(Sept. 2007)

To: Mark W. Olson, Chairman of the Public Company Accounting Oversight Board established by the Sarbanes-Oxley Act; Christopher Cox, Chairman of the Securities and Exchange Commission

Win Wallin, former Medtronic CEO and one of the true business titans of our community, told the audience upon his induction into the Minnesota Business Hall of Fame in 2001 that one of the great accomplishments of American business was the standardization of financial reporting that resulted in the generally accepted accounting principles (GAAP). After all, if one is buying beans, one doesn’t know how much to pay unless the beans are all being counted in the same way.

Many of us assume that financial reports coming from New York, the world’s financial center, are (absent fraud) based on the same accounting standards as reports in the rest of the world. However, it turns out our assumptions are mostly mistaken.

Today, only about 5 percent of the world’s initial public offerings come from the United States, but as recently as 2000 it was nearly 50 percent. In recent years, almost all of the world’s largest public-equity offerings have avoided New York. The premium for listing on the New York Stock Exchange has decreased during the past five years. A number of other measures also indicate the relative decline of New York as a world financial center, but perhaps the most totemic has been the recent alarm sounded by New York Senators Charles Schumer and Hillary Clinton and New York Governor Eliot Spitzer. Even the Wall Street Journal has noted this outcry.

Until recently, most of the world’s public markets relied upon a version of GAAP, which if not exactly like U.S. GAAP, was quite close to it. Our neighbors to the north (who employ a lot of us) reported in Canadian GAAP. It was widely assumed that U.S. and Canadian GAAP would quickly converge; however, this isn’t about to happen soon. The U.S. stock markets face a challenge.

The world is leaving U.S. GAAP behind. Standards are now being set by the International Accounting Standards Board founded in 2001 and based in London. Those rules, known as International Financial Reporting Standards (IFRS), were adopted for all countries in the European Union in 2005, affecting more than 8,000 publicly traded companies. Nearly 100 countries around the world now require (and in some cases permit) the use of IFRS. These standards are now used in central and eastern Europe, and even in Russia (when the political climate allows). Many other countries are converging their local standards to IFRS, including New Zealand, Australia, and Singapore. Most recently, China, Canada, and Korea have announced convergent programs with IFRS.

The impact of all of this on American business and America as a major financial center will be dramatic. Merger and acquisition activities that involve any international aspect will almost surely have to be done using IFRS standards. This will clearly be a large majority

of such deals, because 75 percent of the world’s goods and services are generated outside the borders of the United States.

There are other reasons to support U.S. adoption of IFRS. This type of accounting differs from GAAP accounting in a number of ways that will affect public stock evaluation for investment property and intangibles, impairment of assets, and capitalization of software development costs, to name a few. There are significant differences between the two standards in such basic accounting principles as revenue recognition. The list of differences goes on and on.

Both of your organizations have started down the path of convergence with IFRS or allowing permissive use of IFRS in American public markets. As investors and directors of public companies, we urge you to seek this simplification and to do it quickly. The United States capital markets should not be an island adrift from the world of economic activity.

Sincerely Yours,

Vance K. Opperman

Worried American Investor

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