funding of the public regulatory organization.--
                  (A) Self-financing.--The public regulatory 
                organization shall establish rules for the 
                assessment and collection of fees sufficient to 
                recover the costs and expenses of the public 
                regulatory organization and to permit the 
                public regulatory organization to operate on a 
                self-financing basis.
                  (B) Assessment and collection.--The fees 
                shall be assessed on issuers that file any 
                financial statements, reports, or other 
                documents with the Commission under the 
                securities laws that must be certified by a 
                public accounting firm. The fees shall be 
                collected through the public accounting firm 
                that certifies such statement, report, or 
                document.
                  (C) Payment a condition of registration.--The 
                public regulatory organization shall terminate 
                or suspend the registration under subsection 
                (d) of any public accounting firm that fails to 
                collect and transmit a fee assessed under this 
                subsection.
  (c) Prohibition on the Offer of Both Audit and Consulting 
Services.--
          (1) Modification of regulations required.--The 
        Commission shall revise its regulations pertaining to 
        auditor independence to require that an accountant 
        shall not be considered independent with respect to an 
        audit client if the accountant provides to the client 
        the following nonaudit services, subject to such 
        conditions and exemptions as the Commission shall 
        prescribe:
                  (A) financial information system design or 
                implementation; or
                  (B) internal audit services.
          (2) Audit committee approval of nonaudit services.--
        The Commission shall revise its regulations pertaining 
        to auditor independence to require that--
                  (A) an accountant shall not be considered to 
                be independent for purposes of certifying the 
                financial statements or other documents of an 
                issuer required to be filed with the Commission 
                under the securities laws for any fiscal year 
                of the issuer if, during such fiscal year, the 
                accountant provides any nonaudit services 
                unless the provision of such nonaudit services 
                was approved in advance by the audit committee 
                or, in the absence of an audit committee, the 
                equivalent board committee or the entire board 
                of directors; and
                  (B) in approving such services, the audit 
                committee shall evaluate the impact of the 
                provision of such services on the independence 
                of the auditor.
          (3) Review of prohibited nonaudit services.--The 
        Commission is authorized to review the impact on the 
        independence of auditors of the scope of services 
        provided by auditors to issuers in order to determine 
        whether the list of prohibited nonaudit services under 
        paragraph (1) shall be modified. In conducting such 
        review, the Commission shall consider the impact of the 
        provision of a service on an auditor's independence 
        where provision of the service creates a conflict of 
        interest with the audit client.
          (4) Additions by rule.--After conducting the review 
        required by paragraph (3) and at any other time, the 
        Commission may, by rule consistent with the protection 
        of investors and the public interest, modify the list 
        of prohibited nonaudit services under paragraph (1).
          (5) Report.--The Commission shall report to the 
        Committee on Financial Services of the House of 
        Representatives and the Committee on Banking, Housing, 
        and Urban Affairs of the Senate on its conduct of any 
        reviews as required by this section. The report shall 
        include a discussion of regulatory or legislative steps 
        that are recommended or that may be necessary to 
        address concerns identified in the study.
          (6) Definitions.--For purposes of this subsection:
                  (A) Financial information system design or 
                implementation..--The term ``financial 
                information systems design or implementation'' 
                means designing or implementing a hardware or 
                software system used to generate information 
                that is significant to the audit client's 
                financial statements taken as a whole, not 
                including services an accountant performs in 
                connection with the assessment, design, and 
                implementation of internal accounting controls 
                and risk management controls.
                  (B) Internal audit services.--The term 
                ``internal audit services'' means internal 
                audit services for an audit client or an 
                affiliate of an audit client, not including 
                nonrecurring evaluations of discrete items or 
                programs and operational internal audits 
                unrelated to the internal accounting controls, 
                financial systems, or financial statements.
          (7) Deadline for rulemaking.--The Commission shall--
                  (A) within 90 days after the date of 
                enactment of this Act, propose, and
                  (B) within 270 days after such date, 
                prescribe,
        the revisions to its regulations required by this 
        subsection.
  (d) Registration With Public Regulatory Organization.--
          (1) Registration required.--Beginning 1 year after 
        the date on which all initial members of the public 
        regulatory organization have been selected in 
        accordance with subsection (b), it shall be unlawful 
        for a public accounting firm to furnish an accountant's 
        report on any financial statement, report, or other 
        document required to be filed with the Commission under 
        any Federal securities law, unless such firm is 
        registered with the public regulatory organization.
          (2) Application for registration.--A public 
        accounting firm may be registered under this subsection 
        by filing with the public regulatory organization an 
        application for registration in such form and 
        containing such information as the public regulatory 
        organization, by rule, may prescribe. Each application 
        shall include--
                  (A) the names of all clients of the public 
                accounting firm for which the firm furnishes 
                accountant's reports on financial statements, 
                reports, or other documents filed with the 
                Commission;
                  (B) financial information of the public 
                accounting firm for its most recent fiscal 
                year, including its annual revenues from 
                accounting and auditing services, its assets, 
                and its liabilities;
                  (C) a statement of the public accounting 
                firm's policies and procedures with respect to 
                quality control of its accounting and auditing 
                practice;
                  (D) information relating to criminal, civil, 
                or administrative actions or formal 
                disciplinary proceedings pending against such 
                firm, or any person associated with such firm, 
                in connection with an accountant's report 
                furnished by such firm;
                  (E) a list of persons associated with the 
                public accounting firm who are certified public 
                accountants, including any State professional 
                license or certification number for each such 
                person; and
                  (F) such other information that is reasonably 
                related to the public regulatory organization's 
                responsibilities as the public regulatory 
                organization considers necessary or 
                appropriate.
          (3) Periodic reports.--Once in each year, or more 
        frequently as the public regulatory organization, by 
        rule, may prescribe, each public accounting firm 
        registered with the public regulatory organization 
        shall submit reports to the public regulatory 
        organization updating the information contained in its 
        application for registration and containing such 
        additional information that is reasonably related to 
        the public regulatory organization's responsibilities 
        as the public regulatory organization, by rule, may 
        prescribe.
          (4) Exemptions.--The Commission, by rule or order, 
        upon its own motion or upon application, may 
        conditionally or unconditionally exempt any public 
        accounting firm or any accountant's report, or any 
        class of public accounting firms or any class of 
        accountant's reports, from any provisions of this 
        section or the rules or regulations issued hereunder, 
        if the Commission finds that such exemption is 
        consistent with the public interest, the protection of 
        investors, and the purposes of this section.
          (5) Confidentiality.--The public regulatory 
        organization may, by rule, designate portions of the 
        filings required pursuant to paragraphs (2) and (3) as 
        privileged and confidential. This paragraph shall be 
        considered to be a statute described in section 
        552(b)(3)(B) of title 5, United States Code, for 
        purposes of that section 552.
  (e) Duties Regarding Quality Control.--
          (1) Objectives; attainment.--The public regulatory 
        organization shall seek to promote a high level of 
        professional conduct among public accounting firms 
        registered with the public regulatory organization, to 
        improve the quality of audit services provided by such 
        firms, and, in general, to protect investors and 
        promote the public interest. The public regulatory 
        organization shall attain these objectives--
                  (A) by establishing standards regarding the 
                performance of financial audits in accordance 
                with the requirements of paragraph (2);
                  (B) by the direct performance of quality 
                reviews and inspections of audits in accordance 
                with the requirements of paragraphs (3) and 
                (4); and
                  (C) by the supervision and oversight of peer 
                review organizations in accordance with the 
                requirements of paragraph (5).
          (2) Audit quality standards.--
                  (A) In general.--The public regulatory 
                organization shall, by rule, establish quality 
                standards applicable to the conduct of audit 
                services provided by public accounting firms. 
                Such standards shall include--
                          (i) independence standards;
                          (ii) quality control standards;
                          (iii) professional and ethical 
                        standards; and
                          (iv) such other standards as the 
                        public regulatory organization 
                        determines to be necessary to carry out 
                        the objectives specified in paragraph 
                        (1).
                  (B) Specific contents of standards.--In 
                establishing the quality standards required by 
                subparagraph (A), the public regulatory 
                organization shall also establish--
                          (i) procedures for the monitoring by 
                        public accounting firms of their 
                        compliance with professional ethical 
                        standards established by the public 
                        regulatory organization, including its 
                        independence from its audit clients;
                          (ii) procedures for the assignment of 
                        personnel to audit engagements;
                          (iii) procedures for consultation 
                        within a public accounting firm or with 
                        other accountants relating to 
                        accounting and auditing questions;
                          (iv) procedures for the supervision 
                        of audit work;
                          (v) procedures for the review of 
                        decisions to accept and retain audit 
                        clients;
                          (vi) procedures for the internal 
                        inspection of the public accounting 
                        firms own compliance with such policies 
                        and procedures;
                          (vii) requirements for public 
                        accounting firms to prepare and 
                        maintain for a period of no less than 7 
                        years, audit work papers and other 
                        information related to any audit 
                        report, in sufficient detail to support 
                        the conclusions reached in an audit 
                        report issued by a public accounting 
                        firm; and
                          (viii) procedures establishing 
                        ``concurring'' or ``second'' partner 
                        review systems for the evaluation and 
                        review of audit work by a partner that 
                        is not in charge of the conduct of the 
                        audit.
          (3) Direct reviews of public accounting firms.--The 
        public regulatory organization shall, by rule, 
        establish procedures for the conduct of a continuing 
        program of inspections of each public accounting firm 
        registered with the public regulatory organization to 
        assess compliance by such firm, and by persons 
        associated with such firm, with applicable provisions 
        of this Act, the securities laws, the rules and 
        regulations thereunder, the rules adopted by the public 
        regulatory organization, and professional standards. 
        Except as provided in paragraph (5), the public 
        regulatory organization shall annually inspect each 
        public accounting firm that audits more than 100 
