Siemens Aktiengesellschaft

File no. S 7-40-02

Disclosure required by ss. 404, 406, 407 Sarbanes-Oxley Act of 2002

I. Disclosure Required by Section 407 (Financial Expert in Audit Committees)

Question: Should we define "independent" in the same manner as the term it used in Section 10A (m)(3) of the Exchange Act?

Response: Due to the fact that all members of audit committees have to meet the independence requirement set forth in s. 301 SOA, we are of the opinion that an additional disclosure of the independence qualification is not necessary.

With regard to the definition of independence, we would like to point out to the particularities connected with the two tier board structure of German stock corporations:

In accordance with the German Stock Corporation Act, we have a Supervisory Board and a Managing Board. The two boards are separate and no individual may simultaneously be a member of both boards (§ 105 of the German Stock Corporation Act).

The Managing Board is responsible for managing our business in accordance with applicable laws, our Articles of Association and the bylaws of the Managing Board. This includes the following managing matters which are specifically reserved to the Managing Board: preparation of the annual financial statements; the calling of the shareholders' meeting and preparation and execution of the resolutions and reports to the Supervisory Board and the shareholders' meeting as prescribed by law.

The Supervisory Board appoints and removes the members of the Managing Board and determines their responsibilities. It supervises and advises the Managing Board but is not permitted to make management decisions. The Supervisory Board meets at regular intervals to discuss financial results as well as company strategy, budgeting, and implementation. It reviews and approves the company's quarterly reports, annual report, and consolidated financial statements, as well as audits performed by the independent auditors. In addition, key Managing Board decisions - such as major acquisiations, divestments and financial measures - regularly require Supervisory Board approval.

As stipulated by the German Codetermination Act, one half of the members of the Supervisory Board represent company shareholders, and half represent company employees. The shareholders' representatives are elected by the Annual Shareholders' Meeting, whereas the employee representatives are elected by a conference of employee delegates. Under the rules of the Codetermination Act the employee representatives have to be employees of the company, with the exception of two or three trade union representatives (§ 7(2) of the Codetermination Act). Pursuant to § 15(1) of the Codetermination Act, at least one employee representative has to be recruited from the group of officers of the company. Although the employee representatives on the Supervisory Board are solely elected by the employees, they have to promote the interests of the company as a whole. Once in office, they must not only further the employees' interests but have to take into account the shareholders' interests as well.

As set forth in the Articles of Association, each member of the Supervisory Board receives an annual compensation and reimbursement of their actual out-of-pocket expenses. Under § 26 of the Codetermination Act, employee representatives on the Supervisory Board must not be hindered in carrying out their duties and not disadvantaged as a result of their activities. The same applies to their career development. Therefore, the employee representatives employed by the company still receive their ordinary salary during their period on the Supervisory Board.

As a counterpart to the protection against discrimination, German law particularly prohibits any preferencial treatment of employee representatives on the Supervisory Board. So, § 117 of the German Corporation Act provides for liability of those persons who abuse their influence on members of the Supervisory Board to induce them to act to the disadvantage of the company or its shareholders. As a consequence, the employee representatives only receive their ordinary salary. They do not get any extra compensation compared to other employees.

The system of Codetermination of the Supervisory Board also determines the composition of committees of the Supervisory Board. Due to a decision of the German Federal Supreme Court of Justice employee representatives must not be excluded from committees. The audit committee of Siemens comprises three shareholder representatives and two employee representatives. Of the latter, one is a trade union representative, the other an employee of the company. In caontrast to the trade union representative, this employee technically does not meet the independence requirements of the Sarbanes-Oxley Act.

If we excluded the employee from the Audit Committee to fulfill the independence requirements of the Sarbanes-Oxley Act, we would not only at the same time violate certain provisions of German law. Such a distinction would also be inconsistent with basic principles under German codetermination law:

Under German law, all employee representatives are considered to be independent. The fact that some of them continue to be on the company's payroll does not impair their independence. They are not considered to be less independent than the trade union representatives on the board who do not receive any payments from the company (except the compensation granted to all members of the Supervisory Board). These trade union representatives obviously are deemed to meet the independece standards of the Sarbanes-Oxley Act. Based on basic principles under German codetermination law, there is no reason to come to a different conclusion with regard to other employee representatives on the Supervisory Board.

We understand that the requirement of independence, as set forth in the Sarbanes-Oxley Act, is intended to improve the effectiveness of board oversight and to lessen the possibility of damaging conflicts of interest. Legal systems with a two tier board structure achieve these goals by separating the executive function vested in the Managing Board from the controlling function of the Supervisory Board. As mentioned above, the independent position of the Supervisory Board is safeguarded by various provisons of the German Stock Corporation Act.

