May 23, 2002
Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549-0609
Re: File Number S7-08-02
Dear Mr. Katz:
We at PricewaterhouseCoopers LLP appreciate the opportunity to comment on the Commission's Proposed Rule: Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports (the "Release" or the "proposed rule").
In addressing the issues surrounding the flow of information to investors and timeliness of disclosures, the Commission has touched upon some important matters for investors and market professionals who, in turn, provide analytical data to the public.
We applaud the Commission's most recent efforts to improve disclosure through its interpretive guidance articulated in Financial Reporting Releases Nos. 59, 60 and 61. These releases, together with other initiatives of the Commission and its Staff serve as the cornerstone for the rulemaking that will follow and for the healthy debate which will help to maintain the US capital markets as the strongest and most liquid markets in the world.
Accelerated Reporting Deadlines
We fully support Chairman Pitt's plans to modernize and comprehensively improve the current corporate reporting and disclosure system. Achievement of this goal is necessarily a long-term undertaking and we appreciate that this proposal is only one of a series of steps intended to accomplish the Commission's overall purpose.
We also agree with the Commission's plans to encourage, if not ultimately require, greater emphasis on "current" disclosures - rather than sole adherence to mandatory and periodic financial reporting timetables. That stated, though, "current reporting" is not necessarily the result of "faster reporting". Rather, we believe current reporting is the consistent and continuous delivery of credible, relevant and reliable accounting and non-accounting information to the market.
In proposing this rule, the Commission notes that over 30 years have passed since it last changed the 10-Q/K filing deadlines and that information included in current reports often is stale by the time the reports are filed. While we agree with the Commission that markets must have access to information that is clear, accurate and timely, we have significant reservations about the efficacy of certain aspects of the proposed rule. We believe that the proposal, as currently drafted:
It is evident to us from public data that certain registrants possess the ability to report in shorter timeframes than others. Some of those registrants, and those who analyze and follow them, believe that their "speed to market" with investor communications is an indication of financial quality and sophistication. That may well be true, but even if it is, the SEC should allow market forces, rather than regulations, to set the height of the promptness hurdle.
Whether information is reported by the 30th day after each quarter-end or by the 45th day, the SEC should recognize that the reports filed are still metered doses of standardized information being fed to the marketplace at 90-day constant intervals. In our markets, what should, and what will, distinguish one registrant from the other is the quality of what they report and the frequency with which they communicate data regarded as analytically significant.
We surmise that, in some measure, the release is premised on the notion that, at the time a registrant publicly announces its financial results, there exists a "full" set of GAAP primary financial statements - though not necessarily all accompanying footnote disclosures and MD&A. In our experience, that is not always the case. In a number of cases, even among large, sophisticated registrants, earnings releases are prepared based on consolidated financial data, but sometimes without the benefit of having fully completed detailed account analyses. Such additional analyses and related discussions are, however, completed under the current reporting deadlines by the time the 10-Q/K is ready for filing.
Not all registrants are the same, and the foregoing does not in our view broadly impugn the integrity of earnings release data. However, it recognizes that data produced with "speed" as its guiding principle brings with it certain quality risks that are mitigated by the time such data is fully analyzed and reviewed by those responsible for the formal SEC reports which follow.
The introduction to the release states, in a number of places, that notwithstanding significant advances in technology and communications over the past three decades, the reporting deadlines have not been amended during that period. We do not believe there is a direct linkage between advances in computer technology and advances in the ability of preparers to cope with:
Another objective stated in the introduction to the release is to decrease the time gap between the earnings release date and the availability of full 10-Q/K data. We believe this rule proposal will not be the solution to the perceived problem. The SEC has observed that there are sometimes "problems" with press releases, some but not all of which would be solved by the concurrent availability of additional GAAP data, MD&A, etc. If that is the case, and we suspect that position has merit, we believe that the proposed rule should not be directed at the end result of the reporting process, but should address the beginning and the middle of the communication process as its principal target. After all, if the source of at least some of the concern rests with the reporting quality and characteristics of the earnings release, then focusing solely on the periodic reporting deadline may not be the solution.
In some important instances, the achievability of the Commission's objectives in proposing the rule amendments seems undermined by information or data referenced by the Commission itself. We have looked back at the NIRI survey and conducted an informal survey in our own practice. The findings are notably consistent and at odds with the basic premise of the rule proposal. Approximately 67% of public companies participating in the PwC survey indicated a concern about being able to comply with the reporting time compression contained in the proposed rule.
