CNA Financial Corporation
CNA Plaza Chicago IL 60685-0001
Lawrence J. Boysen
Senior Vice President and Corporate Controller
Corporate Financial Services
May 16, 2002
Mr. Jonathan G. Katz
Secretary, Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Proposed Acceleration of Periodic Report Filing Dates
(File No. S7-08-02)
Dear Mr. Katz:
The purpose of this letter is to submit comments from management of CNA Financial Corporation (CNA) regarding the proposed rules that would accelerate the periodic report filing dates. We appreciate the opportunity to provide input regarding the proposed rule changes.
We are opposed to the proposal to accelerate the filing dates to 30 days for Form 10-Q and 60 days for Form 10-K. Our view is based on the perspective that:
If the proposed rules are adopted, we believe that a longer transition period is required to facilitate the required close process changes necessary to meet the accelerated reporting deadlines.
Required Close Process Changes
CNA's close cycle does not require significant use of reporting lags or estimates to meet the current reporting deadlines. The proposed reporting dates would force greater use of these methods to meet the accelerated reporting deadlines. This would reduce the quality of the reported financial information, introduce estimation error into the financial reporting process and delay the date new accounting standards are adopted for components of the organization.
While advances in technology have facilitated a shorter close cycle for "standard" transactions, there are a growing number of unique and complex transactions that require a higher level of attention and disclosure. In addition, in the face of Regulation FD companies are disclosing much more information in earnings releases and the financial supplement. This expanded level of disclosure coupled with additional disclosures mandated by complex accounting standards such as SFAS No. 133 have more that offset any efficiencies gained in our close schedule.
We do not believe that the benefits of accelerated reporting outweigh the negative impact on quality. Companies can use traditional means such as filing current reports on Form 8-K to provide investors with timely information without creating the negative quality ramifications associated with this proposal.
CNA currently releases earnings the day after our board of directors meeting. Those meetings are generally scheduled the first Wednesday of the month following the quarter end. This timing was established to provide board members sufficient time to review and understand the financial results and the key judgments underlying those results. We strongly believe the accelerated reporting schedule will negatively impact the quality of the corporate governance process. This runs contrary to the many initiatives and proposals intended to strengthen the corporate governance process in the wake of the Enron debacle.
Independent Accountant Review / Audit
We believe the proposed acceleration of the periodic reporting dates will also have a negative impact on the quality of the independent review and audit of financial results. Our experience is that the fast-paced, changing business environment is putting more pressure than ever on our independent accountant's ability to stay abreast of developments at CNA and their impact on financial results and disclosures. Difficult technical accounting issues arise with greater regularity, and it takes time for these matters to be appropriately documented by us and reviewed with our independent accountants. Many of these matters require consultation outside of the independent accountant's local office, and I expect that frequency to increase in the post-Enron environment.
The independent accountant's review and audit is a foundational element of the integrity of the financial reporting process. Our audit committee of the board of directors relies heavily on the independent accountants, and we believe we should be looking to strengthen these reviews and audits rather than reducing the time available to conduct such reviews.
Compression of Financial Reporting
Acceleration of the periodic report deadlines will cause significant compression of the window in the calendar in which company earnings releases, investor conference calls and periodic reports are reviewed by the investment community. This is likely to cause information overload, which could negatively impact the effectiveness of the analyst community. It has been widely publicized that Regulation FD has put a strain on analysts, and we believe this compression would compound that issue.
Finance staffs that are involved in the close process generally work long hours during certain periods of the close. Acceleration of the reporting dates will make this situation even more difficult to manage, and could motivate talented people to look for job opportunities in other areas. We believe that adoption of this proposal will make it harder to attract and retain high-talent individuals in the financial reporting area, which runs contrary to the increasing demands to improve and maintain the quality of the financial reporting process.
Proposal Regarding Web Access to Information
We generally agree with this proposal, but we believe that companies should be allowed until the next day to have the filed reports available on their website. As a practical matter, most reports can be posted on the same day, but providing the extra day will provide sufficient time to overcome any unusual technical issues regarding file conversion, version control, etc.
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Thank you again for providing the opportunity to comment on these proposals. I hope the staff finds this input helpful.
Lawrence J. Boysen