September 25, 2000

Mr. Jonathan G. Katz
Secretary, Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20459

Dear Mr. Katz:

Enclosed are my written comments that I am submitting in regard to the proposed revision of the Commission's Auditor Independence Requirements (reference Release No. 33-7880; 34-43133: Comments File No. S7-13-00.)



Gary T. DiCamillo
Chairman of the Board of Directors and Chief Executive Officer


Written Statement of Gary T. DiCamillo
Securities and Exchange Commission Release No. 33-7880; 34-43133; Comment File No. S7-13-00
September 25, 2000
Revision of the Commission's Auditor Independence Requirements

I am Gary T. DiCamillo, the chairman of the board of directors and chief executive officer of Polaroid Corporation. Polaroid is a $2 billion, global technology and consumer products business, with a comprehensive line of instant film and digital imaging products and services.

I will focus my comments on the section of the proposed rules that relate to auditor independence, specifically internal audit outsourcing. In 1997, Polaroid initiated a review of its internal audit function with the aim of improving our financial processes and decision-making. Our review resulted in the outsourcing of our internal audit function in 1998. At the time of our decision, we were the largest company in New England to engage an outside firm to conduct internal audits. During the review process, we considered and addressed many of the issues raised by the SEC staff on this topic and we welcome this opportunity to share our experience and assist the SEC in its decision-making process.

In selecting a firm for the internal audit function, we chose, with the input and support of the audit committee of our board of directors, to bring in a new firm rather than using our long-time external auditors. We believed that a new perspective on our internal processes would be beneficial and we now have two-and-a-half years of very positive experience. We still, of course, use internal resources to manage the internal audit process and work with senior-level management on internal audit issues. However, the firm we chose for internal audits brings, through the wide range of services that they offer, individuals with specific areas of expertise, which would simply not be cost-efficient for us to maintain internally. This has allowed us to improve our internal audit processes as well as bringing new approaches to some of our financial decision-making.

Given that background, let me address the first question on this topic in the proposed rules.

Does internal audit outsourcing impair, or would, to a reasonable investor, appear to impair auditor independence?

In reviewing proposals to outsource our internal audit function, we considered whether we should engage our external auditors. We considered essentially the same question you raise and reached the conclusion not to engage our external auditors for the following reasons:

As emphasized by the Committee of Sponsoring Organizations of the Treadway Commission in their report "Internal Control - Integrated Framework", internal auditors play an important role in evaluating and monitoring the internal control system. We concur with that assessment and believe that maintenance of internal controls is a responsibility of management and that the internal audit function is a critical part of our internal control structure. Therefore, by assuming responsibility for the internal audit function, our external auditor would have assumed some management responsibility for the Company.

Further, we considered some of the issues you have identified as the four governing principles outlined in proposed rule 2-01(b). Like you, we concluded that these situations might, to a reasonable investor, give the appearance of impairing independence. Specifically, our auditors might be perceived to be in a position of reviewing their own work and performing a function that is the responsibility of the Company.

For these reasons, we believe the conclusions reached by our management and the audit committee of our board of directors were consistent with those outlined in the proposed rule and we support the rule as it is drafted related to internal audit outsourcing.

In considering the other related questions raised in the proposed rule, we would provide the following opinions:

Does it impair an auditor's independence if the auditor does not outsource the internal audit function of the audit client, but rather performs individual audit projects for the client?

We recognize that the external auditor can often bring a unique perspective to certain projects for a number of reasons (e.g., independence from our Company combined with knowledge of our business practices, exposure to and experience with the best practices within an industry and expertise in areas where our Company has limited knowledge). For these reasons, we believe that in certain instances the external auditor can provide advice that benefits our company and in turn, our investors. However, based on the governing principles in proposed rule 2-01(b), we understand the view point that having the external auditor perform individual audit projects could, to a reasonable investor, give the appearance of impairing independence (i.e., auditing the accountant's own work and functioning as management or an employee of the audit client).

We would look for a balance between those factors in the final rules so that companies could, in certain limited circumstances, benefit from the experience of the external auditor while the investor could maintain a high level of confidence. We considered the SEC staff's interpretation of the 1996 AICPA Ethics Committee Ruling concerning internal audit outsourcing. Specifically, that the external auditor may perform "extended audit services" however, if the performance of extended audit services entails any managerial or employee function, the auditor's independence would be adversely affected. We believe that if the final rules included some allowance for the auditor to perform a limited consulting role in matters that arose in the normal course of an audit, a balance could exist that would maximize the benefits to companies and investors.

Would it impair the auditor's independence if the auditor performs only operational audits that are unrelated to the internal controls, financial systems or financial statements?

In considering this question, we recognize that the external auditor provides the investor with confidence in the reliability, fairness and completeness of an entity's financial statements. The confidence imparted by the auditor is, in turn, a contributing factor in the willingness of investors to invest in the market.

We believe that the issues addressed in operational audits, although not always directly related to the internal controls, financial systems or financial statements, could ultimately impact the financial statements at some level. We further believe that the responsibility for performing these audits belongs to the management of the company. For these reasons, we do not support hiring the external auditor to perform operational audits unrelated to the internal controls, financial systems or financial statements since this could create independence questions for a reasonable investor.