Securities Lawyer's Deskbook
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Sarbanes-Oxley Act of 2002

Section 108 -- Accounting Standards

  1. Amendment to Securities Act of 1933. Section 19 of the Securities Act of 1933 is amended--

    1. by redesignating subsections (b) and (c) as subsections (c) and (d), respectively; and

    2. by inserting after subsection (a) the following:

      "(b) Recognition of Accounting Standards.--
        "(1) In general.-- In carrying out its authority under subsection (a) and under section 13(b) of the Securities Exchange Act of 1934, the Commission may recognize, as 'generally accepted' for purposes of the securities laws, any accounting principles established by a standard setting body--
          "(A) that--
            "(i) is organized as a private entity;
            "(ii) has, for administrative and operational purposes, a board of trustees (or equivalent body) serving in the public interest, the majority of whom are not, concurrent with their service on such board, and have not been during the 2-year period preceding such service, associated persons of any registered public accounting firm;
            "(iii) is funded as provided in section 109 of the Sarbanes-Oxley Act of 2002;
            "(iv) has adopted procedures to ensure prompt consideration, by majority vote of its members, of changes to accounting principles necessary to reflect emerging accounting issues and changing business practices; and
            "(v) considers, in adopting accounting principles, the need to keep standards current in order to reflect changes in the business environment, the extent to which international convergence on high quality accounting standards is necessary or appropriate in the public interest and for the protection of investors; and
          "(B) that the Commission determines has the capacity to assist the Commission in fulfilling the requirements of subsection (a) and section 13(b) of the Securities Exchange Act of 1934, because, at a minimum, the standard setting body is capable of improving the accuracy and effectiveness of financial reporting and the protection of investors under the securities laws.
        "(2) Annual report.-- A standard setting body described in paragraph (1) shall submit an annual report to the Commission and the public, containing audited financial statements of that standard setting body."

  2. Commission Authority. The Commission shall promulgate such rules and regulations to carry out section 19(b) of the Securities Act of 1933, as added by this section, as it deems necessary or appropriate in the public interest or for the protection of investors.

  3. No Effect on Commission Powers. Nothing in this Act, including this section and the amendment made by this section, shall be construed to impair or limit the authority of the Commission to establish accounting principles or standards for purposes of enforcement of the securities laws.

  4. Study and Report on Adopting Principles-Based Accounting.

    1. Study.

      1. In general. The Commission shall conduct a study on the adoption by the United States financial reporting system of a principles-based accounting system.

      2. Study topics. The study required by subparagraph (A) shall include an examination of--

        1. the extent to which principles-based accounting and financial reporting exists in the United States;

        2. the length of time required for change from a rules-based to a principles-based financial reporting system;

        3. the feasibility of and proposed methods by which a principles-based system may be implemented; and

        4. a thorough economic analysis of the implementation of a principles-based system.

    2. Report. Not later than 1 year after the date of enactment of this Act, the Commission shall submit a report on the results of the study required by paragraph (1) to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives.

Legislative History

July 30, 2002, 107 P.L. 204, Title I, § 108, 116 Stat. 745.

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