M E M O R A N D U M

TO:	Rule-Comments
FROM:	Andrew Thorpe
DATE:	June 24, 2002
RE:	Release Nos. 33-8098; 34-45907; International Series Release No. 1258 File No. S7-16-02

On June 6, 2002, Robert Herdman of the Office of the Chief Accountant and other members of the Office of the Chief Accountant and the Division of Corporation Finance staff met with representatives of the Financial Executives International (FEI) about, among other topics, the proposed disclosure in Management's Discussion and Analysis (MD&A) about companies' critical accounting estimates and the initial adoption of material accounting policies. During the meeting, FEI members indicated that the proposals has been discussed in two subcommittees, and the Committee on Corporate Reporting (CCR) had not yet discussed the proposals. The FEI's preliminary thoughts on the proposals are as follows:

The proposals would require excessive information that is not useful to investors;

Providing information on accounting alternatives that management did not use is not useful information;

As currently proposed, it is not clear whether the number critical accounting estimates disclosed would be limited in number for a company with multiple segments. Providing a maximum limit of five estimates would be beneficial;

Without a bright line test, it would be difficult to decide what accounting estimates would be material. SAB 99 adds to the confusion;

More general disclosure of how management arrived at its accounting estimates would be a preferable focus for the rulemaking;

With regard to the sensitivity analysis, the alternative methods of quantification are not practicable. Some accounting estimates may have 8-10 underlying assumptions that may offset each other in choosing reasonably possible near-term changes. The alternative of using the high end and low end of the range of estimates may not be a useful alternative because some companies do not use ranges in preparing their financial statements.

There is concern that the disclosure of litigation accruals and tax accruals could have competitively harmful effects. Perhaps it would be better for companies to discuss the rationale for why they chose the assumptions that they used.