15 U.S.C. § 7214 — Inspections of registered public account-

Page 2325 TITLE 15—COMMERCE AND TRADE § 7214 tent (including proposed drafts) of auditing, quality control, ethics, independence, or other standards required to be established under this section. (b) Independence standards and rules The Board shall establish such rules as may be necessary or appropriate in the public interest or for the protection of investors, to implement, or as authorized under, title II of this Act. (c) Cooperation with designated professional groups of accountants and advisory groups (1) In general The Board shall cooperate on an ongoing basis with professional groups of accountants designated under subsection (a)(3)(A) and advi- sory groups convened under subsection (a)(4) in the examination of the need for changes in any standards subject to its authority under subsection (a), recommend issues for inclusion on the agendas of such designated professional groups of accountants or advisory groups, and take such other steps as it deems appropriate to increase the effectiveness of the standard setting process. (2) Board responses The Board shall respond in a timely fashion to requests from designated professional groups of accountants and advisory groups re- ferred to in paragraph (1) for any changes in standards over which the Board has authority. (d) Evaluation of standard setting process The Board shall include in the annual report required by section 7211(h) of this title the re- sults of its standard setting responsibilities dur- ing the period to which the report relates, in- cluding a discussion of the work of the Board with any designated professional groups of ac- countants and advisory groups described in paragraphs (3)(A) and (4) of subsection (a), and its pending issues agenda for future standard setting projects. (Pub. L. 107–204, title I, § 103, July 30, 2002, 116 Stat. 755; Pub. L. 111–203, title IX, § 982(d), July 21, 2010, 124 Stat. 1929; Pub. L. 112–106, title I, § 104, Apr. 5, 2012, 126 Stat. 310.) Editorial Notes REFERENCES IN TEXT This Act, referred to in subsec. (a)(1), is Pub. L. 107–204, July 30, 2002, 116 Stat. 745, known as the Sar- banes-Oxley Act of 2002. For complete classification of this Act to the Code, see Tables. Title II of this Act, referred to in subsec. (b), is title II of Pub. L. 107–204, July 30, 2002, 116 Stat. 771, which enacted subchapter II of this chapter and amended sec- tions 78c, 78j–1, 78l, and 78q of this title. For complete classification of title II to the Code, see Tables. AMENDMENTS 2012—Subsec. (a)(3)(C). Pub. L. 112–106 added subpar. (C). 2010—Subsec. (a)(1). Pub. L. 111–203, § 982(d)(1), sub- stituted ‘‘such ethics standards, and such independence standards’’ for ‘‘and such ethics standards’’. Subsec. (a)(2)(A)(iii). Pub. L. 111–203, § 982(d)(2), sub- stituted ‘‘in each audit report for an issuer, describe’’ for ‘‘describe in each audit report’’ in introductory pro- visions. Subsec. (a)(2)(B)(i). Pub. L. 111–203, § 982(d)(3), sub- stituted ‘‘issuers, brokers, and dealers’’ for ‘‘issuers’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–203 effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as an Effective Date note under section 5301 of Title 12, Banks and Banking. § 7214. Inspections of registered public account- ing firms (a) In general (1) Inspections generally The Board shall conduct a continuing pro- gram of inspections to assess the degree of compliance of each registered public account- ing 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. (2) Inspections of audit reports for brokers and dealers (A) The Board may, by rule, conduct and re- quire a program of inspection in accordance with paragraph (1), on a basis to be determined by the Board, of registered public accounting firms that provide one or more audit reports for a broker or dealer. The Board, in estab- lishing such a program, may allow for dif- ferentiation among classes of brokers and dealers, as appropriate. (B) If the Board determines to establish a program of inspection pursuant to subpara- graph (A), the Board shall consider in estab- lishing any inspection schedules whether dif- fering schedules would be appropriate with re- spect to registered public accounting firms that issue audit reports only for one or more brokers or dealers that do not receive, handle, or hold customer securities or cash or are not a member of the Securities Investor Protec- tion Corporation. (C) Any rules of the Board pursuant to this paragraph shall be subject to prior approval by the Commission pursuant to section 7217(b) of this title before the rules become effective, in- cluding an opportunity for public notice and comment. (D) Notwithstanding anything to the con- trary in section 7212 of this title, a public ac- counting firm shall not be required to register with the Board if the public accounting firm is exempt from the inspection program which may be established by the Board under sub- paragraph (A). (b) Inspection frequency (1) In general Subject to paragraph (2), inspections re- quired by this section shall be conducted— (A) annually with respect to each reg- istered public accounting firm that regu- larly provides audit reports for more than 100 issuers; and (B) not less frequently than once every 3 years with respect to each registered public accounting firm that regularly provides audit reports