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Multiple Filing Deadlines: No Way To Reduce Complexity

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Posted by: Jack Ciesielski	12/15/2005 8:13 AM
Back in 2001,under then-Chairman Harvey Pitt, the SEC embarked on a mission to make firms file their financial statements and current events 8-K filings on a greatly accelerated basis. The 90 days allowed for 10-Ks and 45 days allowed for 10-Qs had been in place since the early 1970's, long before cheap computing power and software speeded up the financial reporting process. In view of progress, it didn't seem unreasonable to ask companies to hurry up and get their annual report done in 60 days and quarterlies in 35, on a phased-in basis. That was then, this is now. Plenty of water has gone over that dam: the evaporation of Enron and Arthur Andersen, the passing of the Sarbanes-Oxley Act and the first full season of Section 404 reviews for companies of any size. Companies have lobbied for relief as the phase-in timetable unfolded, and there were carve-outs for companies that weren't accelerated filers - meaning they were given clemency if their public float was less than $75 million. Last fall, in light of Section 404 demands, a year's breather was given to all companies. The final phase of the shorter deadlines would have arrived in the upcoming reporting season. Last September, the SEC softened the deadlines once again, offering for comment a revised schedule and serving up another category of filers: "large accelerated filers." These are companies with over $700 million of public float. Instead of the filing dates being the same for all public companies, there are now different filing dates for non-accelerated filers (companies with less than $75 million in public float); accelerated filers (between $75 and $700 million in float); and large accelerated filers (over $700 million in float). Yesterday, the Commission approved the new deadlines. Here's a rundown on what's effective in the upcoming season and beyond: Large accelerated filers will be subject to a 60-day Form 10-K annual report deadline starting in fiscal years ending on or after Dec. 15, 2006, and to a 75-day deadline until then; Large accelerated filers will be subject to a 40-day Form 10-Q quarterly report deadline; The now-redefined accelerated filers will be subject to a 75-day Form 10-K annual report deadline; and The now-redefined accelerated filers will be subject to a 40-day Form 10-Q quarterly report deadline. Non-accelerated filers (the really little firms) will continue to file their annual reports on Form 10-K or 10-KSB (Small Business) under the original 90-day deadline and quarterly reports on Form 10-Q or 10-QSB under the original 45-day deadline. Also, Form 20-F or Form 40-F filing deadlines for private issuers will not change. Last week, Chairman Cox gave a speech in which he encouraged the accounting profession to reduce the complexity that's crept into the financial reporting system. The proposal approved by the Commission yesterday were riding on rails built long before Cox came on board; if he's trying to mend a tempestuous Commission, derailing the proposals wouldn't serve him well. It's hard not to observe the contradiction, however: one day the SEC is grousing about complexity in financial reporting, then a week later, it adds more complexity by balkanizing something as simple as when a company is going to file its financial statements. Giving exceptions and exemptions whenever a group asks for them only adds complexity to the system. What the SEC should have done is look at its original idea for reducing the filing times and figured out why it isn't a good idea now (it still is), instead of layering in complexity by cutting small firms an exemption. Being a publicly-traded firm used to carry with it a sort of swagger that the firm was good enough to meet tough reporting requirements. Creating an incubator for small firms isn't going to serve investors well - and once the journey down that path has begun, it'll be hard to stop.

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