If the SEC's assumptions regarding the impact of technology and communication advances on the ability to prepare periodic reports more quickly had a sound basis, respondents would not be asserting the need for major investments of time and funds to be able to comply, as we have seen portrayed in the surveys cited. Our concern is that the shortened timeframes may inflict a serious hardship on many, if not the majority of, registrants, even those fully dedicated to the principles that the SEC has endorsed to improve the financial reporting landscape.
Further, the general assumptions contained in the proposed rule are also problematic to us in the sense that they do not adequately address the potential adverse effects on "quality." We believe that if the proposed rule is adopted as currently drafted, the quality of reported data will suffer, exposure to future restatements will increase and the financial reporting process, in which we have all invested so much in terms of analyzing and carefully considering data before making it public, could become vulnerable to a series of shortcuts necessitated by the accelerated deadlines.
We also note that, compounding the problem, the SEC does not currently allow registrants to create or lengthen the otherwise permissible reporting "lag" period related to investees, thus foreclosing a partial solution to one of the issues noted above. In addition, in Release 33-8098, the Commission has proposed new rules regarding critical accounting policies and estimates that would, if adopted, materially increase the amount of time required to prepare basic periodic reports.
The SEC has consistently and appropriately insisted on the highest quality goals for its own performance and for those it regulates. The current reporting climate does not justify changes to reporting timetables that will likely accentuate, rather than diminish, the focus on short-term, quarter-to-quarter thinking. Parties with material (and increasing) responsibilities for reporting financial data need time to properly discharge those responsibilities to the public. Those involved in building critical and sensitive relationships, such as those being nurtured between preparers, auditors and audit committees, cannot afford to rush through decisions that have potentially major investor protection consequences.
Should the Commission proceed with any rule changes in this area, an alternative and, we believe, more beneficial framework lies more in the realm of strengthening the basis for higher quality earnings releases, and in "value-based" "current" reporting. However, the regulatory leverage which the Commission currently possesses is derived from its periodic, after-the-fact, reporting rules. Accordingly, in these circumstances, a further alternative might be to more explicitly and better integrate the common conceptual and information bases for press releases and periodic financial statement filing activities, which leads us to propose the following:
Establish the deadlines for periodic reports based on the earlier of a stated number of days after the date of an "earnings press release" or the existing deadline.
Affirmation of the quality of the current data disseminated to the public by way of an earnings press release can be achieved by demonstrating the ability to file full GAAP Form 10-Q/K data within a relatively short time period thereafter. We believe that, for interim periods, 20 days should be sufficient time to permit the several participants in the financial reporting process to carry out their responsibilities with respect to public financial data. For annual reports, a period of 45 days should suffice. Therefore, in the rule, the due date would be stated as the "earlier of" the existing 45/90 day requirement or the specified number of days after an "earnings press release."
Require earnings press releases to be placed on file under a new Item of Form 8-K, defining such releases as those purporting to portray partial or complete GAAP accounting results for a period.
Move forward expeditiously with the FASB, to develop relevant Key Performance Indicators ("KPIs") and a regimen to promote or require their disclosure by registrants on a current basis.
We believe that at least one alternative to requiring faster reporting would be to partially or fully exempt registrants that are making a good-faith effort to address the Chairman's priority of enhancing "current reporting". (For example, a registrant that discloses KPIs monthly on a consistent basis, placing such data on file in a Form 8-K, should be permitted to remain on the existing deadline scheme.) Relevant information to investors may, and in fact more frequently does, take the form of non-accounting information. In this era of complex accounting rules aimed at an equally complex business environment, rather than compressing the GAAP reporting timeframes, the SEC should encourage the development of pertinent and consistent KPIs and their continuous and timely delivery to investors and analysts.
Implement any deadline changes contemplated by the rule proposal only after registrants have had time to plan for compliance.
The empirical data gathered indicated that a clear majority of registrants would not be able to comply without significant investment in systems and changes in procedures. Accordingly, we believe changes of the type being proposed by the SEC should not be applicable until the 2003 calendar year, annual reports, to be followed by similarly accelerated quarterly reporting in calendar 2004. Should the SEC adopt our recommended deadline structure, we believe application could begin with calendar 2002 reporting.