Besides, we are of the opinion that investors would also be protected adequately by disclosure of the differences between both legal systems, describing comprehensively the composition of the audit committee under German law. In this respect, we would like to direct your attention to the recent proposals of the New York Stock Exchange. Therein, it is considered to be sufficient for the protection of investors that foreign private issuers disclose any significant ways in which their corporate governance practices differ from those followed by domestic companies under NYSE listing standards (see the NYSE proposal no. 11, dated August 1, 2002). Siemens - as other German companies listed in the US - already discloses the relevant information in a comprehensive corporate governance report in its annual report on Form 20-F. We consider this an appropriate mechanism to protect investors and to avoid possible conflicts with legal requirements the foreign private issuer faces in its home-country.

With regard to s. 407 and s. 301 of the Sarbanes-Oxley Act, we think the matter should be dealt with through the exemption regime which the Act provides for in such a case.

II. Disclosure Required by Section 404 (Management's Internal Controls and Procedures for financial Reporting)

1. Management's Internal Control Report

Question: Should we propose a definition of internal controls and procedures for financial reporting? If so, is the proposed definition appropriate?

Response: A definition would be helpful to avoid misinterpretations regarding the scope of the respective internal controls to be covered by the new extended certification.

Question: Should we define the term using AICPA's Codification of Statements on Auditing Standards Section 319 definition? If not, are there any other definitions we should use?

Response: We agree that a common definition of internal controls the companies' organization is already familiar with should be adopted by the Commission. The definition of SAS 319 refers on the one hand to the external auditors work (and is therefore already introduced) and covers on the other hand from our point of view all aspects of "internal controls and procedures for financial reporting".

The only difference seems to be the additional phrase "and procedures" in the proposed rule. We assume that the underlying aspects are also covered by the AICPA definition, only a appropriate remark would be reasonable. The scope of internal controls in the proposed rule should not differ from the AICPA-definition.

Question: Should we propose specific disclosure criteria and standards for the management report (on internal controls and procedures)? If so, what disclosure criteria and standards should we consider?

Response: No, we are opposed to having to comply with a standard wording for the disclosure. Each company has organizational structures in place which might and will differ from those of all other companies. The structure of the internal control environment has to follow the organizational structure. Therefore Management should have the flexibility in respect to the content and wording of the report in order to provide a clear picture of the internal controls activities. A uniform disclosure standard would only lead to boilerplate descriptions.

2. Attestation to, and Report on, Management's Internal Control Report by the Company's Auditor

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 PCOAB?

Response: We strongly recommend to delay effectiveness of the Rule until the PCOAB has adopted the respective attestation statements. It would be too costly for companies to adjust their control organization twice in a short period of time. We are also concerned that the costs of the mandated attestation report might outweigh the benefits to investors. A review of the internal controls for financial reporting should be an integral part of the quarterly review and year-end audit and should by covered by the audit opinion on the financial statements.

Question: Should the company have to file the attestation report as part of the annual report? If so, should the report have to appear in a particular part of the annual report? Where?

Response: If a seperate attestation report of the auditor is required it should be part of the annual report on Form 20 F, Item 15, and should be placed subsequent to the management report on internal controls.

3. Quarterly Evaluation of Internal Controls and Procedures for Financial Reporting

Question: Should we propose changes to Exchange Act Rules 13a-14, 13a-15, 15d-14 and 15d-15 to require periodic evaluations of both the company's disclosure controls and procedures and its internal controls and procedures for financial reporting?

Response: We disagree with the proposed requirement to evaluate the effectiveness of both the company's disclosure controls and procedures and its internal controls and procedures for financial reporting on a certain fixed day i.e. the date of the quarterly and year-end financial statements. Internal controls and procedures for financial reporting relate normally to IT-driven and complex accounting systems which are operated during the whole fiscal year. Therefore companies should be allowed to spread the evaluation process sequentially over the whole fiscal year and should not be forced to evaluation activities exclusively on the last day of the end of the periods.

This argument could also holds true for integrated and automated reporting systems.

Only in a more or less manual reporting environment should disclosure controls and procedures be evaluated at the end of the respective reporting period.

4. Transition Period for Compliance with Rules Regarding Evaluations of, and Reports and Attestations on, Internal Controls and Procedures for Financial Reporting.

Question: What transition period do companies and registered public accounting firms need to prepare to perform these undertakings? Is the compliance date we propose adequate? If not, what date should we adopt?

Response: From our point of view the proposed effective date, i.e. for fiscal years ending on or after September 15, 2003 is adequate. However, the effective date should be postponed in case the PCOAB is not able to provide final rules for attestation statements.