Investor, Shareholder, and Employee Protection Act of 2002 (Introduced in House)

HR 3795 IH

107th CONGRESS

2d Session

H. R. 3795

To establish a Federal Bureau of Audits within the Securities and Exchange Commission to conduct audits of all publicly registered companies.

IN THE HOUSE OF REPRESENTATIVES

February 26, 2002

Mr. KUCINICH (for himself, Mr. SANDERS, and Mr. FILNER) introduced the following bill; which was referred to the Committee on Financial Services

A BILL

To establish a Federal Bureau of Audits within the Securities and Exchange Commission to conduct audits of all publicly registered companies.

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

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. 5. 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).

 (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).