There are also ways to shorten the back-end process. According to Alliant controller John Picek, his company uses the forecasting process to get an early start on the analysis of its filings. “We at least have a set of data so that we can start our 10-K and 10-Q drafting prior to the period end and get some preliminary drafts done,” he says. “And then when you do close the books, your actuals are inserted, [and] hopefully they’re not a whole lot different from what you estimated.”
Just Good Housekeeping?
Not surprisingly, accelerated filing doesn’t happen without cost. While none of the executives interviewed reported spending a great deal of money complying, there are costs nonetheless.
Most obvious are the upgrades to the IT systems necessary to speed the close and improve visibility. Naughton estimates that Zebra spent a total of $500,000 on its financial-management system. (Faster filing was an unanticipated benefit; the company actually bought the system to improve management reporting.) There is also the risk of overworking employees. “Companies will meet these new deadlines, but at what price? Burning people out and creating higher turnover,” says Joseph M. Orlando, partner in charge of KPMG’s CFO Advisory Services practice. All of which raises a basic question: What value do accelerated filings create for investors?
The answer appears to be that the rule will create fewer benefits than its drafters hoped. While the current deadlines are clearly too long to produce timely financial information, shortening them won’t help much. By the time financial statements are issued, investors have already read earnings releases and made decisions. “If there were a material event, we’re required to file an 8-K within four days anyway,” says Borok. “So this is really just crossing the T’s and good housekeeping.”
The real value of financial statements, says George Benston, a finance professor at Emory University’s Goizueta Business School, is that they are a more-thorough, audited version of the numbers. They allow investors to learn things about the company that they might not by relying on earnings releases. By this logic, if rushing the process leads to mistakes, then the rule may do more harm than good. “I don’t understand the point,” says Benston.
Still, a rule is a rule. Perhaps the best advice for finance executives is to treat the requirements as an excuse to clean up their processes. “You should be looking for opportunities to improve your management reporting, your analytical capabilities, and your ability to be more responsive to your internal customers,” argues CapAdvisory’s Linn. For example, a company might consider switching to Web-based reporting, which helps make performance data available to managers daily. When done correctly, such changes can help make a company more nimble and allow its managers to make wiser decisions.
And for investors, that change could be the greatest value of all.
Don Durfee is research editor at CFO.
|Speed It Up
How SEC filing dates have changed.
|Fiscal years ending on or after…||Form 10-K deadline*||Form 10-Q deadline*|
|December 15, 2002||90 days||45 days|
|December 15, 2003||75 days||45 days|
|December 15, 2004||60 days||40 days|
|December 15, 2005||60 days||35 days|
|*Days after fiscal year end.
Source: Securities and Exchange Commission