Website Access Proposals
In large part, we agree with the Commission's proposals regarding website access. However, as we have noted below, we do not believe there is any basis to distinguish between registrants based upon size when setting an informational disclosure standard. The only exception we believe would merit being separately studied is the decision as to whether to apply a rule change to foreign private issuers. We believe their issues are sufficiently different as to warrant a separate study and rule proposal.
We also note that the rule proposals contain no incentives for registrants to enhance disclosures made through their own website. We believe this might be useful in stimulating compliance and improving quality of reported data.
* * * * *
In the attachment to this letter, we have expressed our views on the specific questions that appear in the Release. Our responses should be considered in conjunction with the general comments expressed above.
We appreciate the opportunity to express our views and would be pleased to discuss our comments or answer any questions that the staff may have. Please do not hesitate to contact Jay Hartig (973-236-7248) regarding our submission.
Questions regarding the acceleration of filing due dates
1. To what extent would shortening the due dates for quarterly, annual and transition reports improve the flow of information to investors and the markets?
We do not believe improved information flow can be achieved by the compression of GAAP reporting timeframes. "Current" reporting and "faster" reporting are neither synonymous terms nor congruent concepts, and the likely adverse consequences of shortening the due dates would not produce a desirable outcome. As noted above, the acceleration of the deadlines for the '34 Act forms has no impact on the interval between doses of data administered to the market.
2. Should the proposed filing periods be longer or shorter than proposed? What factors should we consider in making these filing periods longer or shorter?
The existing reporting due date structure is appropriate and should not be changed, except as indicated in #4 below. A very significant factor to consider is the empirical evidence that so many registrants will not be able to comply, without incurring both significant added costs and organizational disruption. A second significant factor is that the quality of reported data will, inevitably, be placed at risk if the deadlines are shortened in the manner proposed in the release.
3. Should we only accelerate the annual report due date, or only the quarterly report due date?
As previously stated, in our view, neither date should be accelerated; the risks simply outweigh the rewards. It is, however, true that in assessing the available survey data from a variety of sources, more registrants have indicated an ability to report within 60 days at year-end than can meet the 30-day quarterly reporting deadline.
4. Should we require companies to file their reports by the earlier of the existing deadlines or some earlier time after their first release of earnings information for that period? What timeframe would be appropriate? For example, would a 15 or 30 day period after the earnings announcement provide enough time for a company to finalize the corresponding periodic report? Would such a requirement delay earnings announcements?
Yes. If any change is made, we endorse this alternative approach. We recommend 20 days for 10-Qs and 45 days for annual reports on Form 10-K. We acknowledge that this regimen might cause some earnings releases to be delayed but, in the usual circumstance, this would have no impact on the interval between the dates at which the market could expect to receive information and the market would either adjust to those dates or would provide an incentive for companies who delay earnings releases to move toward "best practices".
5. Are there ways other than our proposal to get important information out to investors sooner? Would our proposals cause a delay in the release of earnings announcements? Should we only require that certain information, such as the audited or reviewed financial statements and management's discussion and analysis, be filed on an accelerated basis?
The data that is most valuable to investors and analysts, and that is susceptible to rapid preparation and analysis, is usually the "KPI" data. Such data often consists of information outside of normal financial reporting. While the proposal could cause some registrants to delay earnings press release data, we do not believe that consequence is necessarily bad. First, the interval at which information is received is not impacted. Second, if the more formal, structured periodic reporting data cannot be placed on file in a more timely fashion, we believe it may be an indicator about the extent of review afforded the announcement data. The data currently required to be in Forms 10-Q and 10-K should not be parsed for purposes of filing. The total mix of information in the periodic reports is intended to be used as a cogent unit.
6. Do the proposed Form 10-Q and 10-K due dates provide affected companies with enough time to prepare their reports? Do affected companies anticipate any significant problems in complying with the accelerated deadlines? If so, what types of problems?
We believe that the proposed deadlines would not provide many companies with enough time to provide the careful, thoughtful analysis that is required to ensure that complex transactions, governed by even more complex standards, are thoroughly analyzed, appropriately accounted for and adequately disclosed.
Shortened deadlines may cause management to be too focused on the mechanical challenges of closing the books, rather than on analyzing and reviewing the data. It also reduces to unreasonable, and perhaps unachievable, levels the time that boards of directors, audit committees, outside counsel and the independent auditors have to complete their reviews, to meet, discuss and resolve matters of significance and to apply the quality control practices expected of these parties by the investing public, the SEC and Congress.
