[ Nippon Keidanren ] [ Policy ]

Comments Regarding Treatment of Certain Foreign Private Issuers under the Disclosure Requirements of Section 407 of the Sarbanes-Oxley Act

February 18, 2003

Sub-committee on Accounting
Committee on Economic Laws
Nippon Keidanren (Japan Business Federation)

The U.S. Securities and Exchange Commission ("SEC") released on January 23, 2003 its "Final Rule: Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002." Concurrently, the SEC solicited further comments on the application to foreign corporations of the provisions of Section 407 requiring disclosure of whether a financial expert is serving on the audit committee.

We take this opportunity to comment on this matter which we believe will have a very serious impact on Japanese corporations listed on U.S. exchanges.

The disclosure requirement of Section 407 concerning whether a financial expert is serving on the audit committee basically assumes a U.S. model of corporate governance structure. It is not viable to apply this requirement to Japanese corporations functioning under a different governance structure. The existence of differences in corporate governance structures between the United States and Japan is duly recognized by the SEC itself as evidenced by its proposed exemption of foreign corporations as contained in its "Proposed Rule: Standards Relating To Listed Company Audit Committees" under Section 301. Therefore, we believe that the requirement to disclose whether a financial expert is serving on the audit committee should not be applied to Japanese corporations.

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