On July 10, 2002, as capital market slides reflected a continuing erosion of investor confidence, lawmakers in both the House and Senate made progress on accounting reforms. The Senate overwhelmingly approved several elements of President Bush's plan, including harsh new penalties for corporate fraud, and a House subcommittee on consumer protection passed the Financial Accounting Standards Board (FASB) Act.
The Senate measures were passed as amendments to S.2673, known as the Sarbanes bill. They allow the Securities and Exchange Commission (SEC) to bar corporate officers and directors from future service for violations of securities laws, if their conduct demonstrates "unfitness" to serve. They also allow the SEC to seek an order in federal court imposing a 45-day freeze on extraordinary payments to corporate executives. In addition, the Leahy amendment imposes stiffer penalties on securities fraud. Written by Senate Judiciary Committee Chairman Patrick Leahy, the Leahy amendment would:
- Make it a felony to take part in any "scheme or artifice" to defraud shareholders in publicly traded companies.
- Create 10-year prison terms for securities fraud.
- Give corporate whistle-blowers new court protection from retaliation from their employers.
- Add new anti-shredding laws.
- Create a clear rule that corporate audit workpapers must be kept for at least five years.
A vote on the overall Senate bill is expected later in the week ending July 12, 2002 or early the following week. Then the entire package must be reconciled with the House bill.
The House Energy Subcommittee on Commerce, Trade, and Consumer Protection approved H.R.5058, known as the FASB Act, which would provide FASB with an independent legal basis for existence, move the US standard-setting process toward a principles-based approach like IASB's, and allow Congress to set deadlines for FASB projects. The next step for the FASB Act, introduced as H.R.5058, is consideration by the full House Energy and Commerce Committee.