August 19, 2002
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Re: Proposed Rule Regarding "Certification of Disclosure in Companies' Quarterly and Annual Reports"; File No. S7-21-02
Dear Mr. Jonathan G. Katz,
Japanese Financial Services Agency appreciates the opportunity to submit this comment on this above-referenced proposed rule. We are fully aware that the Sarbanes-Oxley Act of 2002 and rules and proposals related to the Act are intended to restore investors' confidence in the financial market.
The Securities and Exchange Commission has proposed to enhance and improve the disclosure of transactions and to require executive certification of the accuracy of financial statements. We support the Commission's efforts to improve and enhance the disclosure. However, serious concerns have been expressed whether the final rule were to be applied to foreign private issuers that file annual reports on Form 20-F. Corporate executives in many nations already face legal penalties if they file or submit a misleading report. Instead of unnecessary duplication, cooperation between the U.S. and countries where the foreign private issuers are based is necessary and instrumental in order to restore confidence of investors.
We also note that there is a provision that requires all the issuers including foreign private issuers to establish an auditing committee consisting of independent directors. We also note that the Act shall be applied to public accounting firms that prepare or furnish audit reports for SEC-registered foreign companies listed on the U.S. stock exchanges in the same manner as U.S. accounting firms. Such provisions may raise questions for foreign jurisdictions where adequate measures to protect investors are effectively in place.
Under Japanese legislation, a director board is in general collectively responsible for the shareholders. Corporate executives are required to sign on periodic reports, and already face legal sanction if they file a report that contain untrue or misleading statements. Japanese accounting and auditing practices have been generally aligned with the International Standards. There is no point in duplicating legislation whose goal, to enhance corporate responsibilities and restore investors' trust, is the same. Believing that the clarified rules would eventually exempt any Japanese firms from the application of the Act, we, therefore, would like to continue consultations with the U.S. authorities in accordance with international cooperation.
We support the Commission's efforts to improve the disclosure and corporate governance practices. We believe that it is with international cooperation and coordination that the Commission will help to improve worldwide disclosure and corporate governance practices to restore investors' confidence, and thereby to achieve our ultimate goal of protecting investors.
Director for Corporate Accounting and Disclosure
Japanese Financial Services Agency