        issuers on an ongoing annual basis, to the extent 
        practicable, and all other public accounting firms no 
        less than at least once every 3 years. In conducting 
        such inspections, the public regulatory organization 
        shall, among other things, inspect selected audit and 
        review engagements. The review shall include 
        evaluations of the firm's quality control procedures 
        and compliance with all legal and ethical requirements. 
        In connection with each review, the public regulatory 
        organization shall prepare a report of its findings and 
        such report, accompanied by any letter of comments by 
        the public regulatory organization or reviewer and any 
        letter of response from the firm under review, shall be 
        made available to the public. The public regulatory 
        organization shall take any appropriate disciplinary or 
        remedial action based on its findings after completion 
        of such review and an opportunity for a hearing.
          (4) Quality review of individual audits.--The public 
        regulatory organization shall, by rule, establish 
        procedures for the conduct of direct inspection and 
        review of individual audits of issuers and standards 
        under which it will evaluate audit service quality. A 
        finding by the public regulatory organization that an 
        individual audit of an issuer did or did not meet the 
        standards of the public regulatory organization with 
        respect to the quality of the audit shall not be 
        construed in any action arising out of the securities 
        laws as indicative of compliance or noncompliance with 
        the securities laws or with any standard of liability 
        arising thereunder.
          (5) Use of professional peer review organizations.--
                  (A) Option to utilize peer review 
                organizations.--The public regulatory 
                organization may, by rule, establish 
                requirements for the use of peer review 
                organizations for the purposes of conducting 
                the continuing program of inspections to assess 
                compliance as required by paragraph (3) of each 
                public accounting firm registered with the 
                public regulatory organization. Such rule shall 
                provide for appropriate oversight and 
                supervision of such peer review organization by 
                the public regulatory organization to ensure 
                that such inspections meet the requirements of 
                such paragraph.
                  (B) Penalties.--If the public regulatory 
                organization establishes requirements for the 
                conduct of peer reviews under subparagraph (A), 
                the violation by a public accounting firm or a 
                person associated with such a firm of a rule of 
                the peer review organization to which the firm 
                belongs shall constitute grounds for--
                          (i) the imposition of disciplinary 
                        sanctions by the public regulatory 
                        organization pursuant to subsection 
                        (g); and
                          (ii) denial to the public accounting 
                        firm or person associated with such 
                        firm of the privilege of appearing or 
                        practicing before the Commission.
          (6) Confidentiality.--Except as otherwise provided by 
        this section, all reports, memoranda, and other 
        information provided to the public regulatory 
        organization solely for purposes of paragraph (3) or 
        (4), or to a peer review organization certified by the 
        public regulatory organization, shall be confidential, 
        unless such confidentiality is expressly waived by the 
        person or entity that created or provided the 
        information.
  (f) Disciplinary Duties of Public Regulatory Organization.--
The public regulatory organization shall have the following 
duties and powers:
          (1) Investigations and disciplinary proceedings.--The 
        public regulatory organization shall establish fair 
        procedures for investigating and disciplining public 
        accounting firms registered with the public regulatory 
        organization, and persons associated with such firms, 
        for violations of the Federal securities laws, the 
        rules or regulations issued thereunder, the rules 
        adopted by the public regulatory organization, or 
        professional standards in connection with the 
        preparation of an accountant's report on a financial 
        statement, report, or other document filed with the 
        Commission.
          (2) Investigation procedures.--
                  (A) In general.--The public regulatory 
                organization may conduct an investigation of 
                any act, practice, or omission by a public 
                accounting firm registered with the public 
                regulatory organization, or by any person 
                associated with such firm, in connection with 
                the preparation of an accountant's report on a 
                financial statement, report, or other document 
                filed with the Commission that may violate any 
                applicable provision of the Federal securities 
                laws, the rules and regulations issued 
                thereunder, the rules adopted by the public 
                regulatory organization, or professional 
                standards, whether such act, practice, or 
                omission is the subject of a criminal, civil, 
                or administrative action, or a disciplinary 
                proceeding, or otherwise is brought to the 
                attention of the public regulatory 
                organization.
                  (B) Powers of public regulatory 
                organization.--For purposes of an investigation 
                under this paragraph, the public regulatory 
                organization may, in addition to such other 
                actions as the public regulatory organization 
                determines to be necessary or appropriate--
                          (i) require the testimony of any 
                        person associated with a public 
                        accounting firm registered with the 
                        public regulatory organization, with 
                        respect to any matter which the public 
                        regulatory organization considers 
                        relevant or material to the 
                        investigation;
                          (ii) require the production of audit 
                        workpapers and any other document or 
                        information in the possession of a 
                        public accounting firm registered with 
                        the public regulatory organization, or 
                        any person associated with such firm, 
                        wherever domiciled, that the public 
                        regulatory organization considers 
                        relevant or material to the 
                        investigation, and may examine the 
                        books and records of such firm to 
                        verify the accuracy of any documents or 
                        information so supplied; and
                          (iii) request the testimony of any 
                        person and the production of any 
                        document in the possession of any 
                        person, including a client of a public 
                        accounting firm registered with the 
                        public regulatory organization, that 
                        the public regulatory organization 
                        considers relevant or material to the 
                        investigation.
                  (C) Suspension or revocation of registration 
                for noncompliance.--The refusal of any person 
                associated with a public accounting firm 
                registered with the public regulatory 
                organization to testify, or the refusal of any 
                such person to produce documents or otherwise 
                cooperate with the public regulatory 
                organization, in connection with an 
                investigation or hearing under this section, 
                shall be cause for suspending or barring such 
                person from associating with a public 
                accounting firm registered with the public 
                regulatory organization, or such other 
                appropriate sanction authorized by paragraph 
                (3)(B) as the public regulatory organization 
                shall determine. The refusal of any public 
                accounting firm registered with the public 
                regulatory organization to produce documents or 
                otherwise cooperate with the public regulatory 
                organization, in connection with an 
                investigation or hearing under this section, 
                shall be cause for the suspension or revocation 
                of the registration of such firm, or such other 
                appropriate sanction authorized by paragraph 
                (3)(B) as the public regulatory organization 
                shall determine.
                  (D) Referral to commission.--
                          (i) In general.--If the public 
                        regulatory organization is unable to 
                        conduct or complete an investigation or 
                        hearing under this section because of 
                        the refusal of any client of a public 
                        accounting firm registered with the 
                        public regulatory organization, or any 
                        other person, to testify, produce 
                        documents, or otherwise cooperate with 
                        the public regulatory organization in 
                        connection with such investigation, the 
                        public regulatory organization shall 
                        report such refusal to the Commission.
                          (ii) Investigation.--The Commission 
                        may designate the public regulatory 
                        organization or one or more officers of 
                        the public regulatory organization who 
                        shall be empowered, in accordance with 
                        such procedures as the Commission may 
                        adopt, to subpoena witnesses, compel 
                        their attendance, and require the 
                        production of any books, papers, 
                        correspondence, memoranda, or other 
                        records relevant to any investigation 
                        by the public regulatory organization. 
                        Attendance of witnesses and the 
                        production of any records may be 
                        required from any place in the United 
                        States or any State at any designated 
                        place of hearing. Enforcement of a 
                        subpoena issued by the public 
                        regulatory organization, or an officer 
                        of the public regulatory organization, 
                        pursuant to this subparagraph shall 
                        occur in the manner provided for in 
                        section 21(c). Examination of witnesses 
                        subpoenaed pursuant to this 
                        subparagraph shall be conducted before 
                        an officer authorized to administer 
                        oaths by the laws of the United States 
                        or of the place where the examination 
                        is held.
                          (iii) Referrals to commission.--The 
                        public regulatory organization may 
                        refer any investigation to the 
                        Commission, as the public regulatory 
                        organization deems appropriate.
                  (E) Immunity from civil liability.--An 
                employee of the public regulatory organization 
                engaged in carrying out an investigation or 
                disciplinary proceeding under this section 
                shall be immune from any civil liability 
                arising out of such investigation or 
                disciplinary proceeding in the same manner and 
                to the same extent as an employee of the 
                Federal Government in similar circumstances.
          (3) Disciplinary procedures.--
                  (A) Decision to discipline.--In a proceeding 
                by the public regulatory organization to 
                determine whether a public accounting firm, or 
                a person associated with such firm, should be 
                disciplined, the public regulatory organization 
                shall bring specific charges, notify such firm 
                or person of the charges, give such firm or 
                person an opportunity to defend against such 
                charges, and keep a record of such actions.
                  (B) Sanctions.--If the public regulatory 
                organization, after conducting a review and 
                providing an opportunity for a hearing, finds 
                that a public accounting firm, or a person 
                associated with such firm, has engaged in any 
                act, practice, or omission in violation of the 
                Federal securities laws, the rules or 
                regulations issued thereunder, the rules 
                adopted by the public regulatory organization, 
                or professional standards, the public 
                regulatory organization may impose such 
                disciplinary sanctions as it deems appropriate, 
                including--
                          (i) temporary or permanent revocation 
                        or suspension of registration under 
                        this section;
                          (ii) limitation of activities, 
                        functions, and operations;
                          (iii) fine;
                          (iv) censure;
                          (v) in the case of a person 
                        associated with a public accounting 
                        firm, suspension or bar from being 
                        associated with a public accounting 
                        firm registered with the public 
                        regulatory organization; and
