American Bankers Association
January 3, 2003
Jonathan G. Katz
Re: File No. S7-40-02; Disclosure Required by Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002
Dear Mr. Katz:
The American Bankers Association (ABA) appreciates the opportunity to comment on the proposed rule, "Disclosure Required by Sections 404, 406, and 407 of the Sarbanes-Oxley Act of 2002." The purpose of this letter is to supplement the portion of our comment letter of November 29, 2002 relating to Section 407, "Disclosure of audit committee financial expert". ABA brings together all categories of banking institutions to best represent the interests of the rapidly changing industry. Its membership - which includes community, regional, and money center banks and holding companies, as well as savings associations, trust companies and savings banks - makes ABA the largest banking trade association in the country.
As described in our November 29 letter, the ABA is extremely concerned about the impact of the definition of "financial expert" in the SEC proposal. We believe that the SEC proposal appears to be in direct conflict with the Professional Standards of the American Institute of Certified Public Accountants (AICPA), which could severely limit the number of persons who would qualify as a "financial expert" - specifically for the audit committee of a bank.
A community banker in a rural state brought this to our attention, and we believe it is important that the SEC consider its implications. The community banker invited a local public accountant to participate on the bank's board. The accountant turned the banker down, and pointed to an AICPA rule that specifically recommends that CPAs not participate on a bank board if the CPA's clients are likely to engage in significant transactions with the bank. Specifically, the AICPA's Professional Standards on this point (ET Section 191.170-171, Ethics Rulings on Independence, Integrity, and Objectivity) are as follows:
Although this rule has been in place for some time, the implications of it have not been as significant as they are now. Now that companies are required to have a financial expert (or disclose why not), the AICPA rule plays a much bigger role. The AICPA rule (which specifically focuses on banks) will make it even more difficult for banks, especially in small communities, to find a financial expert as defined in the SEC proposal. We believe that the AICPA rule even further limits the pool of candidates that could serve as financial experts on the boards of financial institutions.
In conclusion, we are very concerned about the conflict between the AICPA rules and the SEC proposed definition. We appreciate the opportunity to provide our views, and we would be pleased to work with the SEC and the AICPA to attempt to resolve this issue, which appears to be unique to banking. Please feel free to contact me at 202-663-5318 for additional information.