We suggest that deadline compression will result in increased restatements. Most restatements are detected and self-reported by registrants and auditors after they have had a chance to spend more time in a subsequent reporting period analyzing and reflecting on complex transactions which may have been "rushed to judgment" in a prior period under the existing, lengthier, deadlines.
Based on an informal survey of a subset of our clients, approximately 67% of respondents felt that they would incur significant additional effort or expense to comply with the new filing requirements. This is consistent with the survey results reported by the National Investor Relations Institute which showed that 60% and 54% of respondents would anticipate significant problems filing a 10-K and 10-Q, respectively, within the newly proposed timeframes.
Even though technology has been enhanced over the last several years, it is not the companies' systems that cause issues with compliance. Rather, it is the demands on the time of company personnel to complete sufficient analysis and to prepare meaningful disclosures that requires the current, longer reporting deadlines.
Further, an accelerated closing process likely will require companies to make more estimates and would, therefore, undoubtedly sacrifice precision for speed. It would also create pressure on auditors and audit committees to accept those new levels of imprecision and estimation as the company's "standard" for public reporting. This may be detrimental to companies and to investors as, in today's market, the mere hint of accounting inaccuracy results in a significant negative market response.
7. Would the proposal impose any significant costs on these companies? If so, what type and amount of costs? Are these short-term or one-time costs to adjust a company's reporting procedures, or long-term, ongoing costs?
As outlined above, 67% of the respondents to our survey felt that shortening deadlines would result in "significant" additional costs. Among other things, companies would need to increase the number and quality of personnel and make major procedural changes to comply with the new requirements. After making these expenditures it is evident to us that the quality of reported data would still be "at risk".
8. Would auditors, audit committees and boards of directors have sufficient time to perform their review functions?
No. We do not believe there would be sufficient time to devote the degree of thoughtful deliberation and analysis that the public expects (and deserves) of these parties in today's (or tomorrow's) environment. We observe that the progress made by the SEC, to get audit committees "involved" and focused on their public responsibilities may be slowed, or even reversed, if the new proposal is adopted in its present form.
9. It is our understanding that a company's audit (or review in the case of interim financial statements) is complete or substantially complete by the time the company issues its earnings announcement. Is our understanding accurate? How often do these earnings numbers change between their announcement and the filing of the corresponding periodic report? What steps are involved, and how much time does it take, to prepare the necessary disclosures for the corresponding periodic report after the earnings announcement or the completion of the audit (or review)?
The SECs understanding of the degree of completion of the review or audit is not accurate. While it may be true that much of the audit (or review) fieldwork is substantially complete at the time of issuing an earnings press release, there are substantial additional efforts required by the registrant to develop footnote disclosures and to prepare MD&A that are not complete at the date of most earnings releases. Without those additional efforts and analyses by the registrant it is impossible to complete a review or audit.
10. Would the reliability and accuracy of the reports suffer as a result of shortened due dates?
Yes. As described in preceding responses, we believe quality of data reported in 10-Qs/Ks would suffer by shortening these deadlines. That cost far outweighs any benefit we can see.
11. As part of our proposal, we also propose to make a conforming change to the date by which all schedules required by Article 12 of Regulation S-X may be filed as an amendment to the annual report. We propose to change this date from 120 calendar days to 90 calendar days for accelerated filers to maintain a 30 day period after the due date of the report to file the amendment. Should we make this conforming change?
There is theoretically no reason for the Article 12 schedules to be filed at a date different from that of the audited financial statements as, by and large, the analytical data portrayed therein is usually needed to complete a GAAS audit. There may be some exceptions, but in our experience, no important ones.
12. We do not propose to make a conforming change to the 120-day period companies have to file their definitive proxy or information statements involving the election of directors to allow the incorporation by reference of the information required by Part III of Form 10-K. We request comment on whether not changing the 120-day proxy and information statement filing deadline would cause difficulties for companies or decrease the benefits of the proposals to investors because of the delay before receipt of the incorporated information. Should this period also be shortened by 30 days?
We do not believe a change is necessary. If one is to be made at a future date, issues surrounding Rule 14a-8 determinations are likely to be the drivers of such change.
