Dive Brief:

• The Securities and Exchange Commission on Tuesday released a formal proposal that would make quarterly financial reports optional, allowing public companies to choose instead to file semiannual reports on a new Form 10-S instead of quarterly reports or 10-Q filings
• The proposal, which would amend Regulation S-X that governs financial statement requirements, will be published in the Federal Register after which the public comment period will remain open for 60 days, according to the release.  
• SEC Chairman Paul Atkins said the initiative was part of his “Make IPOs Great Again” agenda aimed at reshaping rules governing public companies in order to encourage them to go and stay public by reducing the “rigidity” of the SEC’s rules. “Over the next few months, I expect that the Commission will be considering a series of proposals that, if adopted, will not only redefine what it means to be a public company, but will make being public attractive again,” Atkins said in a statement. 

Dive Insight:

The move comes about eight months after President Donald Trump doubled down on a push he made in his first term to allow public companies to ditch quarter earnings reports and instead shift to reporting every six months. 

“This will save money, and allow managers to focus on properly running their companies,” Trump wrote in a September social media post. “Did you ever hear the statement that, ‘China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis???’ Not good!!!”  

If the commission ultimately adopts the plan, the shift would mark a major change to the compliance remit that CFOs of public companies have overseen for decades. Semiannual reporting goes back to about 1955, with today’s quarterly reporting being put in place about 15 years later, according to a statement Tuesday made by Commissioner Hester Peirce. 

Peirce also signaled that a more nuanced change should also be considered. While many companies find quarterly reporting “quite onerous,” Peirce suggested an approach focusing on “slimming down the Form 10-Q — instead of or in addition to making it optional — could be helpful.” During the public comment period, she asked for commenters to take up the question of whether the SEC should adjust the reporting burden of what is required rather than adjust the cadence. 

The reaction to the SEC’s long anticipated proposal was varied. Some experts echoed Peirce’s suggestion that the requirements themselves, rather than the timing, might be worth addressing. 

An approach of “mending not ending” the current quarterly financial reporting cadence is what some CFOs would likely lean toward, Jack McCullough, founder and president of the CFO Leadership Council, told sister publication CFO Dive. 

“I think most of them actually kind of liked quarterly reporting, it was just a great way to communicate important information to your investors,” McCullough said, noting that the discipline of the structure around earnings reports is something that many CFOs are comfortable with. “I didn’t sense there was any real unhappiness with the previous system.” 

Nick Araco Jr., CEO of the CFO Alliance, said he’s hearing from more CFOs who want “cleaner signals” on what the SEC expects from their reporting rather than calls for less frequent reporting.    

“There’s also a real concern that reducing formal reporting could create a false sense of breathing room,” Araco said in an emailed response to questions. “In practice, many CFOs expect the pressure to shift inward — more reliance on internal reporting rhythms, more scrutiny from boards, and more responsibility on finance to surface issues proactively without the forcing function of a quarterly cycle.” 

Francine McKenna, an adjunct professor at Montclair State University in New Jersey and author of the substack accounting newsletter “The Dig,” said she was strongly opposed to the proposal, calling it a misguided attempt that addresses the quantity rather than the quality issue that is already affecting financial reporting.

Many companies put out financial reports with non-standard non-GAAP numbers in earnings releases and conference calls, and the less frequent filings will mean investors will need to wait longer to get more clarity on what is going on at a given company.

“The emphasis on alternative and non-GAAP metrics is only going to increase,” McKenna said in an interview. 

The SEC estimated in its proposed rule that on average issuers who opt to provide semiannual reports rather than quarterly filings could see a net reduction in direct compliance costs of about $198,000 per fiscal year. 

On the other side of the cost and benefit analysis, accountants and lawyers would likely lose a chunk of business should the proposal go through, according to Neil Bass, a managing member of the Bass Tax Group based in Coral Springs, Florida. Bass said he would be interested to see if the accounting industry or investors push back on the plan. He nontheless expects it to move forward despite the potentially higher risk that the reduced scrutiny could lead to more accounting scandals like Enron.  

“Memory is short-term,” Bass said. “Enron was in 2001 and people forget.”