May 17, 2002
Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
Mail Stop 6-9
450 Fifth Street, N.W.
Washington, DC 20549
RE: File No. S7-08-2
Dear Mr. Katz:
Thank you for the opportunity to comment on the Commission's proposed rule to shorten filing deadlines. Computer Sciences Corporation supports your efforts to modernize the financial reporting and disclosure and to improve the usefulness of reports to investors. We agree investors should have access to company filings as soon as reasonably practicable, but we note several compelling reasons for not accelerating Form 10-Q and 10-K deadlines. Should the Commission decide a change is necessary, we suggest an alternative in our concluding paragraph.
The volume and complexity of accounting and disclosure rules continue to increase. As a result, our Form 10-K filings have increased nearly 30% in length during the past 5 years alone. In addition, companies face increasing complexity due to global expansion and additional regulation. The need to responsibly address and disclosure this complexity has added significantly to the filing process. While networked computers make data transfer and compilation faster and simpler, it is the analysis and explanation of financial results that consume most of the time necessary to prepare filings. The independent accountant's review of a complex organization requires worldwide coordination with senior management, the audit committee and board of directors. This coordination demands flexibility and, most importantly, time to develop each Form 10-Q and 10-K. For example, revenue recognition reviews for software vendors and reviews of estimates to complete for long-term contracts require judgement and review by both management and auditors. Also, large corporations need to gather pension information and numerous types of confirmations. In our case, global pension data is not available until well into the second month after fiscal year end.
The current reporting environment mandates more extensive disclosures than ever. For instance, recently released guidance on Management's Discussion and Analysis will increase disclosures related to liquidity and capital resources and "critical accounting policies." Internal and external auditors, legal counsel, and directors need time to properly review these disclosures. The proposed shortening of filing periods directly conflicts with the mandated additional disclosures and oversight.
A shortened mechanical process does not reduce the time required to adequately analyze and report financial results. An abbreviated filing period would result in a less thorough analysis of financial results and potentially less robust disclosure. This runs counter to the Commission's objective to "improve the usefulness of quarterly and annual reports to investors."
The Commission is addressing highly publicized accounting irregularities that clearly and irrefutably were included in Forms 10-K and 10-Q filed months and years earlier. Reducing the time available for companies to analyze results and prepare disclosures will not correct past filing deficiencies nor will it prevent similar future deficiencies. Accelerating deadlines may make the probability of future errors more likely.
The proposed changes to shorten filing periods also could delay of a company's quarterly earnings announcement. Currently, we require four to five weeks to properly analyze performance, prepare disclosures, and review the results with the audit committee. Therefore, we often have to adjust the date of our earnings conference call to ensure that senior executives have sufficient time for analysis and review. Accordingly, to meet a 30-day Form 10-Q filing deadline, we would have to divert these senior executives away from managing operating issues and preparing for our quarterly earnings release and conference call. A delay of the earnings release is contrary to providing the investing public with timely and critical financial information. By making the filing our top priority, we would pull senior executives away from meeting clients and growing our business. While shareholders might obtain data faster than in the past, the shortened filing period could potentially cost them shareholder value.
In our opinion, the Commission is taking a commendable steps in improving the financial disclosure process. However, we are convinced that shortening the filing periods will not prevent accounting irregularities like those recently publicized. Furthermore, we are concerned accelerating deadlines while at the same time significantly increasing disclosure rules could lead to increased restatements.
If the Commission decides to change the time periods for filing Forms 10-K and 10-Q, one recommendation would be to require filings within a specified period after the earnings release date. The requirement could be to file within 10 days after the quarterly earnings release date and 45 days from the annual earnings release date, or the current requirement, whichever is earlier. This would accommodate registrants who need more time given their unique circumstances.
Thank you for the opportunity to comment on this issue.
Leon J. Level
Vice President and Chief Financial Officer
Computer Sciences Corporation