November 29, 1999
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
Mail Stop 6-9
450 Fifth Street, NW
Washington, DC 20549
RE: File No. S7-22-99, Audit Committee Disclosure
Dear Mr. Katz:
Regency Realty Corporation ("Regency") welcomes this opportunity to respond to the request for comments from the Securities and Exchange Commission (the Commission) on various proposals contained in Release No. 34-41987, Audit Committee Disclosure (the Release). After a lengthy review of the various proposals by our auditor KMPG, our own accounting staff and our Audit Committee, we are pleased to provide the following comments to the proposals.
Regency agrees with the Commission that a vigilant and informed audit committee is essential to ensure both investor protection and investor confidence. Indeed, we are pleased that the Commission, the AICPA, and the exchanges are working to implement the proposals of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committee (the BRC). The Release makes several proposals in accordance with the BRC's recommendations. We will comment on the following proposals: audit committee reports and the safe harbor.
Audit Committee Reports
One of the most significant proposals in the Release is the audit committee report. We agree with the intent of the proposal, encouraging audit committees to ask tough questions of the outside auditors and management. We believe, however, that the proposals may make the scope of audit committees' duties less clear. For example, should the audit committee rely solely on its review and discussions with the auditors or should it hire another firm to "audit the auditors"?
We also believe that, notwithstanding the safe harbor, the proposal may burden audit committees with additional liability. The liability may stem from the requirement that the audit committee state whether it has found any material misstatement or omission. Although not the intended outcome, this may imply further investigation. We don't believe that the alternative, proposed by the Commission, provides relief from this issue. Further, we fear that the prospect of additional liability may dissuade persons from serving on audit committees.
We understand that some commenters have suggested delaying consideration of this proposal for one year and reevaluating the necessity of such a report at that time. We support this suggestion.
Although the safe harbor does provide significant protections to audit committee members, it does not provide protection against federal antifraud claims or state law claims. It is unclear whether the protections of the business judgement rule under state law actually would be available to audit committee members. The audit committee also may be unprotected against private class action and derivative suits. The Commission may wish to consider including language in the safe harbor designed to provide audit committee members protection, especially under the Private Securities Litigation Reform Act.
We thank you for the opportunity to comment the Audit Committee Disclosure Release. Please contact me or Chris Leavitt, if you have any questions regarding this letter.
Bruce M. Johnson
Managing Director and
Chief Financial Officer
CC: Chris Leavitt