                          (vi) any such other disciplinary 
                        sanction or remedial action as the 
                        public regulatory organization has 
                        established by rule that the public 
                        regulatory organization determines to 
                        be appropriate to prevent the 
                        recurrence of the violation.
                  (C) Statement required.--A determination by 
                the public regulatory organization to impose a 
                disciplinary sanction shall be supported by a 
                written statement by the public regulatory 
                organization that shall be made available to 
                the public and that sets forth--
                          (i) any act or practice in which the 
                        public accounting firm or person 
                        associated with such firm has been 
                        found to have engaged, or which such 
                        firm or person has been found to have 
                        omitted;
                          (ii) the specific provision of the 
                        Federal securities laws, the rules or 
                        regulations issued thereunder, the 
                        rules adopted by the public regulatory 
                        organization, or professional standards 
                        which any such act, practice, or 
                        omission is deemed to violate; and
                          (iii) the sanction imposed and the 
                        reasons therefor.
                  (D) Prohibition on association.--It shall be 
                unlawful--
                          (i) for any person as to whom a 
                        suspension or bar is in effect 
                        willfully to be or to become associated 
                        with a public accounting firm 
                        registered with the public regulatory 
                        organization, in connection with the 
                        preparation of an accountant's report 
                        on any financial statement, report, or 
                        other document filed with the 
                        Commission, without the consent of the 
                        public regulatory organization or the 
                        Commission; and
                          (ii) for any public accounting firm 
                        registered with the public regulatory 
                        organization to permit such a person to 
                        become, or remain, associated with such 
                        firm without the consent of the public 
                        regulatory organization or the 
                        Commission, if such firm knew or, in 
                        the exercise of reasonable care should 
                        have known, of such suspension or bar.
          (4) Reporting of sanctions.--If the public regulatory 
        organization imposes a disciplinary sanction against a 
        public accounting firm, or a person associated with 
        such firm, the public regulatory organization shall 
        report such sanction to the Commission, to the 
        appropriate State or foreign licensing public 
        regulatory organization or public regulatory 
        organizations with which such firm or such person is 
        licensed or certified to practice public accounting, 
        and to the public. The information reported shall 
        include--
                  (A) the name of the public accounting firm, 
                or person associated with such firm, against 
                whom the sanction is imposed;
                  (B) a description of the acts, practices, or 
                omissions upon which the sanction is based;
                  (C) the nature of the sanction; and
                  (D) such other information respecting the 
                circumstances of the disciplinary action 
                (including the name of any client of such firm 
                affected by such acts, practices, or omissions) 
                as the public regulatory organization deems 
                appropriate.
          (5) Discovery and admissibility of public regulatory 
        organization material.--
                  (A) Discoverability.--
                          (i) In general.--Except as provided 
                        in subparagraph (C), all reports, 
                        memoranda, and other information 
                        prepared, collected, or received by the 
                        public regulatory organization, and the 
                        deliberations and other proceedings of 
                        the public regulatory organization and 
                        its employees and agents in connection 
                        with an investigation or disciplinary 
                        proceeding under this section shall not 
                        be subject to any form of civil 
                        discovery, including demands for 
                        production of documents and for 
                        testimony of individuals, in connection 
                        with any proceeding in any State or 
                        Federal court, or before any State or 
                        Federal administrative agency. This 
                        subparagraph shall not apply to any 
                        information provided to the public 
                        regulatory organization that would have 
                        been subject to discovery from the 
                        person or entity that provided it to 
                        the public regulatory organization, but 
                        is no longer available from that person 
                        or entity.
                          (ii) Exemption.--Submissions to the 
                        public regulatory organization by or on 
                        behalf of a public accounting firm or 
                        person associated with such a firm or 
                        on behalf of any other participant in a 
                        public regulatory organization 
                        proceeding (other than a public 
                        hearing), including documents generated 
                        by the public regulatory organization 
                        itself, shall be exempt from discovery 
                        to the same extent as the material 
                        described in clause (i), whether in the 
                        possession of the public regulatory 
                        organization or any other person, if 
                        such submission--
                                  (I) is prepared specifically 
                                for the purpose of the public 
                                regulatory organization 
                                proceeding; and
                                  (II) addresses the merits of 
                                the issues under investigation 
                                by the public regulatory 
                                organization.
                          (iii) Hearings public.--Except as 
                        otherwise ordered by the public 
                        regulatory organization on its own 
                        motion or on the motion of a party, all 
                        hearings under this paragraph shall be 
                        open to the public.
                  (B) Admissibility.--
                          (i) In general.--Except as provided 
                        in subparagraph (C), all reports, 
                        memoranda, and other information 
                        prepared, collected, or received by the 
                        public regulatory organization, the 
                        deliberations and other proceedings of 
                        the public regulatory organization and 
                        its employees and agents in connection 
                        with an investigation or disciplinary 
                        proceeding under this section, the fact 
                        that an investigation or disciplinary 
                        proceeding has been commenced, and the 
                        public regulatory organization's 
                        determination with respect to any 
                        investigation or disciplinary 
                        proceeding shall be inadmissible in any 
                        proceeding in any State or Federal 
                        court or before any State or Federal 
                        administrative agency.
                          (ii) Treatment of certain 
                        documents.--Submissions to the public 
                        regulatory organization by or on behalf 
                        of a public accounting firm or person 
                        associated with such a firm or on 
                        behalf of any other participant in a 
                        public regulatory organization 
                        proceeding, including documents 
                        generated by the public regulatory 
                        organization itself, shall be 
                        inadmissible to the same extent as the 
                        material described in clause (i), if 
                        such submission--
                                  (I) is prepared specifically 
                                for the purpose of the public 
                                regulatory organization 
                                proceedings; and
                                  (II) addresses the merits of 
                                the issues under investigation 
                                by the public regulatory 
                                organization.
                  (C) Availability and admissibility of 
                information.--
                          (i) In general.--All information 
                        referred to in subparagraphs (A) and 
                        (B) shall be--
                                  (I) available to the 
                                Commission;
                                  (II) available to any other 
                                Federal department or agency in 
                                connection with the exercise of 
                                its regulatory authority to the 
                                extent that such information 
                                would be available to such 
                                agency from the Commission as a 
                                result of a Commission 
                                enforcement investigation;
                                  (III) available to Federal 
                                and State authorities in 
                                connection with any criminal 
                                investigation or proceeding;
                                  (IV) admissible in any action 
                                brought by the Commission or 
                                any other Federal department or 
                                agency pursuant to its 
                                regulatory authority, to the 
                                extent that such information 
                                would be available to such 
                                agency from the Commission as a 
                                result of a Commission 
                                enforcement investigation and 
                                in any criminal action; and
                                  (V) available to State 
                                licensing public regulatory 
                                organizations to the extent 
                                authorized in paragraph (6).
                          (ii) Other limitations.--Any 
                        documents or other information provided 
                        to the Commission or other authorities 
                        pursuant to clause (i) shall be subject 
                        to the limitations on discovery and 
                        admissibility set forth in 
                        subparagraphs (A) and (B).
          (6) Participation by state licensing public 
        regulatory organizations.--
                  (A) Notice.--When the public regulatory 
                organization institutes an investigation 
                pursuant to paragraph (2)(A), it shall notify 
                the State licensing public regulatory 
                organizations in the States in which the public 
                accounting firm or person associated with such 
                firm engaged in the act or failure to act 
                alleged to have violated professional 
                standards, of the pendency of the 
                investigation, and shall invite the State 
                licensing public regulatory organizations to 
                participate in the investigation.
                  (B) Acceptance by state public regulatory 
                organization.--If a State licensing public 
                regulatory organization elects to join in the 
                investigation, its representatives shall 
                participate, pursuant to rules established by 
                the public regulatory organization, in 
                investigating the matter and in presenting the 
                evidence justifying the charges in any hearing 
                pursuant to paragraph (3)(A).
                  (C) State sanctions permitted.--If the public 
                regulatory organization or the Commission 
                imposes a sanction upon a public accounting 
                firm or person associated with such a firm, and 
                that determination either is not subjected to 
                judicial review or is upheld on judicial 
                review, a State licensing public regulatory 
                organization may impose a sanction on the basis 
                of the public regulatory organization's report 
                pursuant to paragraph (4). Any sanction imposed 
                by the State licensing public regulatory 
                organization under this clause shall be 
                inadmissible in any proceeding in any State or 
                Federal court or before any State or Federal 
                administrative agency.
  (g) Review and Approval of Rules.--
          (1) Submission, publication, and comment.--Each 
        recognized public regulatory organization shall file 
        with the Commission, in accordance with such rules as 
        the Commission may prescribe, copies of any proposed 
        rule or any proposed change in, addition to, or 
        deletion from the rules of such recognized public 
        regulatory organization (hereinafter in this subsection 