for 100 or fewer issuers. (2) Adjustments to schedules The Board may, by rule, adjust the inspec- tion schedules set under paragraph (1) if the Page 2326 TITLE 15—COMMERCE AND TRADE § 7214 Board finds that different inspection schedules are consistent with the purposes of this Act, the public interest, and the protection of in- vestors. The Board may conduct special in- spections at the request of the Commission or upon its own motion. (c) Procedures The Board shall, in each inspection under this section, and in accordance with its rules for such inspections— (1) identify any act or practice or omission to act by the registered public accounting firm, or by any associated person thereof, re- vealed by such inspection that may be in vio- lation of this Act, the rules of the Board, the rules of the Commission, the firm’s own qual- ity control policies, or professional standards; (2) report any such act, practice, or omis- sion, if appropriate, to the Commission and each appropriate State regulatory authority; and (3) begin a formal investigation or take dis- ciplinary action, if appropriate, with respect to any such violation, in accordance with this Act and the rules of the Board. (d) Conduct of inspections In conducting an inspection of a registered public accounting firm under this section, the Board shall— (1) inspect and review selected audit and re- view engagements of the firm (which may in- clude audit engagements that are the subject of ongoing litigation or other controversy be- tween the firm and 1 or more third parties), performed at various offices and by various as- sociated persons of the firm, as selected by the Board; (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 or appropriate in light of the purpose of the inspection and the responsibilities of the Board. (e) Record retention The rules of the Board may require the reten- tion by registered public accounting firms for inspection purposes of records whose retention is not otherwise required by section 7213 of this title or the rules issued thereunder. (f) Procedures for review The rules of the Board shall provide a proce- dure for the review of and response to a draft in- spection report by the registered public account- ing firm under inspection. The Board shall take such action with respect to such response as it considers appropriate (including revising the draft report or continuing or supplementing its inspection activities before issuing a final re- port), but the text of any such response, appro- priately redacted to protect information reason- ably identified by the accounting firm as con- fidential, shall be attached to and made part of the inspection report. (g) Report A written report of the findings of the Board for each inspection under this section, subject to subsection (h), shall be— (1) transmitted, in appropriate detail, to the Commission and each appropriate State regu- latory authority, accompanied by any letter or comments by the Board or the inspector, and any letter of response from the registered public accounting firm; and (2) made available in appropriate detail to the public (subject to section 7215(b)(5)(A) of this title, and to the protection of such con- fidential and proprietary information as the Board may determine to be appropriate, or as may be required by law), except that no por- tions of the inspection report that deal with criticisms of or potential defects in the qual- ity control systems of the firm under inspec- tion shall be made public if those criticisms or defects are addressed by the firm, to the satis- faction of the Board, not later than 12 months after the date of the inspection report. (h) Interim Commission review (1) Reviewable matters A registered public accounting firm may seek review by the Commission, pursuant to such rules as the Commission shall promul- gate, if the firm— (A) has provided the Board with a re- sponse, pursuant to rules issued by the Board under subsection (f), to the substance of particular items in a draft inspection re- port, and disagrees with the assessments contained in any final report prepared by the Board following such response; or (B) disagrees with the determination of the Board that criticisms or defects identi- fied in an inspection report have not been addressed to the satisfaction of the Board within 12 months of the date of the inspec- tion report, for purposes of subsection (g)(2). (2) Treatment of review Any decision of the Commission with respect to a review under paragraph (1) shall not be re- viewable under section 78y of this title, or deemed to be ‘‘final agency action’’ for pur- poses of section 704 of title 5. (3) Timing Review under paragraph (1) may be sought during the 30-day period following the date of the event giving rise to the review under sub- paragraph (A) or (B) of paragraph (1). (i) Disclosure Regarding Foreign Jurisdictions That Prevent Inspections (1) Definitions In this subsection— (A) the term ‘‘covered issuer’’ means an issuer that is required to file reports under section 78m or 78o(d) of this title; and (B) the term ‘‘non-inspection year’’ means, with respect to a covered issuer, a year— (i) during which the Commission identi- fies the covered issuer under paragraph (2)(A) with respect to every report de- scribed in subparagraph (A) filed by the covered issuer during that year; and (ii) that begins after December 18, 