13. We also are strongly considering making conforming revisions to accelerate the timeliness requirements in Regulation S-X (for example, Rules 3-01, 3-05 and 3-12 of Regulation S-X) for the inclusion of financial statements by accelerated filers in other Commission filings, such as Securities Act registration statements, registration statements under Section 12 of the Exchange Act and proxy and information statements under Section 14 of the Exchange Act. We preliminarily believe there would be no countervailing reasons why we should not make these conforming changes, and note that if we do not make these changes, there would be inconsistencies between these requirements and the periodic report filing requirements. Should we make these conforming revisions? Should we also make similar revisions to the financial statement filing requirements in Item 7 of Form 8-K (i.e., reducing the filing deadlines by one-third from 60 to 40 days)? What ramifications might there be if we make these conforming changes, or if we do not make these changes? Should there be other exceptions or changes made for certain categories of issuers or types of filings? Should changes only be made for accelerated filers that would meet the conditions in Rule 3-01(c) of Regulation S-X? Should we provide a transition period for any such changes?
Because we believe the existing due dates should be left unchanged, we also believe the notion of conforming changes is unnecessary. Much of the data that would be covered by the proposed rule change is data obtained from third parties not "controlled" by the registrant. There are numerous registrant cases in our practice where data availability has been adversely impacted by an uncooperative third party, leaving the registrant at the mercy of that party.
Questions regarding the proposed definition of accelerated filer
14. Would the proposed public float and reporting history requirements exclude the companies that are the least able to comply with shortened deadlines?
The float criteria should not be used to differentiate registrants' informational flows and "current reporting" obligations. Arguably, registrants with lower market capitalization levels are not followed as closely by analysts as are registrants with higher market capitalization. However, current developments are just as likely to be of material interest to investors in those registrants, because a change in the development of the business or in a KPI, is just as likely to have a material impact on reported results as it might have on a larger registrant. Further, smaller registrants are less likely than larger registrants to have developed regimes of regular market communication, with the result that, when reported, such disclosures are more apt to surprise investors and analysts.
15. Would different filing deadlines for different companies confuse companies and/or investors?
We strongly believe the use of a stated number of days after press release or the existing deadline, whichever is the earlier, levels the playing field and allows the market to lead registrants to their own "best practices" level of quality, balanced with timeliness.
16. Should all reporting companies be subject to shortened filing deadlines? Is the exclusion of small issuers appropriate? Is the need for timely information about these issuers greater than the additional burden or expense these issuers might incur from shortened deadlines? Should all reporting companies be subject to the shortened filing deadlines, except for companies eligible to file under our small business reporting system? Are there additional or alternate factors we should consider?
All registrants should be subject to the same reporting deadlines. We see no rational way to differentiate investor needs based on company size. Once a registrant gains access to the capital markets, their capital raising potential becomes theoretically unlimited. Accordingly, all companies should be subject to the same requirements, unless a public policy issue overrides that principle, such as a desire to stimulate the use of US capital markets by non-US companies, or the desire to ease burdens on small businesses despite the similarity of risks they pose in the marketplace.
17. Should non-accelerated filers be subject to deadlines shorter than the current deadlines, but not as short as those proposed for accelerated filers (e.g., 75 days for annual reports and 40 days for quarterly reports)?
See response to #16 above.
18. Would our proposed changes affect some companies or industries more than others (such as those with complex transactions or accounting or those that regularly access the debt markets instead of equity markets, and therefore may not have a public float)? Should we make exceptions to the proposed due dates for certain companies or industries? If so, which ones and why?
Although many financial institutions provide very early press releases, they nevertheless have very complex transactions and may need extra time to prepare their quite extensive periodic reports. This would be an example of a group of companies that may seek to delay an earnings press release to fit in with our proposed way of setting the reporting deadlines. (i.e., press release date, plus X days)
19. Currently, foreign private issuers must file their annual reports on Form 20-F within six months after the end of their fiscal years. We are not proposing today to change that interval, although we are continuing to consider this issue and Exchange Act filing requirements generally for foreign issuers. If today's proposal is adopted, the discrepancy between the filing deadlines for larger seasoned U.S. issuers and those for foreign private issuers will increase. The speed with which foreign issuers can capture and analyze information has also probably improved since the six-month interval was established. Foreign issuers are subject to similar obligations as to the information to be reported. There are some categories of information, for example executive compensation, where requirements for foreign issuers are less onerous. Foreign issuers that do not prepare their financial statements in accordance with U.S. GAAP, however, must go through the additional step of a preparing a reconciliation of their financial statements to U.S. GAAP. In light of the requirements of Form 20-F and the situation of foreign private issuers, should the deadline for annual reports on Form 20-F be shortened? If so, should it be shortened to five months or four months after the end of the company's fiscal year? To some other period? What would be the impact of such a change?