        collectively referred to as a ``proposed rule change'') 
        accompanied by a concise general statement of the basis 
        and purpose of such proposed rule change. The 
        Commission shall, upon the filing of any proposed rule 
        change, publish notice thereof together with the terms 
        of substance of the proposed rule change or a 
        description of the subjects and issues involved. The 
        Commission shall give interested persons an opportunity 
        to submit written data, views, and arguments concerning 
        such proposed rule change. No proposed rule change 
        shall take effect unless approved by the Commission or 
        otherwise permitted in accordance with the provisions 
        of this subsection.
          (2) Approval or proceedings.--Within 35 days of the 
        date of publication of notice of the filing of a 
        proposed rule change in accordance with paragraph (1) 
        of this subsection, or within such longer period as the 
        Commission may designate up to 90 days of such date if 
        it finds such longer period to be appropriate and 
        publishes its reasons for so finding or as to which the 
        recognized public regulatory organization consents, the 
        Commission shall--
                  (A) by order approve such proposed rule 
                change; or
                  (B) institute proceedings to determine 
                whether the proposed rule change should be 
                disapproved. Such proceedings shall include 
                notice of the grounds for disapproval under 
                consideration and opportunity for hearing and 
                be concluded within 180 days of the date of 
                publication of notice of the filing of the 
                proposed rule change. At the conclusion of such 
                proceedings the Commission, by order, shall 
                approve or disapprove such proposed rule 
                change. The Commission may extend the time for 
                conclusion of such proceedings for up to 60 
                days if it finds good cause for such extension 
                and publishes its reasons for so finding or for 
                such longer period as to which the recognized 
                public regulatory organization consents.
          (3) Basis for approval or disapproval.--The 
        Commission shall approve a proposed rule change of a 
        recognized public regulatory organization if it finds 
        that such proposed rule change is consistent with the 
        requirements of this Act and the rules and regulations 
        thereunder applicable to such organization. The 
        Commission shall disapprove a proposed rule change of a 
        recognized public regulatory organization if it does 
        not make such finding. The Commission shall not approve 
        any proposed rule change prior to the 30th day after 
        the date of publication of notice of the filing 
        thereof, unless the Commission finds good cause for so 
        doing and publishes its reasons for so finding.
          (4) Rules effective upon filing.--
                  (A) Notwithstanding the provisions of 
                paragraph (2) of this subsection, a proposed 
                rule change may take effect upon filing with 
                the Commission if designated by the recognized 
                public regulatory organization as (i) 
                constituting a stated policy, practice, or 
                interpretation with respect to the meaning, 
                administration, or enforcement of an existing 
                rule of the recognized public regulatory 
                organization, (ii) establishing or changing a 
                due, fee, or other charge imposed by the 
                recognized public regulatory organization, or 
                (iii) concerned solely with the administration 
                of the recognized public regulatory 
                organization or other matters which the 
                Commission, by rule, consistent with the public 
                interest and the purposes of this subsection, 
                may specify as outside the provisions of such 
                paragraph (2).
                  (B) Notwithstanding any other provision of 
                this subsection, a proposed rule change may be 
                put into effect summarily if it appears to the 
                Commission that such action is necessary for 
                the protection of investors, or otherwise in 
                accordance with the purposes of this title. Any 
                proposed rule change so put into effect shall 
                be filed promptly thereafter in accordance with 
                the provisions of paragraph (1) of this 
                subsection.
                  (C) Any proposed rule change of a recognized 
                public regulatory organization which has taken 
                effect pursuant to subparagraph (A) or (B) of 
                this paragraph may be enforced by such 
                organization to the extent it is not 
                inconsistent with the provisions of this Act, 
                the securities laws, the rules and regulations 
                thereunder, and applicable Federal and State 
                law. At any time within 60 days of the date of 
                filing of such a proposed rule change in 
                accordance with the provisions of paragraph (1) 
                of this subsection, the Commission summarily 
                may abrogate the change in the rules of the 
                recognized public regulatory organization made 
                thereby and require that the proposed rule 
                change be refiled in accordance with the 
                provisions of paragraph (1) of this subsection 
                and reviewed in accordance with the provisions 
                of paragraph (2) of this subsection, if it 
                appears to the Commission that such action is 
                necessary or appropriate in the public 
                interest, for the protection of investors, or 
                otherwise in furtherance of the purposes of 
                this Act. Commission action pursuant to the 
                preceding sentence shall not affect the 
                validity or force of the rule change during the 
                period it was in effect, shall not be subject 
                to court review, and shall not be deemed to be 
                ``final agency action'' for purposes of section 
                704 of title 5, United States Code.
  (h) Commission Action To Change Rules.--The Commission, by 
rule, may abrogate, add to, and delete from (hereinafter in 
this subsection collectively referred to as ``amend'') the 
rules of a recognized public regulatory organization as the 
Commission deems necessary or appropriate to insure the fair 
administration of the recognized public regulatory 
organization, to conform its rules to requirements of this Act, 
the securities laws, and the rules and regulations thereunder 
applicable to such organization, or otherwise in furtherance of 
the purposes of this Act, in the following manner:
          (1) The Commission shall notify the recognized public 
        regulatory organization and publish notice of the 
        proposed rulemaking in the Federal Register. The notice 
        shall include the text of the proposed amendment to the 
        rules of the recognized public regulatory organization 
        and a statement of the Commission's reasons, including 
        any pertinent facts, for commencing such proposed 
        rulemaking.
          (2) The Commission shall give interested persons an 
        opportunity for the oral presentation of data, views, 
        and arguments, in addition to an opportunity to make 
        written submissions. A transcript shall be kept of any 
        oral presentation.
          (3) A rule adopted pursuant to this subsection shall 
        incorporate the text of the amendment to the rules of 
        the recognized public regulatory organization and a 
        statement of the Commission's basis for and purpose in 
        so amending such rules. This statement shall include an 
        identification of any facts on which the Commission 
        considers its determination so to amend the rules of 
        the recognized public regulatory agency to be based, 
        including the reasons for the Commission's conclusions 
        as to any of such facts which were disputed in the 
        rulemaking.
          (4)(A) Except as provided in paragraphs (1) through 
        (3) of this subsection, rulemaking under this 
        subsection shall be in accordance with the procedures 
        specified in section 553 of title 5, United States 
        Code, for rulemaking not on the record.
          (B) Nothing in this subsection shall be construed to 
        impair or limit the Commission's power to make, or to 
        modify or alter the procedures the Commission may 
        follow in making, rules and regulations pursuant to any 
        other authority under the securities laws.
          (C) Any amendment to the rules of a recognized public 
        regulatory organization made by the Commission pursuant 
        to this subsection shall be considered for all purposes 
        to be part of the rules of such recognized public 
        regulatory organization and shall not be considered to 
        be a rule of the Commission.
  (i) Commission Oversight of the PRO.--
          (1) Records and examinations.--A public regulatory 
        organization shall make and keep for prescribed periods 
        such records, furnish such copies thereof, and make and 
        disseminate such reports as the Commission, by rule, 
        prescribes as necessary or appropriate in the public 
        interest, for the protection of investors, or otherwise 
        in furtherance of the purposes of this Act or the 
        securities laws.
          (2) Additional duties; special reviews.--A public 
        regulatory organization shall perform such other duties 
        or functions as the Commission, by rule or order, 
        determines are necessary or appropriate in the public 
        interest or for the protection of investors and to 
        carry out the purposes of this Act and the securities 
        laws, including conducting a special review of a 
        particular public accounting firm's quality control 
        system or a special review of a particular aspect of 
        some or all public accounting firms' quality control 
        systems.
          (3) Annual report; proposed budget.--
                  (A) Submission of annual report and budget.--
                A public regulatory organization shall submit 
                an annual report and its proposed budget to the 
                Commission for review and approval, by order, 
                at such times and in such form as the 
                Commission shall prescribe.
                  (B) Contents of annual report.--Each annual 
                report required by subparagraph (A) shall 
                include--
                          (i) a detailed description of the 
                        activities of the public regulatory 
                        organization;
                          (ii) the audited financial statements 
                        of the public regulatory organization;
                          (iii) a detailed explanation of the 
                        fees and charges imposed by the public 
                        regulatory organization under 
                        subsection (b)(9); and
                          (iv) such other matters as the public 
                        regulatory organization or the 
                        Commission deems appropriate.
                  (C) Transmittal of annual report to 
                congress.--The Commission shall transmit each 
                approved annual report received under 
                subparagraph (A) to the Committee on Financial 
                Services of the United States House of 
                Representatives and the Committee on Banking, 
                Housing, and Urban Affairs of the United States 
                Senate. At the same time it transmits a public 
                regulatory organization's annual report under 
                this subparagraph, the Commission shall include 
                a written statement of its views of the 
                functioning and operations of the public 
                regulatory organization.
                  (D) Public availability.--Following 
                transmittal of each approved annual report 
                under subparagraph (C), the Commission and the 
                public regulatory organization shall make the 
                approved annual report publicly available.
          (4) Disapproval of election of pro member.--The 
        Commission is authorized, by order, if in its opinion 
        such action is necessary or appropriate in the public 
        interest, for the protection of investors, or otherwise 
        in furtherance of the purposes of this Act or the 
        securities laws, to disapprove the election of any 
        member of a public regulatory organization if the 
        Commission determines, after notice and opportunity for 
        hearing, that the person elected is unfit to serve on 
        the public regulatory organization.
  (j) Clarification of Application of PRO Authority.--The 
authority granted to any such organization in this section 
shall only apply to the actions of accountants related to the 
certification of financial statements required by securities 
laws and not other actions or actions for other clients of the 
accounting firm or any accountant that does not certify 
financial statements for publicly traded companies.
  (k) Deadline for Rulemaking.--The Commission shall--
          (1) within 90 days after the date of enactment of 
        this Act, propose, and
          (2) within 270 days after such date, prescribe,
rules to implement this section.
  (l) Effective Date; Transition Provisions.--
          (1) Effective date.--Except as provided in paragraph 
        (2), subsection (a) of this section shall be effective 
        with respect to any certified financial statement for 
        any fiscal year that ends more than one year after the 
        Commission recognizes a public regulatory organization 
        pursuant to this section.
          (2) Delay in establishment of board.--If the 
        Commission has failed to recognize any public 
        regulatory organization pursuant to this section within 
        one year after the date of enactment of this Act, the 
        Commission shall perform the duties of such 
        organization with respect to any certified financial 
        statement for any fiscal year that ends before one year 
        after any such board is recognized by the Commission.