2020. (2) Disclosure to Commission The Commission shall— (A) identify each covered issuer that, with respect to the preparation of the audit re- Page 2327 TITLE 15—COMMERCE AND TRADE § 7214a port on the financial statement of the cov- ered issuer that is included in a report de- scribed in paragraph (1)(A) filed by the cov- ered issuer, retains a registered public ac- counting firm that has a branch or office that— (i) is located in a foreign jurisdiction; and (ii) the Board is unable to inspect or in- vestigate completely because of a position taken by an authority in a foreign juris- diction, as determined by the Board; and (B) require each covered issuer identified under subparagraph (A) to, in accordance with the rules issued by the Commission under paragraph (4), submit to the Commis- sion documentation that establishes that the covered issuer is not owned or controlled by a governmental entity in the foreign ju- risdiction described in subparagraph (A)(i). (3) Trading prohibition after 2 years of non-in- spections (A) In general If the Commission determines that a cov- ered issuer has 2 consecutive non-inspection years, the Commission shall prohibit the se- curities of the covered issuer from being traded— (i) on a national securities exchange; or (ii) through any other method that is within the jurisdiction of the Commission to regulate, including through the method of trading that is commonly referred to as the ‘‘over-the-counter’’ trading of securi- ties. (B) Removal of initial prohibition If, after the Commission imposes a prohi- bition on a covered issuer under subpara- graph (A), the covered issuer certifies to the Commission that the covered issuer has re- tained a registered public accounting firm that the Board has inspected under this sec- tion to the satisfaction of the Commission, the Commission shall end that prohibition. (C) Recurrence of non-inspection years If, after the Commission ends a prohibition under subparagraph (B) or (D) with respect to a covered issuer, the Commission deter- mines that the covered issuer has a non-in- spection year, the Commission shall prohibit the securities of the covered issuer from being traded— (i) on a national securities exchange; or (ii) through any other method that is within the jurisdiction of the Commission to regulate, including through the method of trading that is commonly referred to as the ‘‘over-the-counter’’ trading of securi- ties. (D) Removal of subsequent prohibition If, after the end of the 5-year period begin- ning on the date on which the Commission imposes a prohibition on a covered issuer under subparagraph (C), the covered issuer certifies to the Commission that the covered issuer will retain a registered public ac- counting firm that the Board is able to in- spect under this section, the Commission shall end that prohibition. (4) Rules Not later than 90 days after December 18, 2020, the Commission shall issue rules that es- tablish the manner and form in which a cov- ered issuer shall make a submission required under paragraph (2)(B). (Pub. L. 107–204, title I, § 104, July 30, 2002, 116 Stat. 757; Pub. L. 111–203, title IX, § 982(e)(1), July 21, 2010, 124 Stat. 1929; Pub. L. 116–222, § 2, Dec. 18, 2020, 134 Stat. 1063; Pub. L. 117–328, div. AA, title III, § 301, Dec. 29, 2022, 136 Stat. 5536.) Editorial Notes REFERENCES IN TEXT This Act, referred to in subsecs. (a)(1), (b), and (c), is Pub. L. 107–204, July 30, 2002, 116 Stat. 745, known as the Sarbanes-Oxley Act of 2002. For complete classification of this Act to the Code, see Tables. AMENDMENTS 2022—Subsec. (i)(2)(A)(ii). Pub. L. 117–328, § 301(1), sub- stituted ‘‘a foreign jurisdiction’’ for ‘‘the foreign juris- diction described in clause (i)’’. Subsec. (i)(3). Pub. L. 117–328, § 301(2)(A), substituted ‘‘2’’ for ‘‘3’’ in heading. Subsec. (i)(3)(A). Pub. L. 117–328, § 301(2)(B), sub- stituted ‘‘2’’ for ‘‘3’’. 2020—Subsec. (i). Pub. L. 116–222 added subsec. (i). 2010—Subsec. (a). Pub. L. 111–203 designated existing provisions as par. (1), inserted heading, and added par. (2). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–203 effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as an Effective Date note under section 5301 of Title 12, Banks and Banking. § 7214a. Additional disclosure (a) Definitions In this section— (1) the term ‘‘audit report’’ has the meaning given the term in section 7201(a) of this title; (2) the term ‘‘Commission’’ means the Secu- rities and Exchange Commission; (3) the term ‘‘covered form’’— (A) means— (i) the form described in section 249.310 of title 17, Code of Federal Regulations, or any successor regulation; and (ii) the form described in section 249.220f of title 17, Code of Federal Regulations, or any successor regulation; and (B) includes a form that— (i) is the equivalent of, or substantially similar to, the form described in clause (i) or (ii) of subparagraph (A); and (ii) a foreign issuer files with the Com- mission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or rules issued under that Act; (4) the terms ‘‘covered issuer’’ and ‘‘non-in- spection year’’ have the meanings given the terms in subsection (i)(1) of section 7214 of this title, as added by section 2 of this Act; and (5) the term ‘‘foreign issuer’’ has the mean- ing given the term in section 240.3b–4 of title 17, Code of Federal Regulations, or any suc- cessor regulation.