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Accounting Reform: Bill Summaries

Accounting Reform
Bill Summaries

S. 1838 | H.R. 3617 | S. 1896 | H.R. 3622 | S. 1921 |
H.R. 3693 | S. 1940 | H.R. 3763 | H.R. 3795 | H.R. 3818 | S. 2004 | H.R. 3970 | H.R. 4075 | S.2056 | S. 2247 | S. 2673

Dec. 18, 2001: Sens. Barbara Boxer (D-CA) and Jon Corzine (D-NJ) ) introduce S. 1838, Pension Protection and Diversification Act of 2001.

"To amend the Employer Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 to ensure that individual account plans protect workers by limiting the amount of employer stock each worker may hold and encouraging diversification of investment of plan assets, and for other purposes."

  • Reduces the employer tax-deduction on stock contributions to employee retirement plans from 100 percent to 50 percent of the stock value.

For a more detailed summary, see Pension Reform.

January 23, 2002: Rep. Edward J. Markey (D-MA) introduces H.R. 3617,Accountability for Accountants Act of 2002.

"To withdraw certain benefits of the Private Securities Litigation Reform Act from auditors that perform non-audit functions, and for other purposes."

  • Holds accountants liable in cases where:
    • an accounting firm provided auditing and non-auditing services;
    • a defendant knowingly violated securities law;
    • an accounting firm didn't report fraud;
    • an accounting firm aided and abetted securities fraud; and
    • the company that issued the fraudulent securities is out of money.
  • Gives plaintiffs the ability to seek discovery against accounting firms.
  • Establishes a statutory requirement for accounting firms to retain all audit-related documents for four years, with a criminal penalty of 10 years imprisonment for knowingly or willfully destroying documents.
  • Requires accounting firms to formally consider selling off any interests in non-auditing businesses, such as consulting, or ceasing to provide such services to audit clients.

January 24, 2002: Sen. Barbara Boxer (D-CA) introduces S. 1896, Auditor Independence Act of 2002.

"To prohibit accounting firms from providing management consulting services for the companies they audit and any other non-audit related services that could result in a potential conflict of interest or otherwise impair the independence of the auditor, and for other purposes."

  • Prohibits public accountants from performing the following services for a company during they same calendar year they perform an audit for the same company:
    • any management consulting service;
    • any other service not related to the audit; and
    • any other service that could result in a potential conflict of interest or otherwise impair the independence of the auditor, as determined by the Securities and Exchange commission.

Jan. 24, 2002: Rep. Charles Rangel (D-NY) introduces H.R. 3622, Emergency Worker and Investor Protection Act of 2002.

"To amend the Internal Revenue Code of 1986 to extend the golden parachute excise tax to sales of company stock by corporate insiders occurring when the company prevents rank-and-file employees from selling company stock held in their 401(k) plan, and to ensure more accurate reporting of liabilities to workers and shareholders."

  • Imposes a 20 percent tax on company stock traded by executives when employees are prevented from trading stock.
  • Prevents companies from receiving a tax deduction for interest on debt instruments (e.g. loans) when those same debt instruments are counted as equity on the company's books.

For a more detailed summary, see Pension Reform.

Feb. 7, 2002: Sen. Kay Bailey Hutchison (R-TX) Sen. Trent Lott (R-MS), and Sen. Larry Craig (R-ID) introduce S. 1921, The Pension Plan Protection Act.

"To amend the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 to provide greater protection of workers' retirement plans, to prohibit certain activities by persons providing auditing services to issuers of public securities, and for other purposes."

  • Prohibits accounting firms from providing consulting services to their audit clients.

For a more detailed summary, see Pension Reform.

February 7, 2002: Rep. Sheila Jackson-Lee (D-TX) introduces H.R. 3693.

"To prevent accountants from providing non-audit servcies to audit clients."

  • Prohibits accountants from providing non-audit services to audit clients.

Feb. 13, 2002: Sen. Carl Levin (D-MI) introduces S. 1940, Ending the Double Standard for Stock Options Act.

"A bill to amend the Internal Revenue Code of 1986 to provide that corporate tax benefits from stock option compensation expenses are allowed only to the extent such expenses are included in a corporation's financial statements."

  • Requires companies treat stock options on their tax returns the same way they treat them on their financial statements. Thus, in order to receive a tax deduction for stock options, a company would have to report stock options as an expense on its financial statement.

Note: similar legislation was introduced in 1997 by the 105th Congress, but was defeated.

Feb. 14, 2002: Rep. Michael Oxley (R-OH)introduces H.R. 3763, Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002.

"To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to securities laws, and for other purposes."

  • Prohibits public accountants from performing the following services for a company they are also auditing:
    • financial information system design or implementation
    • internal audit services.
  • Requires disclosure of off-balance sheet transactions.

*Passed by full house (4-25-02) (334-90 vote) (also appears on Securities list)

February 26, 2002: Rep. Dennis Kucinich (D-OH) introduces H.R. 3795,Investor, Shareholder, and Employee Protection Act of 2002.

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

  • · Establishes a Federal Bureau of Audits within the Securities and Exchange Commission to conduct audits of all publicly registered companies.
  • Prohibits any departing FBA employees from working for a firm that they audited for 10 years following the audit to avoid conflicts of interest.
  • Calls for the top directors of the agency to be appointed by the President, with the consent of the Senate, for twelve-year terms.

Feb. 28, 2002: Rep. John LaFalce (D-NY) introduces H.R. 3818, Comprehensive Investor Protection Act of 2002.

"To protect investors by enhancing regulation of public auditors, improving corporate governance, overhauling corporate disclosure made pursuant to the securities laws, and for other purposes."

