text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Competitive and Open Markets That 
  Protect and Enhance the Treatment of Entrepreneurs Act of 2007'' or the 
  ``Compete Act of 2007''.
  
  SEC. 2. DEFINITIONS.
  
      For purposes of this Act, the terms ``audit'', ``Board'', 
  ``Commission'', ``issuer'', and ``public accounting firm'' have the 
  same meanings as in section 2 of the Sarbanes-Oxley Act of 2002 (15 
  U.S.C. 7201).
  
  SEC. 3. INTERNAL CONTROL REPORTING AND EVALUATION.
  
      Section 404(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
  7262(b)) is amended to read as follows:
      ``(b) Internal Control Reporting and Evaluation.--
              ``(1) Auditor attestation and report.--
                      ``(A) In general.--With respect to the internal 
                  control assessment required by subsection (a), each 
                  registered public accounting firm that prepares or 
                  issues the audit report for the issuer shall, at the 
                  interval determined under paragraph (2), attest to, and 
                  report on, the assessment made by the management of the 
                  issuer.
                      ``(B) Content.--The attestation and report on the 
                  management assessment required by this paragraph--
                              ``(i) shall focus on the process and system 
                          management used--
                                      ``(I) to identify and manage risks;
                                      ``(II) to identify and implement 
                                  key controls; and
                                      ``(III) to come to a conclusion on 
                                  the effectiveness of the internal 
                                  controls over financial reporting; and
                              ``(ii) shall not include a separate opinion 
                          on the outcome of the assessment, including any 
                          pass or fail opinion by the auditor on the 
                          effectiveness of the internal controls of 
                          management over financial reporting.
              ``(2) Intervals for attestation and report.--The 
          regulations of the Commission under this section--
                      ``(A) shall require that the attestation and report 
                  required by paragraph (1) be performed during an 
                  initial reporting period, and then at 3-year intervals; 
                  and
                      ``(B) may require a shorter interval in the event 
                  of a major shift in the structure or performance of the 
                  issuer, such as a merger, a significant financial 
                  restatement, evidence of fraud, or other such events, 
                  as determined by the Commission
              ``(3) Standards for attestation and report.--
                      ``(A) Risk-based evaluation.--
                              ``(i) In general.--An attestation made 
                          under this subsection shall be made in 
                          accordance with standards for attestation 
                          engagements issued or adopted by the Board.
                              ``(ii) Requirements.--The standards issued 
                          or adopted by the Board for purposes of this 
                          subsection shall require that the audit of the 
                          management assessment of the internal controls 
                          of the issuer shall--
                                      ``(I) be designed, on the basis of 
                                  the probability of risk and magnitude 
                                  of potential harm, to focus on those 
                                  controls that are critical to the 
                                  accuracy of the financial statements of 
                                  the issuer;
                                      ``(II) be consistent with the 
                                  materiality standards prescribed by the 
                                  Commission under paragraph (4); and
                                      ``(III) require that the 
                                  determination by the auditor of the 
                                  controls that create the greatest risk 
                                  to the company shall be made in 
                                  consultation with management of the 
                                  issuer, and shall identify those 
                                  greatest risks in consideration of the 
                                  characteristics of the industry within 
                                  which the issuer operates.
                      ``(B) Reliance on the work of others.--The 
                  standards issued or adopted by the Board for purposes 
                  of this subsection shall eliminate duplication of 
                  audits and examinations--
                              ``(i) by allowing registered public 
                          accounting firms performing attestations and 
                          reports under this subsection to rely on 
                          examinations and inspections conducted by 
                          Federal and State regulatory agencies--
                                      ``(I) to the extent that such 
                                  examinations and inspections focus on 
                                  the risk-based internal controls of the 
                                  issuer; and
                                      ``(II) to the extent practicable, 
                                  without affecting the timely completion 
                                  of the examinations and inspections;
                              ``(ii) where the issuer has engaged a 
                          third-party accountant to test and provide its 
                          management assessment of the internal control 
                          systems, by permitting--
                                      ``(I) the third-party accountant to 
                                  work with registered public accounting 
                                  firms performing attestations and 
                                  reports under this subsection on 
                                  determining the controls to be tested 
                                  and the scope of the work;
                                      ``(II) the registered public 
                                  accounting firms performing 
                                  attestations and reports under this 
                                  subsection to rely heavily on the work 
                                  of the third-party accountant during 
                                  the attestation engagement to avoid 
                                  repetitive testing; and
                                      ``(III) management of the issuer to 
                                  communicate openly with the registered 
                                  public accounting firms performing 
                                  attestations and reports under this 
                                  subsection on all aspects of its 
                                  internal controls.
                      ``(C) Definition.--For purposes of subparagraph 
                  (B)(ii), the term `third-party accountant' means a 
                  registered public accounting firm other than the 
                  registered public accounting firm that is engaged to 
                  perform the attestation and report under this 
                  subsection.
              ``(4) Materiality standard.--The Commission shall develop a 
          standard of materiality for the conduct of the assessment and 
          report on an internal control under this subsection that shall 
          be based on the relationship of the internal control to the 
          reasonably possible effects on the financial statements of the 
          issuer, and its significance to the overall financial status of 
          the issuer.''.
  
  SEC. 4. SMALLER PUBLIC COMPANY OPTION REGARDING INTERNAL CONTROL 
                PROVISION.
  
