Summary of SOXThe Act has 11 Titles.
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Sarbanes-Oxley Act of 2002’’.
(b) TABLE OF CONTENTS.—The table of contents for this Act is as follows:
Sec. 1. Short title; table of contents.Sec. 2. Definitions.Sec. 3. Commission rules and enforcement.TITLE I—PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
Sec. 101. Establishment; administrative provisions.Sec. 102. Registration with the Board.Sec. 103. Auditing, quality control, and independence standards and rules.Sec. 104. Inspections of registered public accounting firms.Sec. 105. Investigations and disciplinary proceedings.Sec. 106. Foreign public accounting firms.Sec. 107. Commission oversight of the Board.Sec. 108. Accounting standards.Sec. 109. Funding.Section 2: SOME DEFINITIONS
AUDIT COMMITTEE(A) a committee (or equivalent body) established by and amongst the board of directors of an issuer for the purpose of overseeing the accounting and financial reporting processes of the issuer and audits of the financial statements of the issuer; and
(B) If no such committee exists with respect to an issuer, the entire board of directors of the issuer.
BOARD. - The term ‘‘Board’’ means the Public Company Accounting Oversight Board established under section 101.
COMMISSION. - The term ‘‘Commission’’ means the Securities and Exchange Commission.
ISSUER. - The term ‘‘issuer’’ means an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)), the securities of which are registered under section 12 of that Act (15 U.S.C. 78l), or that is required to file reports under section 15(d) (15 U.S.C. 78o(d)), or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not with drawn.
PUBLIC ACCOUNTING FIRM. - The term ‘‘public accounting firm’’ means -
(A) a proprietorship, partnership, incorporated association, corporation, limited liability company, limited liability partnership, or other legal entity that is engaged in the practice of public accounting or preparing or issuing audit reports; and
(B) to the extent so designated by the rules of the Board, any associated person of any entity described in subparagraph (A).
TITLE I - PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.
There is established the Public Company Accounting Oversight Board, to oversee the audit of public companies that are subject to the securities laws, and related matters, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by and for, public investors. The Board shall be a body corporate, operate as a nonprofit corporation, and have succession until dissolved by an Act of Congress.
DUTIES OF THE BOARD. - The Board shall, subject to action by the Commission under section 107
register public accounting firms,
establish or adopt, or both, by rule, auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports for issuers
conduct inspections of registered public accounting firms
conduct investigations and disciplinary proceedings concerning, and impose appropriate sanctions where justified upon, registered public accounting firms and associated persons of such firms,
perform such other duties or functions as the Board determines are necessary or appropriate to promote high professional standards among, and improve the quality of audit services offered by, registered public accounting firms and associated persons thereof
enforce compliance with this Act, the rules of the Board, professional standards, and the securities laws
set the budget and manage the operations of the Board
BOARD MEMBERSHIP. -(1) COMPOSITION. - The Board shall have 5 members, appointed from among prominent individuals of integrity and reputation who have a demonstrated commitment to the interests of investors and the public, and an understanding of the responsibilities for and nature of the financial disclosures required of issuers under the securities laws and the obligations of accountants with respect to the preparation and issuance of audit reports with respect to such disclosures
(2) Each member of the Board shall serve on a full-time basis and will not be employed by any other person or engage in any other professional or business activity.
SEC. 102. REGISTRATION WITH THE BOARD.
A public accounting firm has to apply for registration to the PCAOB.
CONTENTS OF APPLICATIONS.-Each public accounting firm shall specify the following in its application:
(A) the names of all issuers for which the firm prepared or issued audit reports during the immediately preceding calendar year, and for which the firm expects to prepare or issue audit reports during the current calendar year;
(B) the annual fees received by the firm from each such issuer for audit services, other accounting services, and non-audit services, respectively;
(C) such other current financial information for the most recently completed fiscal year of the firm as the Board may reasonably request;
(D) a statement of the quality control policies of the firm for its accounting and auditing practices;
(E) a list of all accountants associated with the firm who participate in or contribute to the preparation of audit reports, stating the license or certification number of each such person, as well as the State license numbers of the firm itself;
(F) information relating to criminal, civil, or administrative actions or disciplinary proceedings pending against the firm or any associated person of the firm in connection with any audit report;
(G) copies of any periodic or annual disclosure filed by an issuer with the Commission during the immediately preceding calendar year which discloses accounting disagreements between such issuer and the firm in connection with an audit report furnished or prepared by the firm for such issuer; and
(H) such other information as the rules of the Board or the Commission shall specify as necessary or appropriate in the public interest or for the protection of investors.
SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND RULES.
The Board shall, by rule, establish, including, to the extent it determines appropriate, through adoption of standards proposed by the designated professional groups of accountants and amend or otherwise modify or alter, such auditing and related attestation standards, such quality control standards, and such ethics standards to be used by registered public accounting firms in the preparation and issuance of audit report.
