November 27, 2002
Mr. Jonathan G. Katz, Secretary
Re: Proposed rule implementing Section 407 of the Sarbanes-Oxley Act
Dear Mr. Katz:
We appreciate the opportunity to respond to the Commission's request for comment on its proposed rules implementing the above referenced section of the Sarbanes-Oxley Act. We commend the Commission for its efforts in drafting the proposed rules aimed at strengthening the very important role of the audit committee in corporate governance. We are very supportive of the Commission's efforts in this matter and would like to address the following key question raised by the Commission regarding these proposed rules.
- Experience applying such generally accepted accounting principles in connection with the accounting for estimates, accruals, and reserves that are generally comparable to the estimates, accruals and reserves, if any, used in the registrant's financial statements;
- Experience preparing or auditing financial statements that present accounting issues that are generally comparable to those raised by the registrant's financial statements;
- Experience with internal controls and procedures for financial reporting.
In this regard, the Commission is requested to provide additional guidance regarding the acceptable manner in which a financial expert may gain such experience. We offer the following in order to assist the Commission in evaluating this issue.
We believe it is of benefit to analogize the situation to the experience required of a company's principal executive and financial officers who are required to certify, among other matters, that their company's financial statements fairly present its financial position, results of operations and cash flows. It would appear in such instances that these officers have gained the relevant experience which qualifies them to provide such certifications through a combination of having personally performed various detailed tasks and/or having supervisory responsibility over others who have performed such tasks. Accordingly, it would appear appropriate to allow an audit committee's financial expert to acquire his relevant experience in a similar fashion. To do otherwise would unnecessarily hold individuals who qualify as financial experts to a higher standard than required of such officers. Or stated differently, it would appear illogical that a principal financial officer who certifies his company's financial statements as filed with the Securities and Exchange Commission would not qualify to serve as a financial expert on another company's audit committee, assuming he met all of the other related requirements, solely due to the manner in which he obtained his relevant experience. Furthermore, we believe if individuals who qualify as financial experts are restricted in the manner in which they are permitted to have obtained the necessary experience, the pool of qualified candidates to fill such roles will, in fact, be unduly limited.
We, therefore, request that the Commission provide additional clarifying guidance regarding the manner in which a financial expert may obtain the relevant required experience consistent with the above recommendation. In addition, in keeping with the intended spirit of such proposed clarification, we also request that the Commission make appropriate conforming changes to the other relevant sections of the proposed rules. For example, we request, that the proposed definition of a financial expert be expanded to include "a person who has through ... experience...overseeing a principal financial officer, controller or principal accounting officer...". In addition, we request that the variety of factors that a company should consider in evaluating a financial expert's experience as outlined in the proposed rules be expanded to include whether a person has had supervisory responsibilities over a principal financial officer, controller or principal accounting officer.
In closing, we would like to thank you for the opportunity to comment on this very important issue. If you have any questions on the above or would like to discuss the matter further, please feel free to contact me at 805-447-1000.