      Section 404 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7262) is 
  amended by adding at the end the following:
      ``(c) Smaller Public Company Option.--
              ``(1) Voluntary compliance.--A smaller issuer shall not be 
          subject to the requirements of subsection (a), unless the 
          smaller issuer voluntarily elects to comply with such 
          requirements, in accordance with regulations prescribed by the 
          Commission. Any smaller issuer that does not elect to comply 
          with subsection (a) shall state such election, together with 
          the reasons therefor, in its annual report to the Commission 
          under section 13(a) or 15(d) of the Securities Exchange Act of 
          1934 (15 U.S.C. 78m or 78o(d)).
              ``(2) Definition.--
                      ``(A) In general.--For purposes of this subsection, 
                  and subject to subparagraph (B), the term `smaller 
                  issuer' means an issuer for which an annual report is 
                  required by section 13(a) or 15(d) of the Securities 
                  Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), that--
                              ``(i) has a total market capitalization at 
                          the beginning of the relevant reporting period 
                          of less than $700,000,000;
                              ``(ii) has total product and services 
                          revenue for that reporting period of less than 
                          $125,000,000; or
                              ``(iii) has, at the beginning of the 
                          relevant reporting period, fewer than 1500 
                          record beneficial holders.
                      ``(B) Annual adjustments.--The amounts referred to 
                  in clauses (i) and (ii) of subparagraph (A) shall be 
                  adjusted annually to account for changes in the 
                  Consumer Price Index for all urban consumers, United 
                  States city average, as published by the Bureau of 
                  Labor Statistics.''.
  
  SEC. 5. COMPETITION FOR AUDITING SERVICES.
  
      (a) Study Required.--The Commission and the Board shall jointly 
  conduct a study examining the lack of, and impediments to, robust 
  competition for the performance of audits for issuers.
      (b) Subjects of Study.--The study required by this section shall 
  examine--
              (1) the causes for, and the measures that may be taken to 
          alleviate, the concentration of audit performance in only 4 
          large public accounting firms capable of servicing the larger 
          issuers; and
              (2) the extent to which the Commission and the Board may, 
          under existing law, take reasonable steps--
                      (A) to increase the number of qualified accounting 
                  firms; and
                      (B) to eliminate de minimis conflict of interest 
                  provisions.
      (c) Report.--
              (1) In general.--Not later than 6 months after the date of 
          enactment of this Act, the Commission and the Board shall 
          submit a joint report on the study required by this section to 
          the Committee on Banking, Housing, and Urban Affairs of the 
          Senate and the Committee on Financial Services of the House of 
          Representatives.
              (2) Requirements.--The report required by this subsection 
          shall--
                      (A) contain the results of the examination of each 
                  of the subjects identified in subsection (b);
                      (B) make recommendations to the accounting industry 
                  of measures that may be undertaken under existing 
                  provisions of law, regulations, and standards to 
                  alleviate the concentration described in subsection 
                  (b)(1);
                      (C) identify the measures that the Commission and 
                  the Board should be authorized to undertake to 
                  alleviate such concentration; and
                      (D) make any recommendations to Congress for 
                  changes in the laws administered by the Commission and 
                  the Board that the Commission or the Board consider 
                  appropriate and necessary on the basis of the study.
  
  SEC. 6. PRINCIPLES-BASED GUIDANCE STUDY.
  
      (a) Study Required.--The Commission and the Board shall jointly 
  conduct a study comparing and contrasting the principles-based Turnbull 
  Guidance under the securities laws of Great Britain to the 
  implementation of section 404 of the Sarbanes-Oxley Act of 2002.
      (b) Report.--
              (1) In general.--Not later than 1 year after the date of 
          enactment of this Act, the Commission and the Board shall 
          submit a joint report on the study required by this section to 
          the Committee on Banking, Housing, and Urban Affairs of the 
          Senate and the Committee on Financial Services of the House of 
          Representatives.
              (2) Requirements.--The report required by this subsection 
          shall--
                      (A) compare the relative accounting and other costs 
                  of the principles-based Turnbull Guidance under the 
                  securities laws of Great Britain and the implementation 
                  of section 404 of the Sarbanes-Oxley Act of 2002, in 
                  relation to the relative reduction in the level of risk 
                  to investors and increase in the level of investor 
                  confidence in the financial statements of issuers; and
                      (B) recommend to the Congress appropriate measures 
                  to alleviate accounting and other costs in relation to 
                  the reduction of such risk and the increase in such 
                  confidence.
target: Competitive and Open Markets That Protect and Enhance the Treatment of Entrepreneurs Act of 2007, or the Compete Act of 2007 - Amends the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) to revise requirements for the internal control assessment component of a securities issuer's annual report.
  
  Requires the attestation and report by a registered public accounting firm on an issuer's management assessment of its internal control structure and procedures to focus upon the process and system used by management to identify and manage risks, identify and implement key controls, and come to a conclusion on the effectiveness of the internal controls over financial reporting.
  
  Prohibits an auditor's attestation and report from including a separate (pass/fail) opinion on the effectiveness of such internal controls.
  
  Requires such attestation and report to be performed at three-year intervals.
  
  Prescribes standards for such attestations and reports, including a risk-based evaluation.
  
  Permits attestations and reports to rely on examinations and inspections by federal and state regulatory agencies.
  
  Instructs the Securities and Exchange Commission (SEC) to develop a standard of materiality for such assessments and reports based upon the relationship of the internal control to the reasonably possible effects on the financial statements of the issuer, and its significance to the overall financial status of the issuer.
  
  Exempts a smaller public company from the requirements for management assessment of internal controls, unless it voluntarily elects to comply with them.
  
  Directs the SEC and the Public Company Accounting Oversight Board to jointly conduct studies: (1) examining the lack of, and impediments to, robust competition for the performance of audits for issuers; and (2) comparing and contrasting the principles-based Turnbull Guidance under the British securities laws to the implementation of section 404 of Sarbanes-Oxley (concerning management assessment of internal controls).
feat_title: A bill to reform certain provisions of section 404 of the Sarbanes-Oxley Act of 2002, to make compliance with that section more efficient, with the goal of maintaining United States capital market global competitiveness.