From: Dickerson, Jr., W. Brinkley [mailto:brink.dickerson@troutmansanders.com]
Sent: Monday, May 13, 2002 5:58 PM
To: 'staceyc@sec.gov'
Subject: Critical Accounting Policies


The devil is in the details, and that is going to be particularly so with 
complying with the proposed rule on critical accounting policies.  As I 
mentioned, I think that before the Staff proceeds with the final rule, it 
should give the proposed rule a thorough workout.  Here is what I think 
you should do:

·       Pick a cross section of five or six (maybe more, but the return on 
your effort will diminish quickly) relatively large companies from different 
industries.  Avoid former Andersen clients (they have enough transitional 
issues) and companies with diverse (i.e., something other than just geographical) 
segments.  Segment disclosure is a bit of a Trojan horse in this context, 
so it would be better not to get tied up in it.  I would include both a bank 
and an insurance company.  I would avoid the energy industry since it has 
enough issues right now, and energy companies are not particularly typical 
of the other 14,000 reporting companies.  I would pick companies with sufficient 
resources -- S&P 500 or possibly S&P 100 types -- so that issuing them a 
comment letter would not be unduly burdensome and so that they would already 
have the legal and accounting resources in place to respond effectively.

·       Take a quick look at their attempts at disclosing critical accounting 
policies, and if applicable (and it will be so long as they at least have a 
section) send them a comment letter with this comment:

                We have reviewed the information contained under the caption 
"Critical Accounting Policies" in response to Item 7 in your Form 10-K for the 
year ended December 31, 2001.  We do not believe that information is responsive 
to FR 60 (See Release No. 34-45149) or to the general requirements of 
Regulation S-K, Item 303.  In your next filing on Form 10-Q, please provide 
information that is fully responsive.  In that regard, you should carefully 
consider the proposed rule changes regarding critical accounting policies 
contained in Release No. 34-45907.  We recommend that not later than June ___, 
2002, [give them three weeks or so] you provide us with a framework or rough 
draft of your disclosure.  We also welcome establishing a dialogue with you 
regarding any issues that arise in responding to this comment letter.

·       Were you to do something like this, it would be important that you 
do it as a "futures" comment.  If companies think that they are going to have 
to amend prior filings, they are going to fight to minimize the changes.  
They will be vastly more cooperative if they can deal with redrafting in their 
next Form 10-Q.

·       Then, I would work with the companies as they go through a couple of 
iterations of their disclosure.  

The Staff will learn more from a process like this than it can learn from all 
of the comment letters that it receives in response to the proposed rule.  And, 
it is not unfair:  The "known trends and uncertainties" disclosure requirement 
of Item 303 is amply broad to justify this disclosure, and FR 60 plus Robert 
Herdman's speech put everyone on notice.  I appreciate that there may be policy 
reasons not to issue a comment letter like this -- why do you need a new rule 
if you already can require this disclosure -- but the proposed rule is going to 
require more incremental (and challenging) disclosure than any other proposed 
rule that I have seen in the last 20 years, and actually seeing people try to 
apply it in advance is going to be priceless.

Some companies will see the proposed rule and go ahead and make a pretty good 
stab at complying in advance of their adoption.  (We certainly will encourage 
our clients to.)  So, by late July you will have a few other examples as well.