May 23, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: File No. S7-08-02
Dear Mr. Katz:
In response to the recently published proposed rule re: Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports, we offer the following comments, generally following the order of the issues raised and the order in which the specific questions are posed. In summary, we have no problems with the proposed website access rules and, in fact, already provide such access. On the other hand, we are very much opposed to the concept of accelerated filings.
We take issue with the Commission's view that companies may be able to disclose information within the shortened timeframes without sacrificing accuracy or completeness. On the contrary, we firmly believe that, for many registrants, accuracy and completeness will necessarily be compromised to meet these timeframes. The development of meaningful disclosures, including those of a forward-looking nature that the Commission desires from registrants, is an iterative, thoughtful, consultative process which takes a significant amount of time, both from people at various levels within the registrant and from those outside - such as securities attorneys and independent auditors. With the advancement of technology, it may be true that the raw earnings data can be disclosed quickly following an accounting period. However, the process of considering, drafting, editing, reviewing, and auditing the voluminous mandated disclosures cannot be done quickly enough to meet these timeframes without potential significant deterioration in quality and a significantly heightened risk of material error or omission.
As to specific "questions regarding accelerating filing due dates"
Information flow - We do not believe that acceleration would help the flow of information, but that in many cases it would instead decrease the flow of information and necessarily decrease its quality. We believe that when faced with the choice of fully developing what might be an optional but relevant disclosure versus dropping such disclosure in an effort to meet the filing deadline, many registrants will opt to delete such disclosure. Further, we believe that the flow of information we and others currently provide (through the use of press releases and compliance with Reg. FD and by providing access to data on our website, among other ways) is timely, appropriate and sufficient for investor needs.
Shorter versus longer timetables - We believe that the current filing timetables are appropriate and should not be changed. Further, we believe that the imposition of additional administrative cost burdens on registrants is ill-advised, especially in the current economic and capital market environment. We operate as a PUHCA registrant ('35 Act), as well as being comprised of three `34 Act registrants. As such, we have other filing requirements that draw upon the same resources as do the periodic filings at issue here. Also, because we operate several public utilities, we also have FERC filings that draw on our external reporting resources.
Other ways to get information to investors sooner - We believe that the effective use of the press and electronic media currently being employed by us and others will over time continue to accelerate in an orderly fashion the information flow. Our earnings press releases follow the best practices outlined by FEI, and we would not object to a requirement that we timely file such earnings releases on Form 8-K, so long as additional requirements regarding their contents were not adopted.
Costs - Dramatic increases in costs, without any improvement in quality - in fact, deterioration in quality, would be the result of this acceleration. Accounting professionals, data processing personnel and other financial reporting people only have so many hours in each day. Similarly, auditing firms and their people also only have so much time in their days. Fatigue dramatically increases the quantity and likelihood of serious errors and omissions in the preparation and review of these filings. As such, additional hiring, at significant cost, would be necessary. However, hiring and training these additional personnel would not be a cure-all. Our belief is that, past a point of prudent consultative effort and involvement, the larger the network of people involved in the creation and filing of these documents in these short timeframes, the less cohesive and readable the products will be, and the more susceptible to errors they will be.
We also offer the following thought regarding increased costs. With the coming mandated changes in the relationships of the consulting and auditing divisions of the accounting firms, it is our belief that audit fees will increase significantly in the coming years. Adding this time constraint - effectively shortening the auditors' "busy season" and compressing our work into it - will result in further increases in fees. We believe that such additional increases would only be justified by improved quality of disclosure, and as we have stated above, we do not believe that an increase in quality will result.
Time for auditors, committees and boards to perform their functions - In our view, it would be unreasonable to expect audit committees and boards of directors to perform their ever-growing fiduciary duties in these shortened timetables, particularly given the additional risks of error or omission described above.
Audit completion / earnings release - It is our understanding, based on an informal comparison of audit report dates to the dates of earnings releases, that many companies release their earnings before the auditors have completed their "fieldwork." In contrast, we do not take such a chance and instead wait until the auditors are through with their substantive audit fieldwork to publish our earnings releases. However, after the completion of such fieldwork related to the audit of the basic financial statements, the auditors spend considerable time reviewing, challenging and testing the information behind our footnotes and other required disclosures. As a practical matter, the Company's middle and upper financial management are not fully engaged in the detailed preparation of the filings until well after the dates of the press releases. As such, there is a significant amount of work (at least two weeks for 10-Qs and a month for 10-Ks) to be done following each of the releases in order to be able to file complete and accurate documents.
Reliability and accuracy - As stated above, we believe that both would suffer and that it would be counterproductive to undertake an acceleration initiative when instead improved quality is the desired (needed) result.
As to specific "questions regarding the impact of accelerated filing deadlines"
Retention of advisors - As noted above, we believe that securities attorneys and auditors would be burdened by adoption of this proposal. Actuaries and other valuation experts would also be burdened, resulting in increased costs and reduced quality of their products.
As to the proposed Transition period
We believe that if the Commission adopts this proposal, a more reasonable transition period should be provided. Requiring our next 10-K (year end December 31, 2002) to be filed within 60 days is unnecessarily onerous. We believe that registrants should instead be given adequate lead time to improve processes and procedures and to hire and train additional personnel, and that the auditing firms should be given adequate time to absorb the ramifications of the exodus of registrants from Arthur Andersen. We would suggest that the acceleration not be effective until the end of the registrant's first fiscal year ending after October 31, 2003.
As noted in the summary above, we take no issue with the proposals surrounding website access.
Very truly yours,
James E. Swan