From: david [davidfdi@bellsouth.net]
Sent: Thursday, June 20, 2002 4:26 AM
To: rule-comments@sec.gov
Subject: RE: S7-22-02 & S7-21-02

Having the CEO and CFO certify the accuracy of quarterly and annual financial 
statements and thereby take personal responsibility for their accuracy is only 
a good half step. It won't serve to resolve the problem. Speeding up the 
dissemination of news is always a good step, but timely posting on the corporate 
website is just as essential. Those individuals on the wrong side of the "digital 
divide" that political correctness demands you consider don't have timely access 
to 8 K's...or for that matter press releases, which are almost never published 
by the print media.
 
On certification, I believe it is necessary to differentiate the world according 
to GAAP from the real world. Mr. Niemeier of the SEC's enforcement decision was 
quoted this past February as saying that a company should have "two extra tests" 
in determining whether it is correctly accounting for a transaction. "Does the 
overall result violate the accounting rules on which the rule is based; and does 
the answer or the result mislead investors as to a material issue?" While I'm 
certain any CEO or CFO worth their salt could certify the first test Mr. Niemeier 
mentions by simply following GAAP and still mislead us, his second "test" raises 
a far more important issue. Does the accounting presentation accurately reflect 
the economics of a transaction? It is this point that I think the CEO and CFO 
must certify as accurate.
 
What are the lessons of Enron? Did Enron create a labyrinth of partnerships to 
mask off balance sheet debt and mark to market illiquid energy contracts without 
comparables to create fictitious earnings because its' managers dreamed the process 
up or because GAAP gave them an exact set of blueprints as to where the lines in 
the accounting sand needed to be drawn? Enron overstated its results in accordance 
with GAAP to generate performance in its shares, build the remuneration of its 
officers and inflate returns for its' stakeholders. It simply looked at GAAP, 
complied with it except for a few instances of outright negligence or stupidity 
and blatantly misled its' then happy stakeholders. Analysts applauded and its' 
auditor, swayed by the enormous fees for non-audit services, didn't ask embarrassing 
questions. While I'm on this subject, watching one company after another sanctimoniously 
clear up any question of disclosure reliability by switching auditors, I must pose a 
question. Is it not just as naive to assume that only Arthur Andersen auditors looked 
the other way as it is to assume that only the U.S. Roman Catholic Church has a 
problem with pedophiles? Back to the issue at hand. I sense that if GAAP was followed, 
the CEO and CFO might even today feel legally justified certifying the results, 
particularly with everyone else either just standing by or applauding. Form after 
all seems to have mattered more than substance. This must change.
 
Perhaps requiring that the CEO and CFO certify the fact that the results accurately 
reflect the underlying economics of the company's performance would be more meaningful 
harness. I think the accounting profession too must take a good look at instituting 
something comparable to the True and Fair Override. British accountants use this rule. 
It essentially states that if an accounting treatment follows the letter of the law 
but doesn't reflect the economics of the transaction, the True and Fair Override takes 
precedence. The accountant must then ensure that reported results reflect the true 
economics of the transaction first and foremost. Would Enron or any of the other high 
profile accounting scandals have transpired if CEO, CFO and accountant had all operated 
under these rules? Perhaps, but I'm certain the propensity to collectively conspire 
to mislead would materially diminish.
 
Good luck with your effort...we applaud it.
 
David F. Baird
Senior Partner
FD Innovations
Nashville, TN