J. Michael Cook
980 Lake Avenue
Greenwich, Connecticut 06831

November 11, 1999

Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Dear Mr. Katz:

Re: File No. S7-22-99

I appreciate this opportunity to comment on the Commission's proposals to enhance the effectiveness of audit committees as a key part of the financial reporting process of public companies.

In commenting, my perspective is twofold. For about 15 years, as Chairman and CEO of a "Big 5" firm, I had the opportunity to work closely with and observe the development of the audit committees of many leading U.S. companies. Since retirement earlier this year, I have joined several corporate Boards and now have the added perspective of a Board and audit committee member.

I support the various Commission initiatives which have been undertaken to protect and enhance the quality of public financial reporting. The quality of such reporting is generally very high; yet any breakdown can have serious financial consequences for investors and can significantly impact the credibility of an individual company and the capital markets as a whole. The Commission, the accounting profession and Boards of Directors and management of public companies have a strong mutual interest in this matter.

Concerning audit committees, I applaud the Commission, the New York Stock Exchange and the NASD for their respective roles in initiating and sponsoring the Millstein/Whitehead Blue Ribbon Committee and bringing forth the substance of its recommendations in these rule proposals. The Blue Ribbon Committee had strong leaders and a diligent, balanced membership. It acted promptly, and its recommendations are sound and merit the widespread attention and support they have received.

Mr. Jonathan G. Katz
November 11, 1999

Page 2

I believe that the package of recommendations comprehended by the rule proposals are excellent and will, if properly implemented, enhance the effectiveness of audit committees. In this regard, I have one significant concern; that is, the possibility that the most important ingredient in the success formula for audit committees - the willingness of the right people to serve as audit committee members - could be adversely affected by the new rules. While processes, procedures and activities are important, they are not as important as the skills and experience of the people who carry them out.

My concern that audit committee service may become less attractive results from two possible impacts on present and potential members - overload and exposure to potential liability. The overload issue is straightforward; as more is expected and more time is required, the likelihood increases that individuals will decline audit committee service in favor of other Board committees. The response - "if more time is required, pay them more" - is just not relevant for many valuable audit committee members, particularly those active executives who cannot take additional time from their primary responsibilities to their own companies. My concern about overload does not result from any specific aspect of the proposed rules; however, it is an issue which must be considered in evaluating any proposed new responsibilities now and in the future.

The issue of potential liability is more complex. I am not an attorney, and therefore, I am not qualified to evaluate and comment on the likelihood of actual or potential liability arising from the proposed requirement for an audit committee representation in the company's proxy statement. Some believe that this representation is merely an affirmation of the "complete and accurate" standard that all directors adhere to in signing the 10-K. Other commentators express the concern that such a separate "attestation" will invite new litigation against audit committee members. Varying opinions are expressed regarding the scope and effectiveness of the proposed safe harbor for this recommended representation.

I believe that the Commission's formulation of this attestation as negative assurance, not requiring a specific reference to generally accepted accounting principles (GAAP), is an appropriate response to concerns expressed about the Blue Ribbon Committee's related recommendation No. 9. Whether additional modifications can be made to the form of representation and/or to the safe harbor which will satisfy the concerns about potential liability is a critical issue to be addressed by the Commission and its staff as final rules are developed.

Mr. Jonathan G. Katz
November 11, 1999

Page 3

If significant concerns about potential liability remain after the final rules are issued, the strong possibility exists that audit committee service will be adversely affected. Some audit committee members may be concerned about the reality of potential liability; others will be concerned about this principally as an overload issue, believing that additional, unproductive time will be required even if the risk of ultimate liability is minimal. For either reason, this outcome would be counterproductive to the objectives the Commission seeks to achieve.

To me, this is the critical issue to be addressed in formulating the final rules. If the Commission is unable to substantially resolve these concerns about liability, I would urge you to seek a compromise position to mitigate the potential consequences. The approach I would recommend would be to acknowledge that much has already been accomplished through the year-long focus on audit committees, and much more will be accomplished through implementation of the rule proposals, even without an attestation requirement. The Commission would then defer consideration of attestation for a period of, say, 12 to 24 months, at which time the effectiveness of implementation could be assessed, and a decision could then be made on the necessity of an attestation requirement to motivate further behavioral change. In the interim, the focus would be on audit committee effectiveness not on potential liability. Other approaches could achieve this objective as well; for example, an acknowledgement that the attestation is experimental, accompanied by a substantially expanded safe harbor that could be modified as experience with the legal issues develops over time.

A final thought on this issue. I would hope that those who comment on the potential liability issue during this exposure process will do so in a balanced way, recognizing the Commission's objectives and obvious trade offs. More importantly, though, is the public dialogue after the Commission issues its final rules. If the Commission concludes that some form of attestation is essential to its objectives, the response should be balanced and responsible - the unwarranted portrayal of a doomsday scenario would inevitably lead to a self-fulfilling prophecy - continuing, and perhaps even heightened, concern on the part of audit committee members leading to an exodus of many highly-qualified people from audit committee service.

* * * * *

Mr. Jonathan G. Katz
November 11, 1999

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The proposed rules call for an auditor to perform a timely review of quarterly financial results reported to the SEC on Form 10-Q. In my opinion the potential effectiveness of quarterly reviews would be substantially enhanced if such reviews were performed and reported to the audit committee prior to the release of quarterly results to the public. The marketplace importance of quarterly results is obvious. If a review is important (and I believe it is), it should be completed before such information is issued. If necessary, a few days delay in the issuance of such information is a reasonable price to pay for the enhanced credibility. A review performed after results have been released publicly is inherently less effective, stifled by the overriding importance of not changing what has already been reported.

The "public release" definition of "timely" could be achieved through modification, at the urging of the Commission, of the accounting profession's amendments to SAS 71, or could be achieved by the Commission requiring an 8-K filing at the time of the public release (as was discussed in Exchange Act Release No. 40632A (63 FR 67174) issued November 13, 1998) with the 8-K (and not the 10-Q) being the relevant document for completion of a timely review.

As to other items within my expertise, I support the proposal for auditors to communicate with audit committees about their independence, the proposal for audit committees, management and auditors to engage in substantive discussions concerning the "quality of earnings," and the proposal concerning the audit committee charter. I have no significant concerns or comments about these items.

I would be pleased to discuss or elaborate on these views at the convenience of the Commission or its staff. I appreciate this opportunity to provide my input concerning this very important initiative.


J. Michael Cook