Comments of Grant Thornton on S7-08-02

Grant Thornton

Accountants and
Management Consultants
Grant Thornton LLP
The US Member Firm of
Grant Thornton International

May 23, 2002

VIA ELECTRONIC MAIL

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

File No. S7-08-02; SEC Release Nos. 33-8089 and 34-45741
Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website
Access to Reports

Dear Mr. Katz:

Grant Thornton LLP appreciates the opportunity to comment on the Securities and Exchange Commission's proposed rule, Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports as presented in Release Nos. 33-8089 and 34-45741.

We commend the SEC on its initiative to improve the delivery of information to investors and the capital markets. However, we do not believe that the proposed accelerated filer approach will result in sufficiently reliable information, even though more timely. We anticipate the shorter periods will present significant difficulties for many of the middle-market companies we audit, as it strains the resources of registrants as well as their advisers.

We have limited our comments to certain specific issues that we have chosen to address. As discussed more fully in our specific comments, we believe that the acceleration of periodic report filing dates should be linked to a company's release of earnings, as opposed to the size of its public float. We believe that our suggested approach is inherently consistent with accepted concepts of securities regulation, while at the same time affording companies with much-needed flexibility to balance the increasing demands they face every day.

Specific Comments

A. Acceleration of Quarterly and Annual Report Due Dates

The Release seeks comment on accelerating the due dates for periodic reports. The Form 10-K would be due in 60 days and the Form 10-Q in 30 days. This would apply only for companies defined as "accelerated filers":

with a public float of $75 million or more as of a date within no more than 60 and no less than 30 days before the end of the company's last fiscal year

that have been subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act for a period of at least 12 calendar months preceding the filing of the report; and

that have filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act.

We note that the Commission has proposed to define accelerated filers based on a public float of $75 million. We believe that threshold is too low. Moreover, we believe that any threshold selected would be problematic, either in being so high as to not move forward the goal of real-time reporting, or being too low, causing an unnecessary regulatory burden, particularly on smaller registrants. We believe that, in this case, selecting what necessarily is a somewhat arbitrary threshold is not the most effective means to determine which registrants should be subject to additional regulation.

Using a public float threshold takes away an element of choice on the part of registrants. Because there are so many factors that impact a stock's price, to a greater or lesser degree its public float is not within the control of a company. Market price can be volatile, and short term spikes in capitalization unrelated to any action by the company can and do occur. The executive struggling to explain why her company's stock price suddenly shot up would have to address a new issue - accelerated filing deadlines. Thus a company could find itself burdened with additional regulation through no fault of its own, without sufficient warning and perhaps even without sufficient resources to effect compliance. If management does not then divert resources from other priorities, they risk non-compliance. Falling out of compliance then adversely impacts the company's ability to obtain additional resources. To the extent the economy is presently at a low point and market prices depressed, upon recovery there will likely be more companies that cross the $75 million threshold. We are concerned that many presently are unprepared to meet the demands of the accelerated filing rules.

We advocate determination of accelerated filer status through a self-selection process. If a registrant desires to provide financial information to the public in advance of existing guidelines, they would at that point become subject to accelerated filing requirements. Registrants would be required to file their periodic reports by the earlier of the current report filing deadlines or a set period after their first release of earnings information for that period. As an example, the requirement could be that Form 10-K must be filed no later than 15 days after the release of year-end earnings or 90 days after year-end, and Form 10-Q be filed no later than 5 days after the release of quarterly earnings or 45 days after period end. We think there are several advantages to this alternative.

First, it would advance the Commission's goal of real-time reporting in a manner that is consistent with established principles of disclosure-based securities regulation. Regulations have evolved to address the issue of the appropriateness of the information provided by companies to the public. Generally, sufficient protections exist where regulated information is provided in close proximity to the unregulated information. As a recent example, the staff has addressed the issue of the appropriateness of financial information included in a press release, which is largely unregulated. In that case, the measures selected for reporting in a press release are acceptable provided they are reconciled to GAAP results.

Second, the self-selection process would provide flexibility. Management has the choice to determine how best to allocate the company's resources. Some companies have made early financial reporting a priority, as shown by their current willingness to provide information ahead of regulatory deadlines. They would be best suited to comply with an accelerated filing requirement. Less ready to comply are fast growing, entrepreneurial companies struggling to balance available resources against multiple demands. Adding to their regulatory burden would hinder entrepreneurial companies' ability to realize their other priorities. Also, there is flexibility for unforeseen circumstances. In those circumstances where there are temporary shortages of resources, unusual volume of complex transactions, or other adverse factors, registrants would not fall out of compliance with accelerated filing rules as a result of temporary difficulties. This provides a relief mechanism to accommodate the inevitable difficulties that arise.

Third, it would put less of a strain on the mechanisms for ensuring reliability of the information registrants provide to the public. The nature of transactions has become ever increasingly complex. To address that, accounting standards, among others, have had to also become increasingly complex, voluminous, and frequent. The registrant's accounting personnel need additional time to understand complex transactions and how to account for them. Similarly, the auditors, in performing quarterly reviews as well as year-end audits, need sufficient time to properly vet management's reporting. Audit committee members and board members will need more time to fulfill their review and due diligence functions. Counsel and others need time for their oversight. Limited resources at the registrant or at their accountants or other advisers would exacerbate these difficulties, making the need for a more flexible solution even more important.

Accelerated filing could hinder globalization efforts. Many companies have affiliates and subsidiaries in foreign countries. Additional time is required for parent companies to obtain the required information for preparation of the US consolidated financial statements. Given the different timeframes established for reporting in other countries, overseas personnel may not as readily shift their attitudes to accommodate a shortened reporting deadline. We are pleased that the staff has expressed support for globalization of companies, and globalization of accounting standards, but we are concerned that accelerated filing could hinder progress toward that objective.

Adopting an approach based on the timing of the earnings release would require an adjustment of the priorities on the part of the Commission. In the first place, there will be a pressing need for dialogue regarding the details that surround the notion of the "earnings release"; in particular, what information constitutes or does not constitute a release. Also, whether the earnings release should be included in an 8-K filing, and whether there are legal or other consequences surrounding that, would need to be considered.

Similarly, in keeping with the goal of requiring information to be provided more timely, we believe the staff should consider focusing on determining what information has the greatest relevance to the investing public, and whether that information should be filed as it becomes available. Rather than accepting the long standing categorization where the greater part of the information is provided only periodically, perhaps it is time to rethink whether some of that information has greater relevance today, which would justify requiring its inclusion in an updating filing, rather than only at specified intervals. We see the Form 8-K as the natural starting ground for such a reengineering. To the extent efforts in this direction have already begun, we applaud and support that decision.

B. Website Access to Information

The Release seeks comment on the proposed requirement for a company subject to the accelerated filing deadlines to disclose in its annual report on Form 10-K where investors can obtain timely access to company filings, including whether the company provides access to its reports on Form 10-K, 10-Q and 8-K on its Internet website, free of charge, as soon as reasonably practicable, and in any event on the same day as, these reports are electronically filed with or furnished to the SEC.

We agree that investors need to have timely access to corporate information to make informed investment and voting decisions. We think it is reasonable for registrants who have a web site to post their filings on it and to indicate this in their Form 10-K. For those who do not have a website, the proposed disclosure requirements seem reasonable as well.

We would be pleased to discuss any of our comments with the SEC or its staff. Please direct your questions to Gary Illiano (212) 542-9830.

Very truly yours,

/s/ Grant Thornton LLP