SEC. 3. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.

  (a) Rules To Prohibit.--It shall be unlawful in contravention 
of such rules or regulations as the Commission shall prescribe 
as necessary and appropriate in the public interest or for the 
protection of investors for any officer, director, or 
affiliated person of an issuer of any security registered under 
section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 
78l) to take any action to fraudulently influence, coerce, 
manipulate, or mislead any independent public or certified 
accountant engaged in the performance of an audit of the 
financial statements of such issuer for the purpose of 
rendering such financial statements materially misleading. In 
any civil proceeding, the Commission shall have exclusive 
authority to enforce this section and any rule or regulation 
hereunder.
  (b) No Preemption of Other Law.--The provisions of subsection 
(a) shall be in addition to, and shall not supersede or 
preempt, any other provision of law or any rule or regulation 
thereunder.
  (c) Deadline for Rulemaking.--The Commission shall--
          (1) within 90 days after the date of enactment of 
        this Act, propose, and
          (2) within 270 days after such date, prescribe,
the rules or regulations required by this section.

SEC. 4. REAL-TIME DISCLOSURE OF FINANCIAL INFORMATION.

  (a) Real-Time Issuer Disclosures Required.--
          (1) Obligations.--Every issuer of a security 
        registered under section 12 of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78l) shall file with the 
        Commission and disclose to the public, on a rapid and 
        essentially contemporaneous basis, such information 
        concerning the financial condition or operations of 
        such issuer as the Commission determines by rule is 
        necessary in the public interest and for the protection 
        of investors. Such rule shall--
                  (A) specify the events or circumstances 
                giving rise to the obligation to disclose or 
                update a disclosure;
                  (B) establish requirements regarding the 
                rapidity and timeliness of such disclosure;
                  (C) identify the means whereby the disclosure 
                required shall be made, which shall ensure the 
                broad, rapid, and accurate dissemination of the 
                information to the public via electronic or 
                other communications device;
                  (D) identify the content of the information 
                to be disclosed; and
                  (E) without limiting the Commission's general 
                exemptive authority, specify any exemptions or 
                exceptions from such requirements.
          (2) Enforcement.--The Commission shall have exclusive 
        authority to enforce this section and any rule or 
        regulation hereunder in civil proceedings.
  (b) Electronic Disclosure of Insider Transactions.--
          (1) Disclosures of trading.--The Commission shall, by 
        rule, require--
                  (A) that a disclosure required by section 16 
                of the Securities Exchange Act of 1934 (15 
                U.S.C. 78p) of the sale of any securities of an 
                issuer, or any security futures product (as 
                defined in section 3(a)(56) of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78c(a)(56))) or 
                any security-based swap agreement (as defined 
                in section 206B of the Gramm-Leach-Bliley Act) 
                that is based in whole or in part on the 
                securities of such issuer, by an officer or 
                director of the issuer of those securities, or 
                by a beneficial owner of such securities, shall 
                be made available electronically to the 
                Commission and to the issuer by such officer, 
                director, or beneficial owner before the end of 
                the next business day after the day on which 
                the transaction occurs;
                  (B) that the information in such disclosure 
                be made available electronically to the public 
                by the Commission, to the extent permitted 
                under applicable law, upon receipt, but in no 
                case later than the end of the next business 
                day after the day on which the disclosure is 
                received under subparagraph (A); and
                  (C) that, in any case in which the issuer 
                maintains a corporate website, such information 
                shall be made available by such issuer on that 
                website, before the end of the next business 
                day after the day on which the disclosure is 
                received by the Commission under subparagraph 
                (A).
          (2) Transactions included.--The rule prescribed under 
        paragraph (1) shall require the disclosure of the 
        following transactions:
                  (A) Direct or indirect sales or other 
                transfers of securities of the issuer (or any 
                interest therein) to the issuer or an affiliate 
                of the issuer.
                  (B) Loans or other extensions of credit 
                extended to an officer, director, or other 
                person affiliated with the issuer on terms or 
                conditions not otherwise available to the 
                public.
          (3) Other formats; forms.--In the rule prescribed 
        under paragraph (1), the Commission shall provide that 
        electronic filing and disclosure shall be in lieu of 
        any other format required for such disclosures on the 
        day before the date of enactment of this subsection. 
        The Commission shall revise such forms and schedules 
        required to be filed with the Commission pursuant to 
        paragraph (1) as necessary to facilitate such 
        electronic filing and disclosure.

SEC. 5. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS PROHIBITED.

  (a) Prohibition.--It shall be unlawful for any person who is 
directly or indirectly the beneficial owner of more than 10 
percent of any class of any equity security (other than an 
exempted security) which is registered under section 12 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78l) or who is a 
director or an officer of the issuer of such security, directly 
or indirectly, to purchase (or otherwise acquire) or sell (or 
otherwise transfer) any equity security of any issuer (other 
than an exempted security), during any blackout period with 
respect to such equity security.
  (b) Remedy.--Any profit realized by such beneficial owner, 
director, or officer from any purchase (or other acquisition) 
or sale (or other transfer) in violation of this section shall 
inure to and be recoverable by the issuer irrespective of any 
intention on the part of such beneficial owner, director, or 
officer in entering into the transaction. Suit to recover such 
profit may be instituted at law or in equity in any court of 
competent jurisdiction by the issuer, or by the owner of any 
security of the issuer in the name and in behalf of the issuer 
if the issuer shall fail or refuse to bring such suit within 60 
days after request or shall fail diligently to prosecute the 
same thereafter; but no such suit shall be brought more than 2 
years after the date such profit was realized. This subsection 
shall not be construed to cover any transaction where such 
beneficial owner was not such both at the time of the purchase 
and sale, or the sale and purchase, of the security or 
security-based swap (as defined in section 206B of the Gramm-
Leach-Bliley Act) involved, or any transaction or transactions 
which the Commission by rules and regulations may exempt as not 
comprehended within the purposes of this subsection.
  (c) Rulemaking Permitted.--The Commission may issue rules to 
clarify the application of this subsection, to ensure adequate 
notice to all persons affected by this subsection, and to 
prevent evasion thereof.
  (d) Definition.--For purposes of this section, the term 
``beneficial owner'' has the meaning provided such term in 
rules or regulations issued by the Securities and Exchange 
Commission under section 16 of the Securities Exchange Act of 
1934 (15 U.S.C. 78p).

SEC. 6. IMPROVED TRANSPARENCY OF CORPORATE DISCLOSURES.

  (a) Modification of Regulations Required.--The Commission 
shall revise its regulations under the securities laws 
pertaining to the disclosures required in periodic financial 
reports and registration statements to require such reports to 
include adequate and appropriate disclosure of--
          (1) the issuer's off-balance sheet transactions and 
        relationships with unconsolidated entities or other 
        persons, to the extent they are not disclosed in the 
        financial statements and are reasonably likely to 
        materially affect the liquidity or the availability of, 
        or requirements for, capital resources, or the 
        financial condition or results of operations of the 
        issuer; and
          (2) loans extended to officers, directors, or other 
        persons affiliated with the issuer on terms or 
        conditions that are not otherwise available to the 
        public.
  (b) Deadline for Rulemaking.--The Commission shall--
          (1) within 90 days after the date of enactment of 
        this Act, propose, and
          (2) within 270 days after such date, prescribe,
the revisions to its regulations required by subsection (a).
  (c) Analysis Required.--
          (1) Transparency, completeness, and usefulness of 
        financial statements.--The Commission shall conduct an 
        analysis of the extent to which, consistent with the 
        protection of investors and the public interest, 
        disclosure of additional or reorganized information may 
        be required to improve the transparency, completeness, 
        or usefulness of financial statements and other 
        corporate disclosures filed under the securities laws.
          (2) Alternatives to be considered.--In conducting the 
        analysis required by paragraph (1), the Commission 
        shall consider--
                  (A) requiring the identification of the key 
                accounting principles that are most important 
                to the issuer's reported financial condition 
                and results of operation, and that require 
                management's most difficult, subjective, or 
                complex judgments;
                  (B) requiring an explanation, where material, 
                of how different available accounting 
                principles applied, the judgments made in their 
                application, and the likelihood of materially 
                different reported results if different 
                assumptions or conditions were to prevail;
                  (C) in the case of any issuer engaged in the 
                business of trading non-exchange traded 
                contracts, requiring an explanation of such 
                trading activities when such activities require 
                the issuer to account for contracts at fair 
                value, but for which a lack of market price 
                quotations necessitates the use of fair value 
                estimation techniques;
                  (D) establishing requirements relating to the 
                presentation of information in clear and 
                understandable format and language; and
                  (E) requiring such other disclosures, 
                included in the financial statements or in 
                other disclosure by the issuer, as would in the 
                Commission's view improve the transparency of 
                such issuer's financial statements and other 
                required corporate disclosures.
          (3) Rules required.--If the Commission, on the basis 
        of the analysis required by this subsection, determines 
        that it is necessary in the public interest or for the 
        protection of investors and would improve the 
        transparency of issuer financial statements, the 
        Commission may prescribe rules reflecting the results 
        of such analysis and the considerations required by 
        paragraph (2). In prescribing such rules, the 
        Commission may seek to minimize the paperwork and cost 
        burden on the issuer consistent with achieving the 
        public interest and investor protection purposes of 
        such rules.

SEC. 7. IMPROVEMENTS IN REPORTING ON INSIDER TRANSACTIONS AND 
                    RELATIONSHIPS.