We believe that the issues surrounding foreign private issuer reporting are so unique that the Commission would need to analyze those issues and prepare a separate rulemaking proposal on that topic.
We agree that, if the deadline by which annual reports for domestic registrants must be filed were reduced to 60 days after year-end, it would be appropriate for the Commission to re-evaluate the date that annual reports by foreign private issuers should be due. However, given the implications of such a change to a large number of the largest companies in the world, we believe that any such change should only be made after the Commission has carefully evaluated the implications and has proposed changes to the rules and forms that specifically apply to foreign private issuers. Many foreign private issuers would not be aware of the implications of this release, since it is directed to domestic companies. Accordingly, we do not believe it is appropriate to make any changes at this time based on this proposing release.
In evaluating whether the Commission should propose (separately) changes for foreign private issuers, we believe the Commission should solicit input on the following:
The Commission may wish to consider voluntarily soliciting this information through the AICPA International Practices Task Force of the SEC Regulations Committee before the issuance of a proposing release.
20. Should the public float requirement be higher or lower than that currently proposed? If higher, how would that level be consistent with the level currently required for short-form registration on Form S-3 (or should that level also be raised)? If a different level is appropriate, what levels should be considered, and why?
Public float should not be used to differentiate information flow to investors. It is valid in setting the delivery mechanisms for data already filed, but should not be a gating factor as to what information may be known by a prospective investor in a larger company vs. a smaller one.
21. Is the method for determining the measurement date for the public float test clear? Is the delineation of which reports would be subject to accelerated deadlines appropriate? Should the determination of which reports would be subject to accelerated deadlines be made at a point other than a date no more than 60 and no less than 30 days before the last date of the issuer's fiscal year?
The methodology for the test is clear. Our view is that it should not be used, however. Measurements that drive reporting deadlines should be known by the reporting company well before year-end to permit time to plan and schedule the work necessary to fulfill all their responsibilities.
22. While we have proposed to use the public float test, we are seriously considering alternative thresholds and request comment on such alternatives. For example, should all reporting companies be subject to shortened filing deadlines, except for companies below a certain revenue or asset threshold (for example, $5 million)? Should we accelerate the filing dates only for companies whose equity securities are listed or actively traded on an exchange or Nasdaq? How would we define "actively traded?" Are there other alternatives that will balance the need for timely, high quality disclosure with the ability of companies to prepare the disclosure without undue burden?
We do not believe there are any meaningful criteria that should be used to distinguish the informational needs of investors. All companies should be subject to the same thresholds.
23. Should the reporting history requirement be shorter or longer than proposed? Is a history of preparing reports relevant to the ability of a company to report on an accelerated timeframe? Is less or more experience needed than that proposed?
See response to #22 above.
24. We are proposing the requirement that a company file at least one annual report to provide reasonable opportunity for a company to gain enough filing experience before it is subject to shortened deadlines. Is such experience relevant to prepare information in a shorter timeframe?
See response to #22 above.
25. Is the proposed method for entering and exiting accelerated filing status that relies on the small business issuer reporting system clear? Is it appropriate? In the alternative, should there be some other mechanism for companies to enter and exit accelerated filer status? For example, should a company be permitted to exit accelerated filer status if its public float has fallen below some specified threshold (i.e., $25 million or $50 million) and has remained below that threshold for some specified period of time? Should a threshold other than public float be considered? What factors should be considered in formulating such an alternative?
See response to #22 above.
26. Should we require a company to provide notice that it is entering or exiting accelerated filer status? Should such a notice be through a filing on Form 8-K and/or through some other method or combination of methods to ensure broad dissemination of this announcement? Would the lack of an affirmative requirement to announce a change in a company's filing status disadvantage investors or the markets?
See response to #22 above.
Questions regarding the impact of accelerating filing deadlines
27. Are there ways we can minimize these negative effects aside from continuing to permit companies to rely on Exchange Act Rule 12b-25 for extensions of the annual report and quarterly report deadlines?
We can think of none other than deferring the proposal for an extended period. (This may be particularly relevant in the current environment, in which we expect thousands of auditor changes to take place in the near term.) We believe the reason for the existence of Rule 12b-25 in the first instance is that the SEC has, in effect, been saying that, when in doubt, registrants should take the extra time and get it right. It also says the SEC will not revoke a registrant's status or privileges when they admit that extra effort and thought is needed to provide higher quality information.
