July 19, 2002


Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: Disclosure in Management's Discussion and Analysis about the
Application of Critical Accounting Policies (File No. S7-16-02)
Release Nos. 33-8098; 34-45907

Dear Mr. Katz:

Thank you for the opportunity to comment on the proposed rules contained in the SEC staff's release on disclosures of critical accounting policies (the "MD&A release"). BellSouth Corporation is a Fortune 100 communications services company headquartered in Atlanta, GA, serving nearly 46 million customers in the United States and 14 other countries. With one of the largest shareholder bases in America, we have assets of $52 billion and employ approximately 88,000 individuals.

BellSouth believes that the guidance set out in the MD&A release, if adopted, generally will provide better disclosure of critical accounting estimates and their impact on the financial statements. However, we are concerned that some components of the proposed rules will introduce a level of complexity that will fail to achieve this goal.

BellSouth would like to encourage the Commission to consider reworking the requirements for MD&A as a whole, rather than adding additional requirements to the existing MD&A framework. Investors today are looking for simplified, understandable disclosure that provides transparency into a company's financial results and financial condition, and we believe that MD&A needs a fresh start to satisfy that need.

1. Disclosure of Alternative Accounting Policies. We do not believe that proposed disclosure regarding alternative accounting policies would provide sufficient benefit to investors to justify the cost. Companies should instead use their limited resources to provide clear and concise disclosure of the methods and estimates management has used in preparing the financial statements. Considering the current requirements for MD&A, additional "scenario analysis" would only add to the volume and complexity of disclosure and likely would cause further confusion to most readers. In addition, we think any additional complex disclosure requirements will negatively affect companies' ability to make timely, useful filings assuming the SEC adopts final rules shortening the filing deadlines for Forms 10-Q and 10-K.

2. Definitions/Examples. We believe the definition of critical accounting estimates is unclear - the examples suggest that the Staff is looking for disclosure of items that are clearly significant to the financial statements, rather than just those items that are "material" to the company. We found the examples included in the MD&A release to be helpful in clarifying what is meant by the terms "significant judgment" and "highly uncertain," which are otherwise vague. We urge the Staff to consider defining these terms more clearly, increasing the number of examples, and referencing the examples for definitional purposes earlier in the final rule.

You asked how many accounting estimates a company would typically identify as critical accounting estimates under the proposed definition. We believe the number of estimates will vary based on the nature of the industry, and the specific nature of a company's business and customers. Based on our preliminary review of our financial statements, we believe we would have one to three accounting estimates that potentially meet the criteria of a critical accounting estimate.

3. Disclosure of Initial Adoption of Accounting Policies. We believe the proposed disclosure about initial adoption of accounting policies would be duplicative of the information currently provided in the footnotes to the financial statements. Further, we are concerned that such additional disclosure could result in "information overload" that would detract from investors' understanding of actual results.

4. Disclosure of Critical Accounting Estimates. We do not believe that investors would benefit from disclosure of the procedures that management follows in selecting its critical accounting estimates. Issuers would likely state only that the accounting policies chosen by management were evaluated carefully and were found to be the most appropriate for the given company's operations and circumstances.

5. Comparison to Industry Norms. We believe requiring disclosure of either (a) discussions between the audit committee and senior management about the appropriateness of the accounting policies being used to the extent that any of a company's accounting policies diverge, to its knowledge, from the policies predominantly applied by other companies in its industry or (b) the impact of a company's choice among accounting methods under GAAP that are used in the company's industry would have limited usefulness. Such requirements assume that members of an industry are fully aware of the policies chosen by their peers. While we on occasion discuss accounting treatments with our peers, it is not a formal process, and we doubt that many industries today have formal contacts among their members to determine such information. Therefore, we do not believe that companies currently have the requisite detailed knowledge of their industry constituents to craft and provide a meaningful summary of any significant differences.

We further suggest that, if the Commission does elect to adopt this proposal, that there be a separate, delayed timeline to allow each company to evaluate its accounting policies in comparison to other members of its industry or industries and that you require only a qualitative discussion of management's reasoning for choosing policies which are different than its peers.

6. Disclosure of Audit Committee Involvement/Concerns. Although we believe that audit committees should be involved and informed on all matters of importance to the company, we do not believe that additional disclosure or regulation is necessary or appropriate concerning the role of the audit committee in discussing the critical accounting estimates and the related MD&A disclosure. We believe that periodic publication of the audit committee charter in the proxy statement, as currently required, provides the necessary disclosure concerning the role of the audit committee in general. We believe requiring this disclosure as proposed could discourage full and open discussions of these issues.

Further, we believe that amending Item 306 to require that the audit committee report disclose whether the audit committee has reviewed and discussed with senior management the development, selection and disclosure regarding critical accounting estimates is preferable to requiring a separate disclosure regarding critical accounting estimates. We suggest, however, that such a proposal not be limited to one section of the MD&A but incorporate the audit committee's review and discussion of the financial statements and MD&A as a whole.

If the Staff prefers to require separate disclosure concerning critical accounting estimates, then we believe that disclosure of unresolved concerns of the audit committee concerning the critical accounting estimates or the related MD&A disclosure should be required only if, after discussion with management auditors, an audit committee both (1) disagrees with management's treatment and (2) believes that the company's financial condition and results of operations are materially misstated as a result. We suggest that, if such a rule is adopted, the commission should be very specific in its guidelines, and avoid requiring disclosure of valid concerns if they involve only immaterial differences.

7. Examination by Auditors. We believe that the costs of requiring an auditor examination of the critical accounting estimates disclosure in the MD&A that meets the requirements of AT §701 would far outweigh the benefits. In our experience, engaging auditors to examine MD&A pursuant to AT §701 does not elicit any higher quality disclosure as compared to the current requirements that auditors consider only whether an MD&A is materially inconsistent with the financial statements. Further, the amount of time required by auditors to conduct such an examination could add significant time to the completion and filing of periodic reports, which may be difficult if SEC acts on its proposal to shorten the filing deadlines for Forms 10-Q and 10-K. To the extent that the Commission does decide to require such examinations, we do not believe that the inclusion of a standardized auditor's report will increase an investor's confidence in the accuracy and completeness of MD&A.

Under current practice, our external auditors review our MD&A as part of our obtaining their consent to incorporate their opinion into our 1933 Act and 1934 Act filings. Since the auditor's goal is to minimize their legal exposure, their review is structured to reasonably ensure that MD&A fairly portrays our results and is materially correct. Accordingly, the "comfort level" currently obtained by the auditors would be no greater than that obtained through a formal review.

* * * * *

In conclusion, we have carefully reviewed the proposed release. Based on our review and conversations with other companies and professionals, we believe that the intent of the proposed rules has great merit but that, to be truly effective, there must be more specific requirements to ensure that investors and markets can truly evaluate individual companies and industries as a whole. We have commented on the major conceptual issues that would affect BellSouth. Many aspects of the proposed release are worthy of further consideration but only in the guise of a framework that would provide consistency among reporting companies.

Respectfully submitted,

/s/ Ronald M. Dykes

Ronald M. Dykes
Chief Financial Officer