.7 PRIVATE SECURITIES LITIGATION REFORM ACT (1934act)

.71 Background

In December 1995, the Private Securities Litigation Reform Act of 1995 (the "Act") became law. The Act reaffirms, for SEC reporting companies, the independent accountant's responsibility with regard to the detection and disclosure of fraud and other illegal acts as described in both SAS 53 (now SAS 82/AU 316) and SAS 54/AU 317. (See PwC Audit Section 4.6.2.9). In 1997 the SEC adopted revisions to its rules to implement the reporting requirements of the Act in Section 10A of the Securities Exchange Act of 1934. Section 10A requires, among other things, that the auditors of an issuer's financial statements report to the issuer's board of directors certain uncorrected illegal acts of the issuer, and that the issuer notify the SEC that it has received such a report. If the issuer fails to provide that notice, the auditor is required by Section 10A to furnish directly to the SEC the report given to the Board.

An illegal act is defined as "...an act or omission that violates any law, or any rule or regulation having the force of law." Section 10A provides that if, in the course of conducting an audit, we detect or otherwise become aware of information indicating that an illegal act (whether or not perceived to have a material effect on our client's financial statements) has or may have occurred, we are required to, in accordance with generally accepted auditing standards: 1) determine whether it is likely that an illegal act has occurred, 2) if so, determine and consider the possible effect of the illegal act on the client's financial statements and 3) promptly inform the appropriate level of management and assure that the audit committee or the board of directors is adequately informed with respect to the illegal act, unless the illegal act is clearly inconsequential. Note that with the issuance of SAB 99, "Materiality," the auditor should consider that in some instances, intentional misstatements - even those judged to be immaterial - may be unlawful and violate the Foreign Corrupt Practices Act. This responsibility is consistent with SAS 54/AU 317.17.

If, in our opinion, management has taken timely and appropriate remedial action and we are satisfied that the facts have been communicated to the board of directors or audit committee, no further activity is required of us. Section 10A does not define what is meant by appropriate remedial action. However, SAS 54/AU 317.17 outlines possible remedial actions including:

· taking appropriate disciplinary actions;

· establishing policies and internal controls, and related monitoring procedures, designed to safeguard against recurrence of such illegal acts;

· and, as appropriate, reporting the effects of the illegal act in the financial statements and notes thereto.

If we advise a client of, or they otherwise learn about, a material illegal act, we expect that client officials will take prompt and appropriate corrective action as noted above. However, if management has not taken timely and appropriate remedial action and failure to address the illegal act is likely to result in a non-standard audit report or warrant our resignation, we should, as soon as practicable, directly report our conclusions to the board of directors. At this point, the board of directors is given the opportunity to require management to take appropriate remedial action. If management does not respond appropriately to the potential illegal act, consultation with the Americas Theatre Risk Management Leader is required as soon as it becomes apparent that management is not responding appropriately. The Risk Management Partner and the General Counsel's Office should be included in the consultation. Under no circumstance should we issue the formal notification to the board of directors without having so consulted. If, in our view, the board of directors does not require timely appropriate remedial action or if we believe the remedial action is not appropriate, we must report this conclusion to the board of directors. After receiving our report, the board of directors is then required to inform the SEC by notice within one business day after receipt of a report from us that "senior management has not taken, and the board has not caused senior management to take, timely and appropriate remedial actions with respect to the illegal act" and furnish us with a copy of the notice to the SEC, also within one business day after receiving our report.

Rule 10A-1 of the 1934 Act designates the SEC's Office of the Chief Accountant as the appropriate office to receive Section 10A communications. The report from the registrant must be in writing and identify the issuer (name, address, phone number and SEC file number) and the auditor (name, address and phone number), and state the date that the auditor made its report to the board (i.e., the report referred to in the preceding paragraph). It must also include either a summary of the auditor's report to the board or a copy of that report. If a summary is submitted, it must include a description of the act that the auditor has identified as a likely illegal act and the possible effect of that act on the financial statements of the registrant. A registrant is also permitted to include additional information regarding the registrant's views of and response to the Section 10A report it has received from the auditor. The notice may be delivered in any manner, including facsimile, telegraph, personal delivery or any other means, provided it is received by the Office of the Chief Accountant within the required time period. Section 10A reports are intended to be non-public, but registrants (and auditors, if they are reporting) may apply for confidential treatment under additional FOIA exceptions in accordance with the SEC's normal procedures.

.72 Auditor's reporting of illegal acts directly to SEC

If we fail to receive a copy of the notice to the SEC referred to above within the required one business day, we are required by Section 10A to provide the SEC a copy of our written report (or documentation of an oral report) within one business day following such failure to receive notice, whether or not we choose to resign the engagement. A decision to resign or withdraw from the engagement may be appropriate as indicated by SAS 54/AU 317.20-.22. The reasons for our resignation or withdrawal from a public company would be included in the Form 8-K if the matter is a disagreement or a reportable event. As a result, under both Section 10A and SAS 54 we may be reporting to the SEC.

Questions regarding application of the provisions of the Act may be addressed to National Office Risk Management, SEC Services, and the General Counsel's Office where appropriate.