From: James P Melican [James.Melican@ipaper.com]
Sent: Monday, December 02, 2002 3:12 AM
To: rule-comments
Subject: File No. S7-40-02

Jonathan G. Katz
Secretary, U.S. Securities and Exchange Commission

Dear Mr. Katz,

      The following comments are submitted on behalf of International Paper
Company in response to the Commission's proposed rules regarding
disclosures required by sections 404, 406 and 407 of the Sarbanes-Oxley Act
of 2002 (the "Act").

Financial Experts

      With regard to the proposed disclosure concerning financial experts
serving on a company's audit committee, we believe that the Commission's
proposed definition of the term "financial expert" is far too narrow, and
would severely restrict the company's board of directors in making the
judgment whether its audit committee included at least one such "financial
expert."  The Act enumerates several attributes that the Commission was to
consider in crafting its definition of "financial expert." However, the
proposed rule provides that a person cannot qualify as a "financial expert"
unless that person satisfies all of the four attributes specifically
listed. By requiring that the person have experience "preparing or auditing
financial statements that present accounting issues that are generally
comparable to those raised by the registrant's financial statements"  the
Commission would effectively preclude a company's board of directors from
determining that an experienced current or former chief executive officer
of a comparably sized public company is a "financial expert." Indeed, even
if that individual had previously served as the chief financial officer of
that company, the Commission's introduction of the "generally comparable"
concept might deter the board from concluding that an eminently qualified,
financially literate executive could satisfy the definition of "financial
expert." If the proposed rule in its present form were adopted, the end
result might well be that every publicly traded company would feel that
they must have a current or former accounting firm executive with wide
experience in auditing public companies serving on its audit committee so
that he or she could become the designated "financial expert." We believe
that result was not intended, either by the letter or the spirit of the
Act, and would cause turmoil as thousands of companies scurried to locate
and attract the very limited number of potential directors fitting that
qualification.

      We also believe that the proposal that companies disclose "the number
and names of the persons that the board of directors has determined to be
the financial experts", which the Commission recognizes goes beyond the
mandate of the Act, is misguided. The Commission requests comment on the
question "Would disclosure of the names discourage people from serving as
financial experts on an audit committee?" Particularly given the voluminous
list of "qualifications" which the Commission has mandated that the board
must or should consider, we believe that any individual asked to become the
designated "financial expert" would have every incentive to opt-out rather
than to have his or her qualifications challenged, whether now or later
(perhaps in the very adversarial atmosphere of a lawsuit against the
company).

Code of Ethics

      As the Commission has noted, it is proposing to broaden the
definition of the term "code of ethics" used in section 406 of the Act (a)
so as to encompass the company's principal executive officer, and (b) to
include several additional requirements not mentioned in the Act. While we
have no objection to the inclusion of the company's principal executive
officer, we believe that what the Commission describes as the sixth prong
of its proposed definition is nebulous and possibly misguided. By way of
explanation of what is meant by "accountability for adherence to the code,"
the Commission's release says only that: "The code also should state
clearly the consequences for non-adherence to code provisions." But a
company code of ethics is not a law; typically it contains a number  of
provisions that exhort individual employees to adhere to standards of
personal conduct that the company seeks to inculcate in its work force. It
would be inappropriate and probably counterproductive to specify in the
code the precise consequences for non-adherence, since so much would depend
on the importance of the particular provision violated and the individual
circumstances under which it was violated.

      Similarly, because the typical company code of ethics contains many
provisions having nothing to do with the specific requirements of section
406 of the Act, we believe that the Commission's proposal to require
immediate disclosure of any change to a company's code of ethics that
applies to the specified officers is overly broad. At most, immediate
disclosure should apply only to the three standards specified in section
406.

      We would note that the Commission recognizes, in note 73, that the
NYSE has submitted to it proposed new listing standards that would, among
other things, require all NYSE listed companies to adopt a code of business
conduct and ethics consistent with the principles enumerated in the listing
standards. Because no company wants to have two codes of ethics - - one to
accord with the Act and the other to be in compliance with listing
standards - - we would urge the Commission to consider in tandem both the
NYSE's proposal and its own, so as to do everything possible to reconcile
the two in a manner which would avoid duplication and possible confusion.

Management's Internal Controls and Procedures for Financial Reporting

      The Commission's proposal on this subject goes far beyond the
specific requirements of section 404 of the Act, and does so in a manner
that is unnecessary and would cause the chief executive officer and the
chief financial officer to spend even more time on a quarterly
certification process that is already tremendously time-consuming. We were
supportive of the provision in the Act that required an internal control
report annually. However, to effectively require, as the Commission would,
a quarterly reassessment of all of the company's internal control
mechanisms would be wasteful of the very limited time and resources that
the principal executives of a  corporation have to concentrate on managing
the corporation's ongoing business and operations. It is frankly ludicrous
for the Commission to state, without (as it concedes) "any data to support
this estimate," that it would take only an "additional 5 burden hours per
issuer" if this added requirement were super-imposed on the already
burdensome quarterly certification process. The Commission's premise seems
to be that, because the CEO and CFO are already required to evaluate the
effectiveness of the company's disclosure controls and procedures
quarterly, it would be a minimal additional burden to expand that to
include all of the company's internal  controls. However, "disclosure
controls and procedures" are defined as controls and other procedures that
are designed to ensure that information required to be disclosed by the
company in its periodic reports to the Commission is recorded, processed,
summarized and reported to the company's management, including its
principal executive and financial officers. Many public companies,
including International Paper Company, have now formed internal disclosure
committees to ensure that this requirement is met, and to assist the CEO
and CFO in certifying, as the Commission's newly adopted Rules 13a-14 and
15d-14 now require,  "their conclusions about the effectiveness of the
disclosure controls and procedures based on the required evaluation. . ."
The concept of internal controls and procedures for financial reporting is
far broader, encompassing,  as the Commission notes on page 25 of its
release, "processes designed to provide reasonable assurance that (i) the
company's transactions are properly authorized, (ii) the company's assets
are safeguarded against unauthorized or improper use, and (iii) the
company's transactions are properly recorded and reported"  The two
certifying officers are already required, by the new rules adopted just
last August,  to indicate in the quarterly report "whether or not there
were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
their evaluation. . ." It would be more than sufficient to satisfy the
Commission's objectives if this statement was slightly modified to include
any significant changes in internal controls during the period covered by
the report. That would not necessitate a complete reassessment of the
functioning of all of the company's internal controls each quarter, but
would  require the certifying officers to indicate in their report any
significant changes to the internal control policies of which they were
aware that occurred during the quarter,

      International Paper Company appreciates the Commission's
consideration of these comments, and would be pleased to elaborate on, or
explain further, any of them if that would be helpful.


                                                            Sincerely,

                                                            James P.
Melican
                                                            Executive Vice
President and General Counsel
                                                            International
Paper Company