Subject: File No. S7-22-99

Date:    11/11/99 9:01 AM
     
     
As the former general counsel of an NYSE-listed company, the current general 
counsel of a large non-profit engineering consulting company, and a board and 
audit committee member of a small NASDAQ-listed biotechnology company, I see 
much merit in proposals that would stop the "earnings management" activities 
at which Chairman  Levitt took aim  and which resulted in the establishment 
of the Blue Ribbon Committee.  I see the value in an active audit committee 
of the board with frequent contact between that committee and the outside 
auditors.  I believe in the value of, and have had adopted by the audit 
committee on which I sit, a formal charter containing many of the provisions 
suggested by the major accounting firms in their best practices publications 
along with others particularly pertinent to the business of the particular 
company on whose board I sit. I further fully agree with a requirement that 
interim financial reports be reviewed by outside auditors as one way of 
reigning in such attempts at management before they get out of control.  
     
This having been said, however, I must take issue  with any proposal that 
audit committees either "certify" financial statements or provide something 
on the order of a "cold comfort letter."  Audit committees, even those well 
populated by financial professionals, are not and should not be in the 
position of second guessing the professional judgments of independent outside 
auditors.  Where an audit committee perceives that the company's outside 
auditors have been  too generous in accepting the  position of management on 
a material issue, the audit committee should make appropriate inquiry of the 
auditors and if unhappy with the response, require that the information be 
changed and properly reported.  The audit  committee must have the ability 
and the authority to retain another accounting firm or other experts to 
advise it on the appropriate treatment of the disputed item and its proper 
disclosure.  
     
I believe that requiring audit committees to provide an additional level of 
assurance beyond what the independent auditors provide may actually mislead 
shareholders into believing that the committee is the equivalent of  or better 
able to deal with these issues than the outside accountants, which is surely 
not true of any audit committee of which I am aware.  The additional layer of 
protection is thus ephemeral.  The audit committee should make clear to 
outside auditors that they answer to the Board and not to management, that 
they have an obligation to tell the audit committee about every issue of 
substance on which there was debate even though there might finally have been 
agreement with management.  The should tell the audit committee how 
conservative or aggressive are the assumptions and principles on which 
management has relied on in making its disclosures and whether the practices 
being followed are merely acceptable practices or the best practices.
     
Sincerely,
     
Gordon Louttit