  (a) Specific Objectives.--The Commission shall initiate a 
proceeding to propose changes in its rules and regulations with 
respect to financial reporting to improve the transparency and 
clarity of the information available to investors and to 
require increased financial disclosure with respect to the 
following:
          (1) Insider relationships and transactions.--
        Relationships and transactions--
                  (A) between the issuer, affiliates of the 
                issuer, and officers, directors, or employees 
                of the issuer or such affiliates; and
                  (B) between officers, directors, employees, 
                or affiliates of the issuer and entities that 
                are not otherwise affiliated with the issuer,
        to the extent such arrangement or transaction creates a 
        conflict of interest for such persons. Such disclosure 
        shall provide a description of such elements of the 
        transaction as are necessary for an understanding of 
        the business purpose and economic substance of such 
        transaction (including contingencies). The disclosure 
        shall provide sufficient information to determine the 
        effect on the issuer's financial statements and 
        describe compensation arrangements of interested 
        parties to such transactions.
          (2) Relationships with philanthropic organizations.--
        Relationships between the registrant or any executive 
        officer of the registrant and any not-for-profit 
        organization on whose board a director or immediate 
        family member serves or of which a director or 
        immediate family member serves as an officer or in a 
        similar capacity. Relationships that shall be disclosed 
        include contributions to the organization in excess of 
        $10,000 made by the registrant or any executive officer 
        in the last five years and any other activity 
        undertaken by the registrant or any executive officer 
        that provides a material benefit to the organization. 
        Material benefit includes lobbying.
          (3) Insider-controlled affiliates.--Relationships in 
        which the registrant or any executive officer exercises 
        significant control over an entity in which a director 
        or immediate family member owns an equity interest or 
        to which a director or immediate family member has 
        extended credit. Significant control should be defined 
        with reference to the contractual and governance 
        arrangements between the registrant or executive 
        officer, as the case may be, and the entity.
          (4) Joint ownership.--Joint ownership by a registrant 
        or executive officer and a director or immediate family 
        member of any real or personal property.
          (5) Provision of services by related persons.--The 
        provision of any professional services, including 
        legal, financial advisory or medical services, by a 
        director or immediate family member to any executive 
        officer of the registrant in the last five years.
  (b) Deadlines.--The Commission shall complete the rulemaking 
required by this section within 180 days after the date of 
enactment of this Act.

SEC. 8. ENHANCED OVERSIGHT OF PERIODIC DISCLOSURES BY ISSUERS.

  (a) Regular and Systematic Review.--The Securities and 
Exchange Commission shall review disclosures made by issuers 
pursuant to the Securities Exchange Act of 1934 (including 
reports filed on form 10-K) on a basis that is more regular and 
systematic than that in practice on the date of enactment on 
this Act. Such review shall include a review of an issuer's 
financial statements.
  (b) Risk Rating System.--For purposes of the reviews required 
by subsection (a), the Commission shall establish a risk rating 
system whereby issuers receive a risk rating by the Commission, 
which shall be used to determine the frequency of such reviews. 
In designing such a risk rating system the Commission shall 
consider, among other factors the following:
          (1) Emerging companies with disparities in price to 
        earning ratios.
          (2) Issuers with the largest market capitalization.
          (3) Issuers whose operations significantly impact any 
        material sector of the economy.
          (4) Systemic factors such as the effect on niche 
        markets or important subsectors of the economy.
          (5) Issuers that experience significant volatility in 
        their stock price as compared to other issuers.
          (6) Any other factor the Commission may consider 
        relevant.
  (c) Minimum Review Period.--In no event shall an issuer be 
reviewed less than once every three years by the Commission.
  (d) Prohibition of Disclosure of Risk Rating.--
Notwithstanding any other provision of law, the Commission 
shall not disclose the risk rating of any issuer described in 
subsection (b).

SEC. 9. RETENTION OF RECORDS.

  (a) Duty To Retain Records.--Any independent public or 
certified accountant who certifies a financial statement as 
required by the securities laws or any rule or regulation 
thereunder shall prepare and maintain for a period of no less 
than 7 years, final audit work papers and other information 
related to any accountants report on such financial statements 
in sufficient detail to support the opinion or assertion 
reached in such accountants report. The Commission may 
prescribe rules specifying the application and requirements of 
this section.
  (b) Accountant's Report.--For purposes of subsection (a), the 
term ``accountant's report'' means a document in which an 
accountant identifies a financial statement and sets forth his 
opinion regarding such financial statement or an assertion that 
an opinion cannot be expressed.

SEC. 10. REMOVAL OF UNFIT CORPORATE OFFICERS.

  (a) Removal in Judicial Proceedings.--
          (1) Securities act of 1933.--Section 20(e) of the 
        Securities Act of 1933 (15 U.S.C. 77t(e)) is amended by 
        striking ``substantial unfitness'' and inserting 
        ``unfitness''.
          (2) Securities exchange act of 1934.--Section 
        21(d)(2) of the Securities Exchange Act of 1934 (15 
        U.S.C. 78u(d)(2)) is amended by striking ``substantial 
        unfitness'' and inserting ``unfitness''.
  (b) Removal in Administrative Proceedings.--
          (1) Securities act of 1933.--Section 8A of the 
        Securities Act of 1933 (15 U.S.C. 77h-1) is amended by 
        adding at the end the following new subsection:
  ``(f) Authority To Prohibit Persons From Serving as Officers 
or Directors.--In any cease-and-desist proceeding under 
subsection (a), the Commission may issue an order to prohibit, 
conditionally or unconditionally, and permanently or for such 
period of time as it shall determine, any person who has 
violated section 17(a)(1) of this title from acting as an 
officer or director of any issuer that has a class of 
securities registered pursuant to section 12 of the Securities 
Exchange Act of 1934 or that is required to file reports 
pursuant to section 15(d) of that Act if the person's conduct 
demonstrates unfitness to serve as an officer or director of 
any such issuer.''.
          (2) Securities exchange act of 1934.--Section 21C of 
        the Securities Exchange Act of 1934 (15 U.S.C. 78u-3) 
        is amended by adding at the end the following new 
        subsection:
  ``(f) Authority To Prohibit Persons From Serving as Officers 
or Directors.--In any cease-and-desist proceeding under 
subsection (a), the Commission may issue an order to prohibit, 
conditionally or unconditionally, and permanently or for such 
period of time as it shall determine, any person who has 
violated section 10(b) of this title or the rules or 
regulations thereunder from acting as an officer or director of 
any issuer that has a class of securities registered pursuant 
to section 12 of this title or that is required to file reports 
pursuant to section 15(d) of this title if the person's conduct 
demonstrates unfitness to serve as an officer or director of 
any such issuer.''.

SEC. 11. DISGORGEMENT REQUIRED.

  (a) Administrative Actions.--Within 30 days after the date of 
enactment of this Act, the Securities and Exchange Commission 
shall prescribe regulations to require disgorgement, in a 
proceeding pursuant to its authority under section 21A, 21B, or 
21C (15 U.S.C. 78u-1, 78u-2, 78u-3), of salaries, commissions, 
fees, bonuses, options, profits from securities transactions, 
and losses avoided through securities transactions obtained by 
an officer or director of an issuer during or for a fiscal year 
or other reporting period if such officer or director engaged 
in misconduct resulting in, or made or caused to be made in, 
the filing of a financial statement for such fiscal year or 
reporting period which--
          (1) was at the time, and in the light of the 
        circumstances under which it was made, false or 
        misleading with respect to any material fact; or
          (2) omitted to state a material fact necessary in 
        order to make the statements made, in the light of the 
        circumstances in which they were made, not misleading,
  (b) Judicial Proceedings.--Section 21(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78u(d)) is amended by adding at 
the end the following new paragraph:
          ``(5) Additional disgorgement authority.--In any 
        action or proceeding brought or instituted by the 
        Commission under the securities laws against any 
        person--
                  ``(A) for engaging in misconduct resulting 
                in, or making or causing to be made in, the 
                filing of a financial statement which--
                          ``(i) was at the time, and in the 
                        light of the circumstances under which 
                        it was made, false or misleading with 
                        respect to any material fact; or
                          ``(ii) omitted to state a material 
                        fact necessary in order to make the 
                        statements made, in the light of the 
                        circumstances in which they were made, 
                        not misleading; or
                  ``(B) for engaging in, causing, or aiding and 
                abetting any other violation of the securities 
                laws or the rules and regulations thereunder,
        such person, in addition to being subject to any other 
        appropriate order, may be required to disgorge any or 
        all benefits received from any source in connection 
        with the conduct constituting, causing, or aiding and 
        abetting the violation, including (but not limited to) 
        salary, commissions, fees, bonuses, options, profits 
        from securities transactions, and losses avoided 
        through securities transactions.''.

SEC. 12. CEO AND CFO ACCOUNTABILITY FOR DISCLOSURE.

  (a) Regulations Required.--The Securities and Exchange 
Commission shall by rule require, for each company filing 
periodic reports under section 13 or 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the 
principal executive officer or officers and the principal 
financial officer or officers, or persons performing similar 
functions, certify in each annual or quarterly report filed or 
submitted under either such section of such Act that--
          (1) the signing officer has reviewed the report;
          (2) based on the officer's knowledge, the report does 
        not contain any untrue statement of a material fact or 
        omit to state a material fact necessary in order to 
        make the statements made, in light of the circumstances 
        under which such statements were made, not misleading;
          (3) based on such officer's knowledge, the financial 
        statements, and other financial information included in 
        the report, fairly present in all material respects the 
        financial condition and results of operations of the 
        issuer as of, and for, the periods presented in the 
        report;
          (4) the signing officers--
                  (A) are responsible for establishing and 
                maintaining internal controls;
                  (B) have designed such internal controls to 
                ensure that material information relating to 
                the issuer and its consolidated subsidiaries is 
                made known to such officers by others within 
                those entities, particularly during the period 
                in which the periodic reports are being 
                prepared;
                  (C) have evaluated the effectiveness of the 
                issuer's internal controls as of a date within 
                90 days prior to the report; and
                  (D) have presented in the report their 
                conclusions about the effectiveness of their 
                internal controls based on their evaluation as 
                of that date;
          (5) the signing officers have disclosed to the 
        issuer's auditors and the audit committee of the board 
        of directors (or persons fulfilling the equivalent 
        function)--
                  (A) all significant deficiencies in the 
                design or operation of internal controls which 
                could adversely affect the issuer's ability to 
                record, process, summarize, and report 
                financial data and have identified for the 
                issuer's auditors any material weaknesses in 
                internal controls; and
                  (B) any fraud, whether or not material, that 
                involves management or other employees who have 
                a significant role in the issuer's internal 
                controls; and
          (6) the signing officers have indicated in the report 
        whether or not there were significant changes in 
        internal controls or in other factors that could 
        significantly affect internal controls subsequent to 
        the date of their evaluation, including any corrective 
        actions with regard to significant deficiencies and 
        material weaknesses.
  (b) Deadline.--The rules required by subsection (a) shall be 
effective not later than 30 days after the date of enactment of 
this Act.