  • Prohibits auditors from providing nonaudit services to the same client during the same fiscal year
  • Requires companies to change auditors after using the same firm for four consecutive fiscal years.

For a complete summary, see Securities Reform.

March 8 , 2002: Sen. Chris Dodd (D-CT) introduces S. 2004, Investor Confidence in Public Accounting Act of 2002.

"To improve quality and transparency in financial reporting and independent audits and accounting services, to designate an Independent Public Accounting Board, to enhance the standard setting process for accounting practices, to improve Securities and Exchange Commission resources and oversight, and for other purposes."

  • Creates an Independent Public Accounting Board, subject to the Securities and Exchange Commission, to audit the auditors.
  • Doubles the size of the SEC accounting staff at a cost of several hundred million dollars.
  • Restricts accounting firms who audit a company from providing non-audit services to the same company.
  • Prohibits any accounting firm from auditing a company whose controller or chief financial officer had worked at the same accounting firm in the last two years.
  • Improves transparency of financial disclosures, including requiring immediate notificaton of insider trading.
  • Calls for a review of corporate governance practices.
  • Calls for a study on requiring companies to rotate audit firms.

March 14, 2002: Rep. John Dingell (D-MI) introduces the "Truth and Accountability in Accounting Act" (HR 3970),

"To improve the setting of accounting standards by the Financial Accounting Standards Board, to provide sound and uniform accounting and financial reporting for public utilities, to clarify the responsibility of issuers for the transparency and honesty of their financial statements and reports, and to enhance the governance of the accounting profession."

  • Directs: (a) the Securities and Exchange Commission (SEC) to review annually the impact of unresolved accounting standards issues on the clarity, transparency, and quality of financial reporting by publicly traded companies; (b) the Financial Accounting Standards Board (FASB) to respond to such report; and (c) the General Accounting Office (GAO) to evaluate such review mechanisms.
  • Requires the Federal Energy Regulatory Commission "to justify two loopholes it created that exempt Enron and other electricity marketers from securities and reporting requirements that apply to utilities and other sellers."
  • Forces CEOs to be directly responsibility for the financial statements of the company.
  • Creates an "Independent National Board of Accountancy" under the Securities and Exchange Commission to audit the auditors.

    • March 20, 2002: Rep. Pete Stark (D-CA) introduces H.R. 4075, Ending the Double Standard for Stock Options Act.

    "To amend the Internal Revenue Code of 1986 to provide that corporate tax benefits from stock option compensation expenses are allowed only to the extent such expenses are included in a corporation's financial statements."

  • Requires companies treat stock options on their tax returns the same way they treat them on their financial statements. Thus, in order to receive a tax deduction for stock options, a company would have to report stock options as an expense on its financial statement.

    • March 21, 2002 Sen. Bill Nelson (D-FL) introduces S. 2056, Integrity in Auditing Act of 2002,

    "A bill to ensure the independence of accounting firms that provide auditing services to publicly traded companies and of executives, audit committees, and financial compensation committees of such companies, and for other purposes."

  • Prohibits independent public accountants from providing any services that could result in a conflict of interest (including non-audit services) during the same year it provides auditing services.
  • Prohibits independent public accountants from performing auditing or related services for a specific company for more than seven consecutive years.
  • Directs the Securities and Exchange Commission to require: (a) issuer disclosure of the nature, extent, and duration of interrelationships between the issuer and the board of directors, senior officers of the corporation, and immediate family members; and (b) the audit committee and compensation committee of an issuer to consist solely of independent directors.
  • Expresses the sense of the Senate that: (a) tough enforcement, including criminal prosecution whenever possible, is the most effective deterrent to fraudulent activity; and (b) the Commission should take a firm, swift approach to wrongdoers.

    • April 24, 2002 Sen. Dick Durbin (D-IL) introduces S. 2247, Truth in Auditing Act of 2002,

    "A bill to provide for the regulation of public accounting firms for purposes of the Federal securities laws, to promote quality and transparency in financial reporting, to improve the quality of independent audits and accounting services through an Independent Public Accounting Oversight Board, and for other purposes."

  • Creates a five-member private and independent accounting oversight board that:
    1. Would require mandatory registration of all auditing firms and would establish and enforce new auditing standards designed to serve investors rather than the auditing industry.
    2. Would have investigative and disciplinary authority over accounting firms
    3. Could refer violations to state regulatory authorities and to the U.S. Department of Justice.
    4. Would be appointed by a committee that would include the chairman of the Securities and Exchange Commission and the Comptroller General of the United States.
  • Funds the board through fees paid by all registered auditing firms, and the amount of these fees would be based on the annual revenues of the companies.
  • Requires companies to rotate auditors every seven years.

    • June 25, 2002 Sen. Paul Sarbanes (D-MD) introduces S. 2673, Public Company Accounting Reform and Investor Protection Act of 2002,

    "An original bill to improve quality and transparency in financial reporting and independent audits and accounting services for public companies, to create a Public Company Accounting Oversight Board, to enhance the standard setting process for accounting practices, to strengthen the independence of firms that audit public companies, to increase corporate responsibility and the usefulness of corporate financial disclosure, to protect the objectivity and independence of securities analysts, to improve Securities and Exchange Commission resources and oversight, and for other purposes."

  • Prevents auditors from performing non-audit services (except with special permission)
  • Prohibits independent public accountants from performing auditing or related services for a specific company for more than seven consecutive years.
  • Require srotation of auditors after five years;
  • Creates a five-member independent board (with subpoena power) to regulate the accounting industry. Two members of the board can have accounting background.

    • *** Passed out of Committee on 18 June 2002 with a 17-4 vote (read an analysis of this bill)

    		  

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