May 23, 2002
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Reference File No. S7-08-02
ELECTRONIC MAIL: firstname.lastname@example.org
CERTIFIED MAIL - 3 copies
Dear Mr. Katz:
We appreciate the opportunity to comment on the proposed rule intended to accelerate the filing of quarterly and annual reports. On behalf of Cendant Corporation, which has an aggregate market capitalization of approximately $19 billion and, therefore, would be subject to the accelerated filing deadlines, I wish to express my concern about certain aspects of this proposed rule.
The Commission has noted its belief, and we too share that belief, that recent events have underscored the need for public companies to have a strong commitment to full disclosure and compliance with all regulatory regimes to which their companies are subject. To this end, we have made significant strides in improving transparency in our reporting, including providing full disclosure regarding our affiliated entities. However, we do not believe that shortening the time a company has to prepare its filing is consistent with improved quality of reporting.
Accurate and transparent reporting requires time for many parties to analyze and understand the results and to resolve questions or issues. The proposed rule would serve to reduce the time given to such parties, including management, the Audit Committee of the Board, the external auditors and legal counsel, to complete a thorough review of the filing. In an environment where accounting and reporting rules are constantly changing and management is striving to provide greater transparency, the proposed rule would present management with having less time to analyze and understand complexities and to assess the adequacy and completeness of MD&A, as well as other disclosures throughout the document.
Additionally, the role of the external auditors could be greatly diminished and the value of their review process could be compromised. It would seem imprudent, particularly in today's environment, to reduce the time the auditors have to complete their review of the filing. Oftentimes, the external auditors' review will call to attention ways to improve transparency and quality of disclosures. Therefore, the proposal seems to exacerbate the very problem it intends to address and seems to be contradictory to the Commission's initiatives regarding transparency and improved quality of reporting.
It is also important to note that while the Commission is correct in its assumption that a significant amount of the audit work is completed prior to a company's earnings release, there is a considerable amount of work that follows thereafter. Disclosures, whether they are quantitative or qualitative, need to be prepared and audited; many of which are complex, including related party disclosures and disclosures required by Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" and No. 133, "Accounting for Derivative Instruments and Hedging Activities." Additionally, there is work to be performed on MD&A, including lengthy discussions concerning critical accounting policies and off-balance sheet financing arrangements.
Finally, Cendant is a diverse company. In addition to the equity issuer, Cendant Corporation, five other subsidiaries are subject to the periodic reporting requirements (Avis Group Holdings, Inc., Cendant Mortgage Capital LLC, Chesapeake Funding LLC, D.L. Peterson Trust and PHH Corporation). These subsidiaries do not have a public float in excess of $75 million. However, because a registrant has a responsibility to ensure consistency in disclosure and content among its reporting entities, these subsidiaries would not benefit from the proposed rule as Cendant would likely complete the filings for all six of its registrants concurrently. Hence, the proposed rule would be overly burdensome to the very companies it intended to exclude from its scope.
We do support the Commission's goal in modernizing the periodic reporting system and improving the usefulness of quarterly and annual reports to investors and are working very diligently to do our part in restoring investor's confidence in the capital markets. However, we do not believe that accelerating the filing deadlines is the appropriate place to begin. We believe it is more important to enhance the reliability of the financial reporting process through transparency and just plain better disclosure.
/s/ Tobia Ippolito
Executive Vice President and Chief Accounting Officer, Cendant Corporation