November 29, 1999

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

Audit Committee Disclosure: Release No. 34-41987 (File No. S7-22-99)

Dear Mr. Katz:

Hunton & Williams is pleased to submit to the Securities and Exchange Commission (the "Commission") our comments on Release No. 34-41987 on Audit Committee Disclosure (the "Release"). The Release proposes new rules regarding corporate audit committees, based in large part on the recommendations recently made by the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (the "Blue Ribbon Committee"), with the goals of improving the reliability and credibility of financial statements released by public companies.

Hunton & Williams fully supports the efforts of the Commission and the Blue Ribbon Committee to improve the quality and credibility of financial reporting by better defining the function and composition of audit committees. We believe that the Release and the related proposals under consideration by the New York Stock Exchange (the "NYSE"), the American Stock Exchange ("Amex") and the National Association of Securities Dealers, Inc. (the "NASD") will provide significant tools to aid in enhancing the efforts and capabilities of audit committees and to improve corporate financial disclosures under the securities laws.

Nevertheless, we wish to note certain areas which, in our opinion, either deserve additional clarification or could otherwise be improved.

Audit Committee Report in Proxy Statement. With regard to the Release's proposal to add a new Item 306 to Regulations S-K and S-B and Item 7(e)(3) to Schedule 14A so as to require the inclusion of an audit committee report in each registrant's proxy statements or information statements, we have the following comments.

It would seem that the inclusion of the audit committee report in the annual proxy statement would be a logical place to provide for such disclosure, as opposed to inclusion in the Form 10-K or the glossy annual report to shareholders, since it would track current requirements for inclusion of a compensation committee report in the annual proxy statement. Still, the Release's inclusion of the so-called "negative assurance" statement, while not extending the audit committee's responsibilities to the levels of sophisticated knowledge of GAAP called for by Recommendation Nine of the report of the Blue Ribbon Committee, seems unnecessary and unduly onerous. Despite the Commission's analogizing of the audit committee report to the annual proxy statement's compensation committee report, the proposed "negative assurance" language, which contains conclusions on materiality, extends far beyond the requirements for corporate compensation committees and, in essence, is similar to the Rule 10b-5 opinions typically delivered by counsel in underwritten offerings. We believe these types of determinations are best made by the Company's internal accounting and finance professionals and outside auditors. Despite the proposed "safe harbors", concerns over audit committee liability in connection with a sweeping 10b-5 type certification may make it difficult for reporting companies to attract experienced sophisticated independent directors to serve on audit committees and otherwise achieve the laudable goals of the Release.

We suggest that the Commission remove the requirement for a Rule 10b-5 type negative assurance statement from the proposed audit committee report.

Further, as we discuss separately below, we question the efficacy of the proposed "safe harbors" offered in connection with this aspect of the audit committee's responsibilities.

Audit Committee Charter. We agree that the adoption of a charter by audit committees would help provide a clearer definition of their purpose and goals. As a form of "mission statement," an audit committee charter may help reinvigorate and provide direction to certain of these committees. We wish to note, however, that there may be a tendency, arising from director liability concerns, for audit committees to adopt tried-and-tested, "boilerplate" type charters that may not necessarily be pertinent to a given company's financial management needs and conditions, rather than devote the time and effort necessary to craft a truly effective, customized charter. This tendency could defeat the spirit of requiring an audit committee charter in the first instance.

Rather than require republication of the charter every three years in the proxy statement, regardless of whether the charter itself may or may not have been altered to any meaningful degree, we would propose that the charter be treated the same as other types of exhibits subject to filing and disclosure pursuant to Item 601 of Regulation S-K, to be refiled as an Exchange Act exhibit only when amended or restated. In lieu of republication of the entire charter in the proxy statement, as part of the audit committee report to be required under Regulation S-K and S-B Item 306 and Item 7(e)(3) of Schedule 14A, it would seem logical to require the audit committee to disclose succinctly the essential terms and provisions of its charter as a preamble to the audit committee report.

Independence of Audit Committee Members. We agree that the independence of audit committee members is an important goal; however, we question the benefit of having different standards of independence set forth by the NYSE, on the one hand, and the Amex and NASD, on the other hand. Allowing the exchanges to set different standards of independence for audit committee members could have the unintended and undesirable effects of (a) causing "forum shopping" by companies with respect to where their securities trade and (b) confusing investors as to what differences exist substantively among the exchanges on this matter.

We suggest that the Commission encourage the NYSE, the Amex and the NASD to adopt a uniform standard of independence for audit committee members.

Proposed Safe Harbors. In addition to the current proposed provisions, the safe harbor protection should state that that an audit committee report is not "specifically incorporated by reference" by an issuer simply by reason of being in a proxy statement that is incorporated by reference into offering documents filed with the Commission (e.g., the "catch-all" Item 12(b) of Form S-3). The term "specifically incorporated by reference" suggests that the proxy statement must be identified with some specificity, perhaps by date, in the incorporating language, but there is nothing in the Release (or the proposing and adopting releases relating to proxy statement disclosure of a compensation committee report) that limits the term in this manner. Because an audit committee report is much more likely to generate litigation than a compensation committee report, the safe harbor language should be more precise, and if "specifically incorporated by reference" has the meaning indicated above, it should be so stated.

We are pleased to have had this opportunity to provide you with our comments on the Release. We would welcome the opportunity to discuss these comments with the Commission and to provide any further input as may be desired.

If you have any questions concerning this letter, please contact Daniel M. LeBey at (804) 788-7366 or Michael J. McCullough at (804) 788-8520 in Richmond, Virginia or Jack H. (Nick) McCall at (865) 549-7765 in Knoxville, Tennessee.

Sincerely yours,

HUNTON & WILLIAMS