That principle is valid today and the SEC should not promulgate new rules that cause registrants, auditors and audit committees to rush headlong through complex reporting problems in pursuit of a shortened deadline.
28. Would the current filing extension periods remain sufficient under accelerated deadlines? Should these periods be shortened (for example, to 10 days for an annual report or three days for a quarterly report) to conform to the accelerated filing due dates of these reports and to ensure timely filings? Would shorter periods provide companies with enough time to make Exchange Act Rule 12b-25 useful? Instead, should these periods be lengthened (for example, to 20 days for an annual report or 10 days for a quarterly report) to provide companies more time to file their reports because of the effect of accelerated filing due dates? What factors should we consider in determining whether and by how much these periods should be changed?
Although we do not support the proposed acceleration of periodic filings, if enacted we do not believe the current filing extension periods would remain sufficient, rather they should be lengthened to ensure companies have adequate time to complete the analysis necessary to prepare a quality filing without losing their rights and privileges as a timely filing registrant.
29. Would companies not subject to the accelerated deadlines find it more difficult to retain the necessary outside advisors to prepare their reports in the appropriate timeframe? Would the quality of their reports suffer?
If an entity were not subject to the accelerated deadlines it would not be more difficult to retain necessary outside advisors, in fact it may be easier.
30. Would companies that currently integrate their annual or quarterly reports to security holders with their Form 10-K or Form 10-Q reports, or publish and mail both in a single document, encounter difficulty in meeting the accelerated due dates?
We believe a significant number of registrants will have difficulty complying with the proposed rule whether or not they integrate their filings.
31. Are there special circumstances associated with the preparation of transition reports that weigh against reducing the filing periods for those reports?
We do not agree with the acceleration of the filing of any periodic report. However, we do not believe there are special circumstances associated with the preparation of a transition report that will make it any more problematic for such a filer to comply.
Questions regarding our website access proposal
32. Would our proposal aid in encouraging companies to make information available in a variety of locations and hence make corporate information more widely accessible and disseminated? Would investors find this information useful? Would the proposed disclosure requirement provide sufficient notice to investors of the available sources of corporate information?
The National Investor Relations Institute's ("NIRI") Survey results indicate that only 13% of respondents do not post their 10-K's to their websites either directly or through a link to another site. As such, we do not believe that this proposal, in and of itself, will encourage companies to make information available in a variety of locations, as many companies are already making the information available on their website.
Since the information posted to the company's website would be the same information posted on EDGAR we believe investors would not necessarily find this information any more useful than that posted on EDGAR. Access to other company data would be easier, but whether it is better or not depends on the "quality" of what is on the site.
Further, approximately 51% of the companies surveyed by the NIRI currently provide a link from their website to their filing on EDGAR. The proposed release states that such hyper linking would not allow a company to state that it provides website access to its reports as soon as reasonably practicable, and in any event on the same day as filed, as the Commission's EDGAR website is posted on a 24-hour delay. Unless the SEC would consider information posted on a company's website as "filed" for Commission purposes, we see a discrepancy between the requirement to post to a website immediately upon filing but then to not consider a link to EDGAR, which is what the Commission currently considers "filed", to be sufficient.
We also believe that a 1-2 day delay should be allowed for document availability on a registrant's website, consistent with the delay built into the SEC's own website. There are data formatting and communications issues to be dealt with. In this regard we note that, despite advances in technology, many EDGAR filers continue to utilize outside services to assist them to cope with these issues. Dealing with an outside website service provider would give rise to similar challenges, we believe.
Although we do not object to a company listing its website address in its filings we are not sure that this proposed disclosure requirement would significantly increase an investors understanding of the available sources of corporate information as there are numerous methods of researching a company, including but not limited to, periodicals, various other internet sites, analysts calls, industry conferences, etc.
33. The proposed new disclosure requirement only would apply to companies subject to the accelerated filing deadlines. Is excluding small issuers appropriate? Is the need for timely information about these issuers greater than the additional burden or expense these issuers would incur due to the proposed new requirement? Should all reporting companies be subject to the proposed new requirement?
We do not believe excluding small issuers is theoretically appropriate. Informational needs do not depend on company size and the disclosure requirements are not excessive.
34. The proposal would only apply to companies that file on Form 10-K. Should we also include foreign private issuers that file on Form 20-F? Would expanding this requirement be overly burdensome?
We do not believe this proposal should include foreign private issuers. That issue requires separate consideration and should be the subject of separate rule proposal if the Commission decides to move forward. See our response to #19 above.
