WARREN J. CASEY
DIRECT DIAL NUMBER
|PITNEY, HARDIN, KIPP & SZUCH LLP
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May 21, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
|Re:||File No.: S7-08-02; Comments on Proposed SEC Rule regarding Acceleration|
of Periodic Reporting
Dear Mr. Katz:
We are submitting this comment letter in response to the Securities and Exchange Commission Release dated April 12, 2002, regarding the proposal to accelerate periodic report filing due dates. This letter is submitted on behalf of this firm and more than 12 public companies that we represent and with whom we have discussed the Release.
The Release proposes to shorten the deadlines for filing Form 10-K and Form 10-Q for public companies having a public float of $75 million or more. As proposed, Form 10-K would be due 60 days after the end of a reporting company's fiscal year and Form 10-Q would be due 30 days after the end of a reporting company's fiscal quarter.
We strongly urge the SEC to reject these proposed deadlines for the reasons provided below.
Acceleration of these filing deadlines would create a multitude of problems for public companies and add considerably to the cost of producing these reports while providing minimal benefits to investors who rely on complete and accurate reports. In fact, the proposed rule changes could potentially lead to the exact opposite of the SEC's goal of providing accurate and complete reports.
The Release states that advances in communications and information technology have made it easier for companies to process and disseminate information. While these advances have allowed companies to disseminate broadly and timely financial and other information about a company's operations and business, companies must still undertake the time-consuming process of compiling financial information on a quarterly and annual basis. Preparation of periodic reports involves a large staff and considerable time within each reporting company. Finance and accounting departments must compile, review and confirm financial data and produce preliminary drafts of the financial reports. Executive management must review and comment on the company's financial disclosure. The audit committee (and, in some instances, the entire board of directors) then must be given adequate time to review the financial information.
This financial reporting process is repeated four times each year, with the most comprehensive financial review and reporting process occurring at the end of a company's fiscal year. In addition to the increased disclosure requirements that accompany the preparation of a company's annual financial documents, each company's financial staff and executive management generally is also devoting significant attention and time to all other year-end and beginning-year financial and business matters, including budgeting and financial planning for the new fiscal year.
In addition, since January 2000, the SEC has required a company's independent auditors to review the financial information included in a company's quarterly report on Form 10-Q prior to the company filing such report with the SEC. The participation of auditors in the financial reporting process at interim dates adds to the reliability and quality of quarterly financial statements. However, this additional level of outside auditor involvement with interim reports requires additional time and auditors must be afforded sufficient time to satisfy their obligations.
As the Release points out, generally all public companies announce quarterly and annual financial results prior to filing periodic reports with the SEC. In doing so, the Release suggests that if reporting companies can issue earnings announcements prior to the current SEC filing deadlines, then they should also be able to complete their more comprehensive periodic reports on an accelerated basis. Earnings announcements are less comprehensive and are designed to transmit valuable and the most anticipated financial information to investors, the market and the general public. Companies and independent auditors are still afforded the necessary time to prepare and verify the more extensive disclosures required in periodic reports, without sacrificing accuracy or completeness. The end result for the public is a reliable and thorough periodic reporting system. Reducing the period of time provided to companies to complete these periodic reports only undermines these objectives.
Further, the financial statements, notes and related audits constitute only one component of the SEC's periodic disclosure obligations. For example, preparation of the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-K and Form 10-Q requires more extensive corporate disclosure and requires an additional level of data compilation and review from a company's financial staff, executive management, members of the audit committee, the outside auditors and legal counsel. To ensure reliable disclosure, this process must not be shortened.
In addition, Regulation FD provides a mechanism to ensure that the public is promptly informed of material developments involving public companies. There is no current lack of timely public information concerning a company's financial results and operations. Rather, the message from Enron is that time should be spent on ensuring the accuracy and completeness of reports. Reducing by one-third the time periods for filing periodic reports does not and will not advance this goal. Acceleration of the due dates for periodic filings will only increase the opportunity for mistakes or omissions in corporate disclosure, while adding considerably to the cost for reporting.
These proposed rule changes focus on timing concerns rather than on the quality and reliability of disclosure. Quality, reliability and completeness can be expected to suffer should the current time periods be shortened. Neither public companies nor the investing public will benefit from the proposed acceleration of periodic reporting requirements.
Very truly yours,
/s/ Warren J. Casey
WARREN J. CASEY