Bill Summary
The "Trusted Foreign Auditing Act of 2025" is proposed legislation aimed at amending the Sarbanes-Oxley Act of 2002 to enhance transparency and accountability in the auditing practices of registered public accounting firms with ties to foreign jurisdictions that pose national security risks.
Key provisions of the bill include:
1. **Definition of Compromised Auditor**: The bill introduces the term "compromised auditor," referring to auditing firms or branches that are influenced or controlled by governments of designated "covered countries," which are identified as threats to U.S. national security.
2. **Inspection and Disclosure Requirements**: The amended legislation requires disclosures regarding any compromised auditors retained by covered issuers (companies based in these identified countries). If a covered issuer hires a compromised auditor, specific trading prohibitions would apply to that issuer.
3. **Public Hearings**: The bill modifies the conditions under which public hearings can be held regarding compromised auditors. Hearings would typically remain private unless a compromised auditor is involved or the Board orders otherwise.
Overall, the legislation seeks to strengthen oversight of foreign auditors and protect U.S. investors by addressing potential conflicts of interest arising from foreign influence.
Possible Impacts
The "Trusted Foreign Auditing Act of 2025" amends the Sarbanes-Oxley Act of 2002 and introduces several provisions that could impact various stakeholders. Here are three examples of how this legislation might affect people:
1. **Investors and Shareholders:**
The act introduces stricter requirements for auditing firms that operate in countries deemed a threat to U.S. national security. If a company is headquartered in a "covered country" and hires a "compromised auditor," it faces trading prohibitions. This could affect investors and shareholders by limiting their ability to trade shares of these companies, potentially impacting their financial interests and market confidence. Investors may also become more cautious about investing in companies with international ties, particularly those linked to jurisdictions deemed risky.
2. **Public Accounting Firms:**
Registered public accounting firms operating internationally may need to reassess their relationships with foreign branches, especially in countries identified as threats. If they are considered "compromised auditors," they may face increased scrutiny and limitations on their operations. This could lead to significant changes in how these firms conduct business, including the potential need to sever ties with certain foreign entities to maintain their reputation and compliance with U.S. laws. Firms might also incur additional costs related to compliance and legal counsel to navigate the new regulations.
3. **Regulatory Bodies and Oversight Agencies:**
The inclusion of provisions for public hearings about compromised auditors and covered issuers adds a layer of oversight that regulatory bodies must manage. These hearings, which are generally private unless certain conditions are met, may require significant resources from agencies like the Public Company Accounting Oversight Board (PCAOB) to ensure proper enforcement. Increased regulatory scrutiny may lead to more extensive investigations into foreign auditing practices and could result in heightened accountability for both domestic companies and foreign auditors, impacting the overall auditing landscape.
These examples illustrate the potential ripple effects of the legislation across various sectors, influencing financial markets, accounting practices, and regulatory frameworks.
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4616 Introduced in House (IH)]
<DOC>
119th CONGRESS
1st Session
H. R. 4616
To amend the Sarbanes-Oxley Act of 2002 to provide for disclosure
regarding foreign jurisdictions that hinder inspections, and for other
purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 22, 2025
Ms. Stefanik introduced the following bill; which was referred to the
Committee on Financial Services
_______________________________________________________________________
A BILL
To amend the Sarbanes-Oxley Act of 2002 to provide for disclosure
regarding foreign jurisdictions that hinder inspections, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Trusted Foreign Auditing Act of
2025''.
SEC. 2. INSPECTION OF REGISTERED PUBLIC ACCOUNTING FIRMS.
Section 104(i) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7214(i)) is amended--
(1) in paragraph (1)--
(A) by redesignating subparagraphs (A) and (B) as
subparagraphs (C) and (D), respectively; and
(B) by inserting before subparagraph (C), as so
redesignated, the following:
``(A) the term `compromised auditor' means, with
respect to a registered public accounting firm, an
independent branch or office of that firm (or a
subsidiary of such a branch or office) that--
``(i) is subject to the jurisdiction and
laws of the government of a covered country;
``(ii) is directly or indirectly
controlled, directed, or materially influenced
by a covered country;
``(iii) has a manager or owner, or conducts
any operation, that is subject to the direct
influence of a covered country; or
``(iv) has entered into any arrangement,
agreement, or relationship with the government
or political party of a covered country that
could compromise the objectivity, integrity, or
independence of the branch, office, or
subsidiary in performing auditing or
attestation services;
``(B) the term `covered country' means--
``(i) any country (including any special
administrative region of such country)
identified as a threat to the national security
of the United States in the most recent report
submitted to Congress by the Director of
National Intelligence pursuant to section 108B
of the National Security Act of 1947 (50 U.S.C.
3043b) (commonly referred to as the `Annual
Threat Assessment'); or
``(ii) any covered nation (as defined in
section 4872(d)(2) of title 10, United States
Code);'';
(2) in paragraph (2)(A)--
(A) in the matter preceding clause (i), by striking
``paragraph (1)(A)'' and inserting ``paragraph
(1)(C)''; and
(B) in clause (ii), by inserting ``is a compromised
auditor that'' before ``the Board is unable''; and
(3) by adding at the end the following:
``(5) Trading prohibition.--If a covered issuer that is
headquartered in a country of concern retains a compromised
auditor to prepare an audit report described in paragraph
(2)(A) for the covered issuer, the trading prohibition
described in paragraph (3) shall apply to the covered
issuer.''.
SEC. 3. PUBLIC HEARINGS.
Section 105(c) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7215(c)) is amended by striking paragraph (2) and inserting the
following:
``(2) Public hearings.--
``(A) Definitions.--In this paragraph, the terms
`compromised auditor' and `covered issuer' have the
meanings given those terms in section 104(i)(1).
``(B) Conditions.--Hearings under this section
shall not be public, unless--
``(i) a compromised auditor retained by a
covered issuer is a party to the hearing; or
``(ii) otherwise ordered by the Board for
good cause shown, with the consent of the
parties to such hearing.''.
<all>