Financial Institutions Accounting Committee
100 West Monroe, Suite 810
Chicago, IL 60603-1959
Phone: (312) 578-1300
Fax: (312) 578-1308
May 23, 2002
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Subject: File Number S7-08-02
Dear Mr. Katz:
The Financial Institutions Accounting Committee (FIAC) is pleased to have the opportunity to provide you with our comments and observations related to the proposed rule regarding the "Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports". FIAC is a group of 15 professionals working in executive level positions in the thrift and banking industries and is a standing committee of the Financial Managers Society. FIAC's primary responsibility is to evaluate those accounting and regulatory matters that affect financial institutions.
The comments within this letter are representatives of the Financial Institutions Accounting Committee as a whole and do not necessarily reflect the individual views of institutions represented on the committee.
The Financial Managers Society is an individual membership professional society of approximately 1,400 CEO's, CFO's, controllers, treasurers, and internal auditors from commercial banks, savings banks, and credit unions. More than half of FMS' members are from financial institutions of between $100-$750 million in assets, and more than half of the members are SEC registrants.
Although FIAC is sensitive to the Commission objective of making annual and quarterly information available sooner to the public, we simply cannot support the Commission's proposal to shorten the comment period for either the 10-Q or the 10-K. Our failure to support the proposal is based upon the following:
1. As indicated above, the majority of FMS members are from smaller financial institutions. Many have limited staff resources within the accounting function, and in many instances, a single individual is responsible for all of the required regulatory reporting-Call Reports or TFR's, Holding Company Reports, Proxy and Annual Reports, and, of course, reports to the SEC. In all likelihood, smaller institutions would need to hire additional staff to work on the SEC filings while the rest of the accounting department does the accounting work during the month following the close of a quarter. In the view of many of our members, the additional cost imposed on most of the institutions would outweigh the benefits.
FIAC feels that the proposal as it currently stands would impose significant "permanent" ongoing costs to companies. These costs are difficult to quantify due to the diversity of the FMS membership, but we feel that they would be in the form of increases to staff and/or increased costs paid to vendors who would be assisting in the preparation of financial data that is filed with the SEC.
2. Among our larger bank members, it is not at all unusual for a financial institution's 10-Q to be in excess of 50 pages and for the 10-K to be in excess of 170 pages. In the early 1980's, the lengths of these same Qs and Ks were 20 pages and 60 pages respectively.
Obviously, the tremendous increase in volume has been caused by the marked increase in reporting requirements from the SEC. For example, Industry Guide 3: Statistical Disclosures by Bank Holding Companies; Bank Holding Company Reporting Requirements of Article 9 of Regulation S-X; and Market Risk Disclosures required by Item 305 of Regulation S-K have substantially increased the reporting burden. Unfortunately, although most financial institutions continually apply technological advancements to all of their operational areas, the volume of disclosures required by the SEC has increased faster than our typical member institution's ability to apply computer processing to reduce the time required to file.
In addition, at the same time the amount of disclosures mandated by the SEC is increasing, the Commission is also demanding more involvement by senior management and the board of directors. While we think such involvement and overview is a positive development, given the innate difficulty of getting sign-off from so many more parties, the process is exceedingly challenging under even today's time frames; shortening them would add an incredible burden on accounting staff, senior level management, and directors.
3. In addition to the internal challenges outlined above, many of our members have highlighted EDGAR as a significant impediment to changing the current reporting deadlines. The old technology utilized within EDGAR, and the tremendous administrative burden it places upon registrants-re-keying data into Word files that then must be "EDGARIZED"-is an incredibly frustrating and totally unnecessary burden given the technological advances that have been made over the last few years. Indeed, if the current EDGAR technology is not obsolete-it is certainly very close to being so.
Should the Commission persist in shortening both the Q and the K filing deadlines, we would respectfully ask that such a move not be made until EDGAR has been revamped and made far more efficient and user friendly than is currently the case. For several of our institutions, "EDGARIZATION" represents an inordinately high percentage of the total time spent on the filing process.
4. Finally, at a time when accuracy in financial reporting and disclosure is under more intense scrutiny than ever before (i.e. Enron issues), we feel that the proposal as drafted would submit filing companies to new pressures that would decrease the accuracy and quality of financial information. The shorter time frames would put the reliability and accuracy of the reports at risk.
The gains to investors and the market from more timely financial information would not compensate for the risks to the reliability of the financial information presented.
FIAC appreciates the opportunity to express our views on this proposal and would be more than willing to discuss any of our issues with Commission staff as appropriate.
Thank you in advance for your consideration of our views.
Richard M. Levy