35. What are the expected additional costs of posting Exchange Act reports on company websites, either directly or by hyperlinking to a third-party service? Please specify the types of costs that would be incurred and quantify them, if possible.
For those companies that already incur the expense to maintain a website, we believe additional costs would be minimal.
36. Would the proposed new disclosure be overly burdensome? Should additional disclosure be required? Is some of the proposed disclosure not necessary or appropriate?
We do not believe that the proposed new disclosure regarding: a) the fact that an investor can read and copy information from the SEC's Public Reference Room and website, b) the company's website address, c) whether the website includes the company's filings, and if not, why not, d) the locations where the public can access these filings immediately upon filings and e) whether the company voluntarily will provide electronic or paper copies of its filings free of charge to be overly burdensome. However, we do not believe any additional disclosures are required or that the SEC should effectively be requiring the creation and maintenance of a website. If the Commission agrees that providing a hyperlink to the EDGAR website would suffice to meet the new website access proposal than the disclosure requirements of the locations where the public can access these filings immediately upon filing would be duplicative of the required disclosure regarding the Commission's website
37. Is additional guidance necessary in how to comply with the proposal? If so, in what areas would guidance be helpful?
We do not feel any additional guidance is necessary to comply with the proposal.
38. Should the disclosure appear in other company filings, such as quarterly reports? We encourage companies also to put this disclosure in their annual report to shareholders.
If the premise is that by providing an internet address, the investor is better informed by being able to access corporate information in an efficient and cost-effective manner than, if adopted, we believe the disclosure should also be include in 10-Q's and transitional reports.
39. Our proposal would require disclosure of a company's Internet address. Is this requirement helpful to investors? What are the ramifications of requiring disclosure of a company's website address? Are there reasons why a company would not want to provide disclosure of its website address?
The disclosure of an internet address would be helpful to investors, however, it would need to be clear that other information provided on such a website is not considered filed with the Commission nor has the company's independent auditor reviewed or audited such information.
40. We have not proposed a conforming change to require disclosure of a company's website address in Securities Act registration statements. Currently, companies are only encouraged to provide their website address in these documents. We request comment on whether we should make this conforming change. Would there be any negative impacts from this change?
If the premise is that by providing an internet address, the investor is better informed by being able to access corporate information in an efficient and cost-effective manner then we concur that a conforming change should be made to require such disclosure in 1933 Act filings as well after taking into account the issues summarized in 39 above.
41. Should a company be required to disclose whether it provides access to all of its Exchange Act filings (and not just its periodic and current reports)? Should access to exhibits or supplemental schedules be excluded? Should Securities Act filings be included? Should information under the proxy rules be included, or at least the information required by Part III of Form 10-K incorporated by reference from a company's definitive proxy or information statement?
We believe it is reasonable to require disclosure of whether access to all Exchange Act filings is provided. We see no reason for a company to limit its disclosure or its answers regarding access on its own website to data already available to the public on the SEC's website. On the other hand, since the SEC does not currently recognize registrant website postings as the equivalent of EDGAR filings, we also see no basis for the SEC to specify what must be on a registrant's website.
42. We recognize that not all investors may have ready access to the Internet. Are there additional ways to facilitate access to Commission information for those without Internet access?
We believe that for those that do not have personal internet access, and cannot obtain such access through public libraries, schools, places of employment, internet cafes or other methods, the current model which allows them access through Public Reference Rooms is adequate.
1. Would your client be able to comply with the release without any significant additional effort or expense?
2. If the client believes they will be able to comply but it will require significant additional effort what is the reason for the additional effort? (check all that apply)
|16.67%||Registrant's reporting systems do not facilitate collection of data within time frame|
|10.42%||Significant equity investees or joint ventures for which data needs to be collected|
|37.50%||Foreign operations for which data needs to be collected|
|58.33%||Lack of personnel/resources to complete the filing and all the related disclosures within the new time frame|
|37.50%||Significant number of complex transactions that require analysis|
|18.75%||Adoption or completion of analysis for SAB 74 disclosures for new accounting standards|
|60.42%||Although basic Profit and Loss data is available substantial added effort and time is needed for Balance Sheet data, analysis, disclosures and MD&A|
|37.50%||Audit committee or board of directors would not have sufficient time to perform their review function|
3. Would it be easier for the client to comply with the acceleration of either the annual report or the quarterly report?
|If yes, which one|