SOUTHERN UNION COMPANY
ONE PEI CENTER
WILKES-BARRE, PA 18711
November 26, 2002
In reply to: File No. S7-40-02
Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Dear Jonathan G. Katz,
This letter is prepared in comment to the U.S. Securities and Exchange Commission's proposed rule concerning disclosure required by Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002 (File No. S7-40-02).
On behalf of Southern Union Company, the following are my responses to the questions solicited by the Commission in Section II. A. 2 of the proposing release:
Question: Should we require a financial expert to have direct experience preparing or auditing financial statements of reporting companies? Should experience reviewing or analyzing such financial statements suffice? If so, why?
Response: Requiring the financial expert to have direct experience in preparing or auditing financial statements of reporting companies should not be a necessary requirement for the financial expert. As currently proposed, such individuals may have direct experience in preparing and auditing financial statements that may have occurred say twenty years ago. Since that time the FASB has issued standards that have changed the accounting and auditing for pensions, income taxes, cash flow, stock options, earnings per share, hedging transactions and acquisition accounting to name a few. If the experience occurred some time ago, having such qualification in preparing or auditing financial statements of reporting companies may not be relevant. The audit committee should work with the external auditors (who should be current on audit procedures and standards) to ensure that the financial statements and related footnotes are prepared in accordance with GAAP. It would be more important for the financial expert to have strong analytical skills and to question both the external auditors and management on the financial statements and related footnotes. To this extent, having experience in reviewing or analyzing such financial statements should suffice.
Question: Should a financial expert have to possess all of the "attributes" listed in the proposed definition? Should we broaden the scope of individuals who may qualify as such an expert?
Response: A financial expert should not have to possess the "attribute" of having experience in preparing or auditing financial statements that present accounting issues that are generally comparable to those raised by the registrant's financial statements. See the previous response for a discussion concerning this attribute.
On behalf of Southern Union Company, the following are my responses to the questions solicited by the Commission in Section II. B. 2 of the proposing release:
Question: Should the rules cover a broader group of officers? If so, which group of officers should they cover? Should the general counsel be covered? Should all executive officers be covered?
Response: If the current proposal recommends that the company's principal executive officer abide by a code of ethics similar to that of the principal accounting officer, others should be included as well. Many of the disclosures included in Southern Union's periodic reports are based on information obtained from officers who are Section 16 reporters, or employees that report directly to such individuals. The rules should cover officers of a company who are also Section 16 reporters.
On behalf of Southern Union Company, the following are my responses to the questions solicited by the Commission in Section II. C. 2 of the proposing release:
Question: If we adopt the proposed amendments before the PCAOB is operational, should we delay effectiveness of the rules until such time as attestation engagements standards are issued or adopted by the PCAOB?
Response: Attestation engagement standards concerning management's internal control report should be issued and adopted by the PCAOB before the proposed amendments become effective. This would ensure that a consistent standard is applied to all such internal control reports.
Jon A. Graf
Southern Union Company