Section 101: Establishment; Board Membership.
The Board will have five financially-literate members, appointed for five-year terms. Two of the members must be or have been certified public accountants, and the remaining three must not be and cannot have been CPAs. The Chair may be held by one of the CPA members, provided that he or she has not been engaged as a practicing CPA for five years.
The Board’s members will serve on a full-time basis.
No member may, concurrent with service on the Board, “share in any of the profits of, or receive payments from, a public accounting firm,” other than “fixed continuing payments,” such as retirement payments.
Members of the Board are appointed by the Commission, “after consultation with” the Chairman of the Federal Reserve Board and the Secretary of the Treasury.
Members may be removed by the Commission “for good cause.”
Section 101: Establishment; Duties of the Board
Section 103: Auditing, Quality Control, and Independence Standards and Rules.
The Board shall:
(1) register public accounting firms;
(2) establish, or adopt, by rule, “auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports for issuers;”
(3) conduct inspections of accounting firms;
(4) conduct investigations and disciplinary proceedings, and impose appropriate sanctions;
(5) perform such other duties or functions as necessary or appropriate;
(6) enforce compliance with the Act, the rules of the Board, professional standards, and the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto;
(7) set the budget and manage the operations of the Board and the staff of the Board.
Auditing standards. The Board would be required to “cooperate on an on-going basis” with designated professional groups of accountants and any advisory groups convened in connection with standard-setting, and although the Board can “to the extent that it determines appropriate” adopt standards proposed by those groups, the Board will have authority to amend, modify, repeal, and reject any standards suggested by the groups. The Board must report on its standard-setting activity to the Commission on an annual basis.
The Board must require registered public accounting firms to “prepare, and maintain for a period of not less than 7 years, audit work papers, and other information related to any audit report, in sufficient detail to support the conclusions reached in such report.”
The Board must require a 2nd partner review and approval of audit reports registered accounting firms must adopt quality control standards.
The Board must adopt an audit standard to implement the internal control review required by section 404(b). This standard must require the auditor evaluate whether the internal control structure and procedures include records that accurately and fairly reflect the transactions of the issuer, provide reasonable assurance that the transactions are recorded in a manner that will permit the preparation of financial statements in accordance with GAAP, and a description of any material weaknesses in the internal controls.
Section 105(b)(5): Investigation and Disciplinary Proceedings; Investigations; Use Of Documents.
Section 105(c)(2): Investigations and Disciplinary Proceedings; Disciplinary Procedures; Public Hearings.
Section 105(c)(4): Investigations and Disciplinary Proceedings; Sanctions.
Section 105(d): Investigations and Disciplinary Proceedings; Reporting of Sanctions.
All documents and information prepared or received by the Board shall be “confidential and privileged as an evidentiary matter (and shall not be subject to civil discovery other legal process) in any proceeding in any Federal or State court or administrative agency, . . . unless and until presented in connection with a public proceeding or [otherwise] released” in connection with a disciplinary action.
However, all such documents and information can be made available to the SEC, the U.S. Attorney General, and other federal and appropriate state agencies.
Disciplinary hearings will be closed unless the Board orders that they be public, for good cause, and with the consent of the parties.
Sanctions can be imposed by the Board of a firm if it fails to reasonably supervise any associated person with regard to auditing or quality control standards, or otherwise.
No sanctions report will be made available to the public unless and until stays pending appeal have been lifted.
Section 107(a): Commission Oversight of the Board; General Oversight Responsibility.
Section 107(b): Rules of the Board.
Section 107(d): Censure of the Board and Other Sanctions.
The SEC shall have “oversight and enforcement authority over the Board”. The SEC can, by rule or order, give the Board additional responsibilities. The SEC may require the Board to keep certain records, and it has the power to inspect the Board itself, in the same manner as it can with regard to SROs such as the NASD.
The Board, in its rulemaking process, is to be treated “as if the Board were a ‘registered securities association’ -that is, a self-regulatory organization. The Board is required to file proposed rules and proposed rule changes with the SEC. The SEC may approve, reject, or amend such rules.
The Board must notify the SEC of pending investigations involving potential violations of the securities laws, and coordinate its investigation with the SEC Division of Enforcement as necessary to protect an ongoing SEC investigation.
The SEC may, by order, “censure or impose limitations upon the activities, functions, and operations of the Board” if it finds that the Board has violated the Act or the securities laws, or if the Board has failed to ensure the compliance of accounting firms with applicable rules without reasonable justification.
Section 107(c): Commission Review of Disciplinary Action Taken By the Board.
The Board must notify the SEC when it imposes “any final sanction” on any accounting firm or associated person. The Board’s findings and sanctions are subject to review by the SEC.
The SEC may enhance, modify, cancel, reduce, or require remission of such sanction.
Section 108: Accounting Standards.
The SEC is authorized to “recognize, as ‘generally accepted’… any accounting principles” that are established by a standard-setting body that meets the bill’s criteria, which include requirements that the body:
(1) be a private entity;
(2) be governed by a board of trustees (or equivalent body), the majority of whom are not or have not been associated persons with a public accounting firm for the past 2 years;
(3) be funded in a manner similar to the Board;
(4) have adopted procedures to ensure prompt consideration of changes to accounting principles by a majority vote;
(5) consider, when adopting standards, the need to keep them current and the extent to which international convergence of standards is necessary or appropriate.