SEC. 13. SECURITIES AND EXCHANGE COMMISSION AUTHORITY TO PROVIDE 
                    RELIEF.

  (a) Proceeds of Enron and Andersen Enforcement Actions.--If 
in any administrative or judicial proceeding brought by the 
Securities and Exchange Commission against--
          (1) the Enron Corporation, any subsidiary or 
        affiliate of such Corporation, or any officer, 
        director, or principal shareholder of such Corporation, 
        subsidiary, or affiliate for any violation of the 
        securities laws; or
          (2) Arthur Andersen L.L.C., any subsidiary or 
        affiliate of Arthur Andersen L.L.C., or any general or 
        limited partner of Arthur Andersen L.L.C., or such 
        subsidiary or affiliate, for any violation of the 
        securities laws with respect to any services performed 
        for or in relation to the Enron Corporation, any 
        subsidiary or affiliate of such Corporation, or any 
        officer, director, or principal shareholder of such 
        Corporation, subsidiary, or affiliate;
the Commission obtains an order providing for an accounting and 
disgorgement of funds, such disgorgement fund (including any 
addition to such fund required or permitted under this section) 
shall be allocated in accordance with the requirements of this 
section.
  (b) Priority for Former Enron Employees.--The Commission 
shall, by order, establish an allocation system for the 
disgorgement fund. Such system shall provide that, in 
allocating the disgorgement fund amount the victims of the 
securities laws violations described in subsection (a), the 
first priority shall be given to individuals who were employed 
by the Enron Corporation, or a subsidiary or affiliate of such 
Corporation, and who were participants in an individual account 
plan established by such Corporation, subsidiary, or affiliate. 
Such allocations among such individuals shall be in proportion 
to the extent to which the nonforfeitable accrued benefit of 
each such individual under the plan was invested in the 
securities of such Corporation, subsidiary, or affiliate.
  (c) Addition of Civil Penalties.--If, in any proceeding 
described in subsection (a), the Commission assesses and 
collects any civil penalty, the Commission shall, 
notwithstanding section 21(d)(3)(C)(i) or 21A(d)(1) of the 
Securities Exchange Act of 1934, or any other provision of the 
securities laws, be payable to the disgorgement fund.
  (d) Acceptance of Additional Donations.--The Commission is 
authorized to accept, hold, administer, and utilize gifts, 
bequests and devises of property, both real and personal, to 
the United States for the disgorgement fund. Gifts, bequests, 
and devises of money and proceeds from sales of other property 
received as gifts, bequests, or devises shall be deposited in 
the disgorgement fund and shall be available for allocation in 
accordance with subsection (b).
  (e) Definitions.--As used in this section:
          (1) Disgorgement fund.--The term ``disgorgement 
        fund'' means a disgorgement fund established in any 
        administrative or judicial proceeding described in 
        subsection (a).
          (2) Subsidiary or affiliate.--The term ``subsidiary 
        or affiliate'' when used in relation to a person means 
        any entity that controls, is controlled by, or is under 
        common control with such person.
          (3) Officer, director, or principal shareholder.--The 
        term ``officer, director, or principal shareholder'' 
        when used in relation to the Enron Corporation, or any 
        subsidiary or affiliate of such Corporation, means any 
        person that is subject to the requirements of section 
        16 of the Securities Exchange Act of 1934 (15 U.S.C. 
        78p) in relation to the Enron Corporation, or any 
        subsidiary or affiliate of such Corporation.
          (4) Nonforfeitable; accrued benefit; individual 
        account plan.--The terms ``nonforfeitable'', ``accrued 
        benefit'', and ``individual account plan'' have the 
        meanings provided such terms, respectively, in 
        paragraphs (19), (23), and (34) of section 3 of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1002(19), (23), (34)).

SEC. 14. AUTHORIZATION OF APPROPRIATIONS OF THE SECURITIES AND EXCHANGE 
                    COMMISSION.

  In addition to any other funds authorized to be appropriated 
to the Securities and Exchange Commission, there are authorized 
to be appropriated to carry out the functions, powers, and 
duties of the Commission, $776,000,000 for fiscal year 2003, of 
which--
          (1) not less that $134,000,000 shall be available for 
        the Division of Corporate Finance and for the Office of 
        Chief Accountant;
          (2) not less than $326,000,000 shall be available for 
        the Division of Enforcement; and
          (3) not less than $76,000,000 shall be available to 
        implement section 8 of the Investor and Capital Markets 
        Fee Relief Act, relating to pay comparability.

SEC. 15. ANALYST CONFLICTS OF INTEREST.

  (a) Study and Review Required.--The Securities and Exchange 
Commission shall conduct a study and review of any final rules 
by any self-regulatory organization registered with the 
Commission pursuant to section 19 of the Securities Exchange 
Act of 1934 (15 U.S.C. 78s) related to matters involving equity 
research analysts conflicts of interest. Such study and report 
shall include a review of the effectiveness of such final rules 
in addressing matters relating to the objectivity and integrity 
of equity research analyst reports and recommendations.
  (b) Report Required.--The Securities and Exchange Commission 
shall submit a report to the Committee on Financial Services of 
the House of Representatives and the Committee on Banking, 
Housing, and Urban Affairs of the Senate on such study and 
review no later than 180 days after any such final rules by any 
self-regulatory organization registered with the Commission 
pursuant to section 19 of the Securities Exchange Act of 1934 
are approved by the Commission. Such report shall include 
recommendations to the Congress, including any recommendations 
for additional self-regulatory organization rulemaking 
regarding matters involving equity research analysts. The 
Commission shall annually submit an update on such review.
  (c) Additional Rules Required.--Unless the final rules 
reviewed by the Commission under subsections (a) and (b) 
contain the following provisions, the Commission shall, by 
rule--
          (1) prohibit equity research analysts from--
                  (A) holding any beneficial interest in any 
                equity security (as such term in defined in 
                section 3(a)(11) of the Securities Exchange Act 
                of 1934 (15 U.S.C. 78c(a)(11)) in any issuer 
                covered by such analyst; and
                  (B) receiving compensation based on the 
                investment banking revenues of the firm with 
                which the analyst is associated, or on the 
                investment banking revenues of such firm and 
                its affiliates, except that this prohibition 
                shall not prohibit such an analyst from 
                receiving compensation based on the overall 
                revenues of such firm or of such firm and its 
                affiliates;
          (2) prohibit the investment banking department of 
        such firm from having any input in the compensation, 
        hiring, firing, or promotion of analysts; and
          (3) require such self-regulatory organizations--
                  (A) to establish criteria for evaluating 
                analyst research quality; and
                  (B) to require analyst compensation to be 
                based principally on the quality of the equity 
                research analyst's research.

SEC. 16. INDEPENDENT DIRECTORS.

  (a) Rulemaking Required.--The Commission shall adopt rules, 
effective no later than 6 months after the date of enactment of 
this Act, to require that the independent directors on the 
board of directors of any issuer of securities registered under 
section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 
78l) be nominated for election by a nominating committee that 
is composed exclusively of other independent directors of such 
issuer.
  (b) Independence.--The rules required by subsection (a) shall 
require the same degree of independence for service on the 
nominating committee of an issuer as is required for purposes 
of service on the audit committee of an issuer by the listing 
standards concerning corporate governance of the exchange or 
association on which the securities of such issuer are listed.

SEC. 17. ENFORCEMENT OF AUDIT COMMITTEE GOVERNANCE PRACTICES.

  The Commission shall revise its regulations pertaining to 
auditor independence to require that an accountant shall not be 
considered to be independent for purposes of certifying the 
financial statements or other documents of an issuer required 
to be filed with the Commission under the securities laws 
unless--
          (1) an issuer's auditor is appointed by and reports 
        directly to the audit committee of the board of 
        directors or, in the absence of an audit committee, the 
        board committee performing equivalent functions or the 
        entire board of directors;
          (2) the audit committee meets with the accountants 
        engaged to perform such audit on a regular basis, at 
        least quarterly; and
          (3) the audit committee is provided with the 
        opportunity to meet with such accountants without the 
        attendance at such meetings of any officer, director, 
        or other member of the issuer's senior management.

SEC. 18. REVIEW OF CORPORATE GOVERNANCE PRACTICES.

