November 29, 1999
Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Re: File No. S7-22-99
Dear Mr. Katz,
Summit Bancorp ("Summit") is pleased to submit its comments on the proposed new rules and amendments to improve disclosure related to the functioning of corporate audit committees and to enhance the reliability and credibility of financial statements. Summit is a regional bank holding company listed on the New York Stock Exchange and headquartered in Princeton, New Jersey with $36 billion in assets and $24 billion in deposits.
Summit is an advocate of high quality financial reporting and believes in the value of an informed and effective audit committee. Summit agrees with the SEC that some of the Blue Ribbon Committee recommendations should be modified to address the concern that increased disclosure may expose audit committee members to additional liability, making it more difficult to find good members, and may impose added costs on companies. While Summit is supportive of most of the proposals, implementation as presently proposed may have unintended consequences that would not be in the best public interest. Summit responses to the five proposals are as follows:
Proposal A - Pre-Filing Review of Quarterly Financial Statements
Although Summit supports the general principle requiring quarterly reviews of financial statements, in the interest of providing investors timely financial results, Summit would not support any requirement that interim reviews be completed before earnings release as it would delay the reporting of financial information to the market. Summit would also not be in support of any requirement which would accelerate the Form 10-Q reporting date or to have the audit committee approve or review the financial results.
Summit does not believe that a SAS 71 Interim Review should be required for all companies. A full SAS 71 review may not be needed for companies with limited complexity and stable operations. For those companies, Summit does not believe quarterly financial reviews will reduce restatements or other year-end adjustments, nor will it result in lower audit fees. We would support actions which encouraged, not required, SAS 71 Interim Reviews and disclosure in the Form 10-Q of whether or not a company engages the outside auditor to do such reviews during the year.
Proposal B - The Audit Committee Report
Summit does not support the proposal to require the audit committee to provide a report disclosing whether the audit committee has reviewed and discussed the audited financial statements with management and discussed certain matters with the independent auditors in the proxy statement. Proxy statements are already too long and complicated. We suggest disclosing the duties and responsibilities of the audit committee, including reviewing and discussing the audited financial statements with management and discussing certain matters with the independent auditors, in the charter. As we state in "Proposal C" below, we support including the charter as an exhibit to the company's Form 10-K.
Summit does not support the proposed rule which would require the audit committee to state in the audit committee's report whether, based on the review and discussions, anything came to the attention of the members that caused the audit committee to believe that the audited financial statements contain an untrue statement of material fact or omit a statement of material fact. By signing the Form 10-K, board members are already acknowledging that they have reviewed the propriety of the financial disclosures with management.
Proposal C - Audit Committee Charters
Summit supports the proposal that companies should disclose whether their audit committee is governed by a charter. However, we do not support the proposal that the charter be disclosed in the proxy statement. The cost of disclosing the charter in the proxy outweighs the benefit. As an alternative, we would suggest including the charter as an exhibit to the company's Form 10-K, consistent with the method of presenting the Corporate Charter and By-laws. Including it as an exhibit to the 10-K would accomplish the same results as including it in the proxy statement at a reduced cost.
To address the SEC's request for comments to require a summary of the charter instead of the entire charter, Summit points out that a summary of the functions performed by committees is currently required by Schedule 14A "Information Required in Proxy Statements of Securities Exchange Commission," Item #7(e)(1).
Summit does not support a requirement that the audit committee make a statement that it has satisfied its responsibilities under the charter. This will only lead to boiler plate charters. Alternatively, disclosure in the proxy statement about any material deviations by the audit committee from their charter should be made.
Proposal D - Disclosure About "Independence" of Audit Committee Members
Summit supports the concept that audit committee directors should be fully independent of the company and management. Summit agrees that the criteria should allow for appointment of one audit committee member who may not meet all of the definitions of "independence" as prescribed by the NYSE, due to former employment or Family Relationship with a former executive, and that this inability to meet the "independence" definition should be disclosed in the proxy statement. The Board should be empowered to select those directors who would serve the best interests of the shareholders. Summit does not agree with the proposed requirement to disclose the nature of the relationship of the director who is not "independent" and the reasons for the Board's determination. Such a requirement will result in boilerplate disclosure which is of little value.
Proposal E - Proposed Safe Harbors
Summit believes that audit committees should receive the same "safe harbor" treatment as compensation committees.
Thank you for the opportunity to comment on this proposal. Should there be any questions about our comments, I can be reached at (609) 987-3213 or call Sharon Doele, Manager of Accounting Policy and Research at (609) 987-3460.
Paul V. Stahlin