Bill Summary
The "Trusted Foreign Auditing Act of 2025" seeks to amend the Sarbanes-Oxley Act of 2002 by enhancing disclosure requirements related to foreign jurisdictions that obstruct the inspection of registered public accounting firms. Key provisions include:
1. **Definition of Compromised Auditor**: It establishes a definition for "compromised auditor," which refers to independent branches, offices, or subsidiaries of accounting firms that are influenced or controlled by countries deemed a national security threat to the U.S.
2. **Covered Countries**: The legislation identifies "covered countries" based on national security assessments and includes countries that pose potential threats.
3. **Trading Prohibition**: If a company (referred to as a "covered issuer") based in a covered country hires a compromised auditor, trading restrictions will be applied to that company.
4. **Public Hearings**: The Act modifies the conditions under which public hearings related to compromised auditors can occur, allowing them to be non-public unless specific conditions are met.
Overall, the bill aims to bolster oversight of auditing practices involving foreign entities and to protect the integrity of financial reporting in the U.S.
Possible Impacts
The "Trusted Foreign Auditing Act of 2025" amends the Sarbanes-Oxley Act and has several potential effects on various stakeholders. Here are three examples:
1. **Increased Transparency and Investor Confidence:**
By requiring disclosures regarding foreign jurisdictions that hinder inspections of auditors, this legislation aims to enhance transparency in the auditing process. Investors could have greater confidence in the financial reports of companies that operate in or are connected to these jurisdictions. If investors know that a company has retained an auditor from a "covered country," they may make more informed decisions, potentially leading to increased investment in companies that comply with the new standards.
2. **Impact on International Business Operations:**
Companies headquartered in "covered countries" may face significant operational changes. If a company retains a "compromised auditor," it faces trading prohibitions, which could limit its ability to raise capital or trade shares on public markets. This can affect the company’s market value and limit its business growth opportunities. Furthermore, businesses may need to reassess their auditing relationships and possibly seek auditors from jurisdictions with less regulatory scrutiny to avoid penalties.
3. **Regulatory Burden on Auditors:**
Auditing firms that operate in or have connections with "covered countries" may experience increased regulatory scrutiny and a potential loss of business. Being classified as a "compromised auditor" could harm a firm's reputation and ability to attract clients, especially those that require audits for compliance with U.S. regulations. This may lead to a restructuring of their operations, increased compliance costs, and a re-evaluation of their international strategies to mitigate risks associated with the legislation.
Overall, the legislation could lead to a more rigorous auditing environment, affecting investors, companies, and auditing firms in various ways.
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 2382 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 2382
To amend the Sarbanes-Oxley Act of 2002 to provide for disclosure
regarding foreign jurisdictions that hinder inspections, and for other
purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
July 22, 2025
Mr. Scott of Florida introduced the following bill; which was read
twice and referred to the Committee on Banking, Housing, and Urban
Affairs
_______________________________________________________________________
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(f)(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 covered country 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.''.
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