May 23, 2002
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549
Subject: File No. S7-08-02
Dear Mr. Katz:
The Committee on Corporate Reporting (CCR) of Financial Executives International ("FEI") appreciates the opportunity to respond to the Securities and Exchange Commission's (the "Commission") Proposed Rule, "Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports" ("Proposed Rule".) FEI is a leading international organization of 15,000 members including Chief Financial Officers, Controllers, Treasurers, Tax Executives, and other senior financial executives. CCR is a technical committee of FEI, which reviews and responds to research studies, statements, pronouncements, pending legislation, proposals, and other documents issued by domestic and international agencies and organizations.
Acceleration of Form 10-K and Form 10-Q
FEI/CCR supports the Commission's objective of making annual and quarterly information available sooner to the public. We therefore support the Commission's proposal to shorten the Form 10-K filing deadline from 90 to 60 days. However, some our members have strong reservations about whether, under current circumstances, 30 days is enough time for filing a Form10-Q, especially for small to mid-sized companies.
The feedback we received from concerned members identified the following difficulties involved in being able to file under the proposed accelerated deadlines for the Form 10-Q, as well as significant ramifications:
While we believe these concerns are valid and must be addressed, we acknowledge that many of our members have already begun the process of reviewing and modifying their procedures in an effort to file their Form 10-Q in 30 days. Several of our members were able to achieve this objective for the most recent quarter-end, although some have indicated that the processes and procedures that were needed to accomplish this took a significant amount of time to develop and implement. Others have not been able to file within 30 days thus far and have indicated they will need more transition time.
Looking beyond our support for the concept of shorter filing deadlines however, we do not necessarily believe that the Proposed Rule will accomplish the Commission's main objective of providing more timely information to enable the public to make better investing decisions. Quarterly and annual filings will probably still be "after-the-fact" documents irrespective of the accelerated reporting deadlines. Therefore, we strongly suggest the Commission consider requiring earnings releases to be furnished on a Form 8-K and provide guidance to registrants on the contents of such releases. We believe the contents prescribed should be based on existing best practices for earnings releases, and for example would include condensed financial statements, a summary of significant events in the quarter, and a reconciliation of pro forma earnings to GAAP earnings. The Form 10-K and Form 10-Q would then provide greater detail on the information already provided in the earnings release. We believe this would provide investors with the timely and necessary information they require. We would be pleased to work with the Commission in developing these "best practices".
In addition to our recommendations on earning releases, we believe that critical to the Commission's success in accelerating the filing of Form 10-Ks or Form 10-Qs, is a comprehensive review of the current disclosure requirements for current applicability. The overall burden of currently required disclosures is a significant stumbling block for many registrants attempting to accelerate their filings. This burden will only increase as the Commission finalizes disclosure requirements on critical accounting judgments and estimates and for other MD&A topics. Therefore we believe it imperative that the Commission initiates a project to alleviate the burden of current disclosures. We would be glad to participate in such a project to identify the "non-essential" disclosure requirements.
With regard to the definition of an "accelerated filer", we believe that all registrants, both domestic and foreign, irrespective of size should have the same accelerated filing deadlines. The need for timely information should not be based on the size or the location of the filer. In addition, we believe that the reporting history requirement is inappropriate as currently proposed. We believe that all registrants should be subject to the accelerated filing deadline, even for first-time filers.
In addition to the above on accelerated filings, registrants who currently incorporate by reference their Annual Reports to Shareholders with their Form 10-K filings (or publish and mail both in a single combined document) may encounter difficulty in meeting the accelerated filing date. These registrants may be forced to file a separate Form 10-K in advance of the Annual Report, which will be less efficient and more costly.
Website Filing Requirements
Our members support the requirement that financial reports filed on Form 10-K and Form 10-Q be posted to a company's website. We agree that a key benefit of the Internet is that registrants can make information available to many investors on a timely basis. Many of our members already provide access to SEC filings through their website. However, we would stipulate in the proposal that the filings should be posted on a registrant's website within one business day after filing on EDGAR, rather than "within the same day" as proposed. This time is needed to prepare the file to be posted to the website. Also, many registrants outsource their EDGAR filings and website operations. Therefore it just may not be possible to post the report on the same day the report was filed on EDGAR.
Proposed Rule Transition
If the Commission moves forward on the Proposed Rule, we support the transition period for the accelerated filing for the Form 10-K. As it relates to the accelerated filing requirements of the Form 10-Q, we believe that a delayed effectiveness date is imperative to provide affected registrants the necessary time to change current processes, as well as update/create systems in order to meet the proposed filing deadlines. We therefore recommend that the proposal for the Form 10-Q filing be effective for the second quarter of the first fiscal year ending after October 31, 2002. For a calendar year-end company, this would be the quarter ending June 30, 2003. We agree with the transition period for the website filing requirement
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We appreciate the Commission's consideration of these important matters and welcome the opportunity to discuss any and all issues with the Commission at its convenience. If you have questions regarding this letter, please feel free to call David Sidwell at (212) 270-1892.
Philip D. Ameen
Chair, Committee on Corporate Reporting
Financial Executives International
David H. Sidwell
Chair, SEC Subcommittee of the Committee on Corporate Reporting
Financial Executives International