SARBANES-OXLEY ACT of 2002 - Summary/HighlightsSection 3: Commission Rules and Enforcement.A violation of Rules of the Public Company Accounting Oversight Board (“Board”) is treated as a violation of the ’34Act, giving rise to the same penalties that may be imposed for violations of that Act.Section 101: Establishment; Board Membership.The Board will have five financially-literate members, appointed for five-year terms. Two of the members must be orhave been certified public accountants, and the remaining three must not be and cannot have been CPAs. The Chairmay be held by one of the CPA members, provided that he or she has not been engaged as a practicing CPA for fiveyears. 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 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 thepreparation 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 tothe 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 professionalgroups of accountants and any advisory groups convened in connection with standard-setting, and although the Boardcan “to the extent that it determines appropriate” adopt standards proposed by those groups, the Board will haveauthority to amend, modify, repeal, and reject any standards suggested by the groups. The Board must report on itsstandard-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 7years, audit work papers, and other information related to any audit report, in sufficient detail to support theconclusions 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 arerecorded in a manner that will permit the preparation of financial statements in accordance with GAAP, and adescription of any material weaknesses in the internal controls.Section 102(a): Mandatory RegistrationSection 102(f): Registration And Annual Fees.Section 109(d): Funding; Annual Accounting Support Fee For The Board.In order to audit a public company, a public accounting firm must register with the Board.The Board shall collect “a registration fee” and “an annual fee” from each registered public accounting firm, inamounts that are “sufficient” to recover the costs of processing and reviewing applications and annual reports.The Board shall also establish by rule a reasonable “annual accounting support fee” as may be necessary orappropriate to maintain the Board. This fee will be assessed on issuers only.Section 104: Inspections of Registered Public Accounting FirmsAnnual quality reviews (inspections) must be conducted for firms that audit more than 100 issues, all others must beconducted every 3 years. The SEC and/or the Board may order a special inspection of any firm at any time.Section 105(b)(5): Investigation And Disciplinary Proceedings; Investigations; Use Of Documents.Section 105©(2): Investigations And Disciplinary Proceedings; Disciplinary Procedures; Public Hearings.Section 105©(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 anevidentiary matter (and shall not be subject to civil discovery other legal process) in any proceeding in any Federal orState 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 bemade 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 consentof the parties.Sanctions can be imposed by the Board of a firm if it fails to reasonably supervise any associated person with regardto 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.2.Section 106: Foreign Public Accounting Firms.The bill would subject foreign accounting firms who audit a U.S. company to registrations with the Board. Thiswould include foreign firms that perform some audit work, such as in a foreign subsidiary of a U.S. company, that isrelied on by the primary auditor.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 theBoard additional responsibilities. The SEC may require the Board to keep certain records, and it has the power toinspect the Board itself, in the same manner as it