  (a) Study of Corporate Practices.--The Commission shall 
conduct a study and review of current corporate governance 
standards and practices to determine whether such standards and 
practices are serving the best interests of shareholders. Such 
study and review shall include an analysis of--
          (1) whether current standards and practices promote 
        full disclosure of relevant information to 
        shareholders;
          (2) whether corporate codes of ethics are adequate to 
        protect shareholders, and to what extent deviations 
        from such codes are tolerated;
          (3) to what extent conflicts of interests are 
        aggressively reviewed, and whether adequate means for 
        redressing such conflicts exist;
          (4) to what extent sufficient legal protections exist 
        or should be adopted to ensure that any manager who 
        attempts to manipulate or unduly influence an audit 
        will be subject to appropriate sanction and liability, 
        including liability to investors or shareholders 
        pursuing a private cause of action for such 
        manipulation or undue influence;
          (5) whether rules, standards, and practices relating 
        to determining whether independent directors are in 
        fact independent are adequate;
          (6) whether rules, standards, and practices relating 
        to the independence of directors serving on audit 
        committees are uniformly applied and adequate to 
        protect investor interests;
          (7) whether the duties and responsibilities of audit 
        committees should be established by the Commission; and
          (8) what further or additional practices or standards 
        might best protect investors and promote the interests 
        of shareholders.
  (b) Participation of State Regulators.--In conducting the 
study required under subsection (a), the Commission shall seek 
the views of the securities and corporate regulators of the 
various States.
  (c) Report Required.--The Commission shall submit a report on 
the analysis required under subsection (a) as a part of the 
Commission's next annual report submitted after the date of 
enactment of this Act.

SEC. 19. STUDY OF ENFORCEMENT ACTIONS.

  (a) Study Required.--The Commission shall review and analyze 
all enforcement actions by the Commission involving violations 
of reporting requirements imposed under the securities laws, 
and restatements of financial statements, over the last five 
years to identify areas of reporting that are most susceptible 
to fraud, inappropriate manipulation, or inappropriate earnings 
management, such as revenue recognition and the accounting 
treatment of off-balance sheet special purpose entities.
  (b) Report Required.--The Commission shall report its 
findings to the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, and 
Urban Affairs of the Senate within 180 days of the date of 
enactment of this Act and shall use such findings to revise its 
rules and regulations, as necessary. The report shall include a 
discussion of regulatory or legislative steps that are 
recommended or that may be necessary to address concerns 
identified in the study.

SEC. 20. STUDY OF CREDIT RATING AGENCIES.

  (a) Study Required.--The Commission shall conduct a study of 
the role and function of credit rating agencies in the 
operation of the securities market. Such study shall examine--
          (1) the role of the credit rating agencies in the 
        evaluation of issuers of securities;
          (2) the importance of that role to investors and the 
        functioning of the securities markets;
          (3) any impediments to the accurate appraisal by 
        credit rating agencies of the financial resources and 
        risks of issuers of securities;
          (4) any measures which may be required to improve the 
        dissemination of information concerning such resources 
        and risks when credit rating agencies announce credit 
        ratings;
          (5) any barriers to entry into the business of acting 
        as a credit rating agency, and any measures needed to 
        remove such barriers; and
          (6) any conflicts of interest in the operation of 
        credit rating agencies and measures to prevent such 
        conflicts or ameliorate the consequences of such 
        conflicts.
  (b) Report Required.--The Commission shall submit a report on 
the analysis required by subsection (a) to the President, the 
Committee on Financial Services of the House of 
Representatives, and the Committee on Banking, Housing, and 
Urban Affairs of the Senate within 180 days after the date of 
enactment of this Act. The report shall include a discussion of 
regulatory or legislative steps that are recommended or that 
may be necessary to address concerns identified in the study.

SEC. 21. STUDY OF INVESTMENT BANKS

  (a) GAO Study.--The Comptroller General shall conduct a study 
on whether investment banks and financial advisors assisted 
public companies in manipulating their earnings and obfuscating 
their true financial condition. The study should address the 
role of the investment banks--
          (1) in the collapse of the Enron Corporation, 
        including with respect to the design and implementation 
        of derivatives transactions, transactions involving 
        special purpose vehicles, and other financing 
        arrangements that may have had the effect of altering 
        the company's reported financial statements in ways 
        that obscured the true financial picture of the 
        company;
          (2) in the failure of Global Crossing, including with 
        respect to transactions involving swaps of fiber optic 
        cable capacity, in designing transactions that may have 
        had the effect of altering the company's reported 
        financial statements in ways that obscured the true 
        financial picture of the company; and
          (3) generally, in creating and marketing transactions 
        which may have been designed solely to enable companies 
        to manipulate revenue streams, obtain loans, or move 
        liabilities off balance sheets without altering the 
        economic and business risks faced by the companies or 
        any other mechanism to obscure a company's financial 
        picture.
  (b) Report.--The General Accounting Office shall report to 
the Congress within 180 days after the date of enactment of 
this Act on the results of the study required by this section. 
The report shall include a discussion of regulatory or 
legislative steps that are recommended or that may be necessary 
to address concerns identified in the study.

SEC. 22. STUDY OF MODEL RULES FOR ATTORNEYS OF ISSUERS.

  (a) In General.--The Comptroller General shall conduct a 
study of the Model Rules of Professional Conduct promulgated by 
the American Bar Association and rules of professional conduct 
applicable to attorneys established by the Commission to 
determine--
          (1) whether such rules provide sufficient guidance to 
        attorneys representing corporate clients who are 
        issuers required to file periodic disclosures under 
        section 13 or 15 of the Securities Exchange Act of 1934 
        (15 U.S.C. 78m, 78o), as to the ethical 
        responsibilities of such attorneys to--
                  (A) warn clients of possible fraudulent or 
                illegal activities of such clients and possible 
                consequences of such activities;
                  (B) disclose such fraudulent or illegal 
                activities to appropriate regulatory or law 
                enforcement authorities; and
                  (C) manage potential conflicts of interests 
                with clients; and
          (2) whether such rules provide sufficient protection 
        to corporate shareholders, especially with regards to 
        conflicts of interest between attorneys and their 
        corporate clients.
  (b) Report Required.--The Comptroller General shall report to 
the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, and 
Urban Affairs of the Senate on the results of the study 
required by this section. Such report shall include any 
recommendations of the General Accounting Office with regards 
to--
          (1) possible changes to the Model Rules and the rules 
        of professional conduct applicable to attorneys 
        established by the Commission to provide increased 
        protection to shareholders;
          (2) whether restrictions should be imposed to require 
        that an attorney, having represented a corporation or 
        having been employed by a firm which represented a 
        corporation, may not be employed as general counsel to 
        that corporation until a certain period of time has 
        expired; and
          (3) regulatory or legislative steps that are 
        recommended or that may be necessary to address 
        concerns identified in the study.

SEC. 23. ENFORCEMENT AUTHORITY.

  For the purposes of enforcing and carrying out this Act, the 
Commission shall have all of the authorities granted to the 
Commission under the securities laws. Actions of the Commission 
under this Act, including actions on rules or regulations, 
shall be subject to review in the same manner as actions under 
the securities laws.

SEC. 24. EXCLUSION FOR INVESTMENT COMPANIES.

  Sections 4, 6, 9, and 15 of this Act shall not apply to an 
investment company registered under section 8 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-8).

SEC. 25. DEFINITIONS.

  As used in this Act:
          (1) Blackout period.--The term ``blackout period'' 
        with respect to the equity securities of any issuer--
                  (A) means any period during which the ability 
                of at least fifty percent of the participants 
                or beneficiaries under all applicable 
                individual account plans maintained by the 
                issuer to purchase (or otherwise acquire) or 
                sell (or otherwise transfer) an interest in any 
                equity of such issuer is suspended by the 
                issuer or a fiduciary of the plan; but
                  (B) does not include--
                          (i) a period in which the employees 
                        of an issuer may not allocate their 
                        interests in the individual account 
                        plan due to an express investment 
                        restriction--
                                  (I) incorporated into the 
                                individual account plan; and
                                  (II) timely disclosed to 
                                employees before joining the 
                                individual account plan or as a 
                                subsequent amendment to the 
                                plan; or
                          (ii) any suspension described in 
                        subparagraph (A) that is imposed solely 
                        in connection with persons becoming 
                        participants or beneficiaries, or 
                        ceasing to be participants or 
                        beneficiaries, in an applicable 
                        individual account plan by reason of a 
                        corporate merger, acquisition, 
                        divestiture, or similar transaction.
          (2) Boards of accountancy of the states.--The term 
        ``boards of accountancy of the States'' means any 
        organization or association chartered or approved under 
        the law of any State with responsibility for the 
        registration, supervision, or regulation of 
        accountants.
          (3) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
          (4) Individual account plan.--The term ``individual 
        account plan'' has the meaning provided such term in 
        section 3(34) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1002(34)).
          (5) Issuer.--The term ``issuer'' shall have the 
        meaning set forth in section 2(a)(4) of the Securities 
        Act of 1933 (15 U.S.C. 77b(a)(4)).
          (6) Person associated with an accountant.--The term 
        ``person associated with an accountant'' means any 
        partner, officer, director, or manager of such 
        accountant (or any person occupying a similar status or 
        performing similar functions), any person directly or 
        indirectly controlling, controlled by, or under common 
        control with such accountant, or any employee of such 
        accountant who performs a supervisory role in the 
        auditing process.
          (7) Public regulatory organization.--The term 
        ``public regulatory organization'' means the public 
        regulatory organization established by the Commission 
        under subsection (b) of section 2.
          (8) Securities laws.--The term ``securities laws'' 
        means the Securities Act of 1933 (15 U.S.C. 77a et 
        seq.), the Securities Exchange Act of 1934 (15 U.S.C. 
        78a et seq.), the Trust Indenture Act of 1939 (15 
        U.S.C. 77aaa et seq.), the Investment Company Act of 
        1940 (15 U.S.C. 80a-1 et seq.), the Investment Advisers 
        Act of 1940 (15 U.S.C. 80b et seq.), and the Securities 
        Investor Protection Act of 1970 (15 U.S.C. 78aaa et 
        seq.), notwithstanding any contrary provision of any 
        such Act.