From: David Abbott [dmageol@msn.com] Sent: Saturday, May 18, 2002 1:36 PM To: rule-comments@sec.gov Cc: dunnm@sec.gov Subject: File No. S7-08-02 David M. Abbott, Jr. Consulting Geologist Denver, Colorado May 18, 2002 Mr. Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0609 Re: File No. S7-08-02 Acceleration of the 10-K Filing Date May Be Difficult for Mining and Petroleum Companies Dear Mr. Katz: While I appreciate the rationale for suggesting that filing dates for 10-K reports be shortened, I suggest that the suggested 60-day period may cause problems for those mining and petroleum companies that elect to have their reserves independently audited (Note 1). Simply put, a period of time, say 20 days, is required for the company to estimate the reserves for which data became available during the closing weeks of the year. Even though companies and their independent reserve auditors may have completed much of their work prior to year-end, this period is still required to “close the books.” After the company closes the books, the independent reserve auditors require some time to review and check the company’s estimates and then prepare their reports and submit them to the company. If the company identifies a problem with the reserve auditor’s report, appropriate corrections may be required. Assume that the reserve audit process takes an additional 20 days. Because the reserve auditor’s figures can have an impact on the financial statements, particularly depreciation and depletion figures, the financial auditor cannot complete its review until the reserve audit is completed. In some cases where reserves are economically marginal, depreciation, depletion, and other accounting questions may require some cycling back from the financial accounting to reserve estimation and back to financial accounting before final figures for either the reserves or the financial statements can be calculated. I have had primary responsibility for several mining company audits. For calendar year-end audits, I usually receive the final company estimates around the end of the third week of January, although this may be January 24th or so depending on the year, weekends, etc. My goal is to have a letter report back to the company in two weeks, but sometimes three are required. Thus, the financial auditor does not receive the reserve audit until 35 to 45 days after the end of the year. In cases where there are no problems, it may be possible for those mining and petroleum companies that elect to have independent reserve audits to meet a 60-day filing requirement. However, it is likely that when any of life’s typical problems occur during the process, a 60-day filing date will prove to be too short. Although extensions for filings can be readily obtained for good cause from the SEC, the announcement of a delay may result in penalization of that company by the market. I would suggest therefore that specific inquiries be made of those mining and petroleum companies that employ independent reserve auditors to determine whether a 60-day filing requirement is too short. Because reserve audits are not required but do provide an additional measure of investor and market protection, those firms that elect to have such audits performed should not be penalized for late filings, either by the SEC or by the markets. Note 1: neither mining nor petroleum companies are required to have independent audits of their reserves. When the rules requiring disclosure of oil and gas reserves were adopted (Reg. S-X Rule 4-10), the petroleum industry pointed out that there were not enough qualified reserve estimators to meet both in-house and independent requirements. This became one of the bases for having the disclosures of oil and gas reserves made as an unaudited footnote. Mining reserve estimates have never been part of mining financial reporting, in part because reserve estimates are inherently forward-looking statements subject to a variety of irreducible uncertainties. Therefore, only some mining and petroleum companies voluntarily request regular (annual, biannual, or other) reserve audits. Background of commentator: I served as geologist for the SEC for 21 years in the Denver office working on both small issues filing review and enforcement matters. Since leaving the SEC in 1996, I have been a consulting geologist performing reserve audits among other things. I am a Certified Professional Geologist by the American Institute of Professional Geologists. I hope the foregoing assists the Commission and its staff in their deliberations. If more information on this subject is desired, please let me know. Sincerely, David M. Abbott, Jr., AIPG-CPG Consulting Geologist 2266 Forest Street Denver, Colorado 80207-3831 USA tel: 303.394.0321 fax: 303.394.0543 e-mail: dmageol@msn.com or dmageol@aol.com