W. Bruce Swain
Senior Vice President
May 23, 2002
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: File No. S7-08-02
Dear Mr. Katz,
Please accept this letter as our company's objection to the recent proposed rule that would accelerate the filing of quarterly and annual reports under the Securities Exchange Act of 1934 from 45 to 30 calendar days after period end for quarterly reports on Form 10-Q and from 90 to 60 calendar days after year end for annual reports on Form 10-K.
Crawford & Company ("Crawford") is an Atlanta, Georgia based independent provider of insurance related services to insurance companies, self-insured corporations and governmental entities. We employ approximately 10,000 employees worldwide in more than 700 offices in 67 countries. Crawford's common stock is publicly traded on the New York Stock Exchange. Crawford is respectfully opposed to the proposed rule for the following reasons:
- We believe the accuracy of the information reported will suffer due to the drastic reduction in the amount of time available to gather, evaluate, and report the accounting and other non-financial information required to be disclosed. The proposed acceleration of filing deadlines represents a 33% reduction in the amount of time provided to file quarterly and annual reports. This across-the-board reduction is too extreme in our opinion, and implies a tremendous level of inefficiency in the existing processes used by companies and their auditors to generate, review and report this information. We do not believe this inefficiency is present, and as a result, this proposed rule will directly result in companies having to employ more estimates and assumptions in the processes used to close the books and develop the MD&A, particularly for quarterly filings on Form 10-Q. The proposed rule will also reduce the amount of time companies, their auditors, audit committees, and boards of directors have to review and evaluate the results of the period, thereby reducing the reliability and meaningfulness of financial reports, and the effectiveness of the oversight of the financial reporting process.
- While the existing reporting deadlines have remained unchanged for over 30 years, and technological advances have increased the efficiency in most companies' financial reporting processes, the sheer volume of new accounting regulations over the intervening period, the globalization of most businesses, and the significantly increased complexity of business transactions, have more than offset these technological advances. In fact, since 1991, new accounting pronouncements and disclosure requirements have nearly doubled the size of the financial statements included in Crawford's annual report to shareholders.
Technological change has been necessary to respond to and keep pace with the proliferation of new, complex accounting regulations and the changing landscape of today's business world. For reporting companies as a group, these technology changes have not created a 'net' efficiency in the financial reporting process.
- It is common practice for companies to make earnings announcements prior to the filing of their required quarterly and annual reports to the SEC. However, this does not mean that the companies' auditors have performed the audits or reviews necessary to accurately file the complete financial statements including the MD&A and required footnotes.
A company's earnings press release typically consists of a condensed income statement, balance sheet and a brief announcement from the chief executive officer commenting on the significant events of the period then ended. These brief announcements in no way correlate to the complete filings required on Forms 10-Q and 10-K. In addition to the required MD&A, which is a significant, time-consuming document to produce, companies are faced with an ever-expanding number of footnotes and disclosures which must be included in their annual filings, and to a certain extent, in their quarterly filings.
The preparation of the MD&A and footnotes to the financial statements takes place well after the press release is issued and these items are subject to audit and review procedures before filing with the SEC. Crawford typically makes its earnings announcement during the third week following a quarter or year end. This allows our company a sufficient, but not an excessive, amount of time to close our books, prepare our basic financial statements and review our results with the external auditors and our audit committee. The proposed rule to require a Form 10-Q within an additional week to ten-day period would create a hardship that could only be satisfied by reducing the amount of time devoted to the preparation and review of the financial statements themselves.
If the proposal is adopted in its current form, we do not believe the proposed transition period is adequate. At a minimum, a one-year transition period after the date the Commission adopts any final rules should be provided to allow companies adequate time
to plan for complying with the change, implementing new processes and procedures and coordinating with their independent auditors.
Crawford believes that the current financial reporting environment is not generally inefficient and that the proposed rule would create a significant hardship for the majority of reporting companies, including Crawford. As an alternative, Crawford proposes two possible approaches for the SEC to consider: One, that the current reporting deadlines of 45 and 90 calendar days for Form 10-Q and Form 10-K filings, respectively, be reduced instead to 40 calendar days for Form 10-Q filings and to 80 calendar days for Form 10-K filings. Or two, that companies file their reports on Form 10-Q and 10-K within a reasonable amount of time after their earnings announcement date, but no later than the existing SEC reporting deadlines of 45 calendar days for Form 10-Q and 90 calendar days for Form 10-K.
We appreciate the opportunity to express our views and would be pleased to discuss our comments or answer any questions the staff may have at your convenience.
/s/ W. Bruce Swain
Crawford & Company
W. Bruce Swain
SVP - Controller