It shall include in the auditing standards requirements that each registered public accounting firm shall:
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;
provide a concurring or second partner review and approval of such audit report (and other related information), and concurring approval in its issuance, by a qualified person
describe the scope of the auditor’s testing of the internal control structure and procedures of the issuer,
shall include, in the quality control standards that it adopts requirements for every registered public accounting firm relating to -
(i) monitoring of professional ethics and independence from issuers on behalf of which the firm issues audit reports;
(ii) consultation within such firm on accounting and auditing questions;
(iii) supervision of audit work;
(iv) hiring, professional development, and advancement of personnel;
(v) the acceptance and continuation of engagements;
(vi) internal inspection; and
(vii) such other requirements as the Board may prescribe
Section 104: INSPECTIONS OF REGISTERED PUBLIC ACCOUNTING FIRMS
The Board shall conduct a continuing program of inspections to assess the degree of compliance of each registered public accounting firm and associated persons of that firm with this Act, the rules of the Board, the rules of the Commission, or professional standards, in connection with its performance of audits, issuance of audit reports, and related matters involving issuers.
INSPECTION FREQUENCY. -
Inspections shall be conducted annually for firms that audits more than 100 issuers; and not less frequently than once every 3 years for others. The SEC and/or the Board may order a special inspection of any firm at any time.
CONDUCT OF INSPECTIONS. - In conducting an inspection the Board shall -
(1) inspect and review selected audit and review engagements of the firm
(2) evaluate the sufficiency of the quality control system of the firm, and the manner of the documentation and communication of that system by the firm; and
(3) perform such other testing of the audit, supervisory, and quality control procedures of the firm as are necessary
RECORD RETENTION. - The rules of the Board may require the retention by registered public accounting firms for inspection purposes of records whose retention is not otherwise required by
SEC. 105. INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS.
The Board shall establish, fair procedures for the investigation and disciplining of registered public accounting firms and associated persons of such firms.
(b) INVESTIGATIONS. -
(1) AUTHORITY. - The Board may conduct an investigation of any act or practice, or omission to act, by a registered public accounting firm, any associated person of such firm, or both, that may violate any provision of this Act, the rules of the Board, the provisions of the securities laws and the obligations and liabilities of accountants with respect thereto.
(2) TESTIMONY AND DOCUMENT PRODUCTION. - In addition to such other actions as the Board determines to be necessary or appropriate, the rules of the Board may -
(A) require the testimony of the firm or of any person associated with firm.
(B) require the production of audit work papers and any other document or information in the possession of a registered public accounting firm or any associated person thereof and may inspect the books and records of such firm or associated person.
(C) request the testimony of, and production of any document in the possession of, any other person, including any client of a registered public accounting firm that the Board considers relevant or material to an investigation
(D) provide for procedures to seek issuance by the Commission of a subpoena to require the testimony of, and production of any document in the possession of, any person, that the Board considers relevant or material to an investigation.
CONFIDENTIALITY 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.
(c) DISCIPLINARY PROCEDURES. -
In any proceeding by the Board to determine whether a registered public accounting firm, or an associated person thereof, should be disciplined, the Board shall bring specific charges, notify such firm or associated person of, and provide them an opportunity to defend against, such charges; and keep a record of the proceedings.
SANCTIONS. - If a firm or associated person thereof has engaged in any act or practice, or omitted to act, in violation of this Act, the rules of the Board, the provisions of the securities laws the Board may impose such disciplinary or remedial sanctions including:
(A) temporary suspension or permanent revocation of registration
(B) temporary or permanent suspension or bar of a person from further association with any registered public accounting firm;
(C) temporary or permanent limitation on the activities, functions, or operations of such firm
(D) a civil money penalty for each such violation,
(E) censure;
(F) required additional professional education or training; or
(G) any other appropriate sanction
(5)
INTENTIONAL OR OTHER KNOWING CONDUCT. - The sanctions and penalties shall only apply to -
(A) intentional or knowing conduct, including reckless conduct, that results in violation of the applicable statutory, regulatory, or professional standard; or
(B) repeated instances of negligent conduct, each resulting in a violation of the applicable statutory, regulatory, or professional standard.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a)
APPLICABILITY TO CERTAIN FOREIGN FIRMS. -
Any foreign public accounting firm that prepares or furnishes an audit report with respect to any issuer, have to get registered.
BOARD AUTHORITY. - The Board may determine that a foreign public accounting firm (or a class of such firms) that does not issue audit reports nonetheless plays such a substantial role in the preparation and furnishing of such reports for particular issuers, should be treated as a public accounting firm (or firms) for purposes of registration under, and oversight by the Board in accordance with.
PRODUCTION OF AUDIT WORKPAPERS. -
(1) CONSENT BY FOREIGN FIRMS. - If a foreign public accounting firm issues an opinion or otherwise performs material services upon which a registered public accounting firm relies in issuing all or part of any audit report or any opinion contained in an audit report, that foreign public accounting firm shall be deemed to have consented -
(A) to produce its audit work papers for the Board or the Commission in connection with any investigation
(B) to be subject to the jurisdiction of the courts of the United States for purposes of enforcement of any request for production of such work papers.
CONSENT BY DOMESTIC FIRMS. - A registered public accounting firm that relies upon the opinion of a foreign public accounting firm, shall be deemed -
(A) to have consented to supplying the audit work papers of that foreign public accounting firm in response to a request for production by the Board or the Commission; and
(B) to have secured the agreement of that foreign public accounting firm to such production, as a condition of its reliance on the opinion of that foreign public accounting firm.
SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.
GENERAL OVERSIGHT RESPONSIBILITY. - The Commission shall have oversight and enforcement authority over the Board, as provided in this Act and authority to amend rules of the Board
NOTICE OF SANCTION. - The Board to notify the Commission of any final sanction on any registered public accounting firm or on any associated person thereof.
REVIEW OF SANCTIONS. - 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' for purposes of the securities laws, 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.
