Making quarterly earnings experiences non-compulsory sounds easy — till you learn the effective print. CCI editorial director Jennifer L. Gaskin breaks down what specialists are saying concerning the SEC’s precise proposal, why some practitioners are skeptical the change will save firms as a lot as marketed and what company leaders want to contemplate.
In a transfer that had been anticipated for a number of weeks, the SEC on Tuesday formally issued a proposed rule that may permit public firms to file earnings experiences twice a 12 months reasonably than quarterly, probably the most important shift in US disclosure necessities for public firms since 1970.
The proposal, which the fee stated cleared White Home overview final week, would make quarterly reporting voluntary for home public firms that at present file Kind 10-Q. A 60-day-public remark is predicted to open after the rule is printed within the federal register, which suggests last approval, if it comes, could be months away.
Jay Dubow, a companion and co-lead of Troutman Pepper Locke’s securities investigations and enforcement observe group and a former department chief of the SEC’s Enforcement Division, flagged one potential structural consequence of the voluntary strategy: a fragmented disclosure panorama.
“The non-compulsory nature of the proposal might end in some firms switching to semi-annual reporting whereas others preserve the quarterly format,” he stated. “Uncommon to have two totally different disclosure calendars.”
Supporters of the change argue that the quarterly earnings report cycle is expensive to firms and pushes administration to fixate on short-term outcomes on the expense of longer-term technique. In a Fortune op-ed printed shortly after the proposed rule was introduced by the SEC, Morningstar CEO Kunal Kapoor steered the established order — quarterly reporting — is a barrier to public-markets participation.
“The price of doing all this 4 occasions per 12 months as a substitute of twice is actual,” he wrote, “and it falls hardest on the smaller, youthful firms shaping the economic system’s future.”
Critics see issues in a different way, usually citing shareholder pursuits.
“Boards hearth CEOs when traders get mad, and that always occurs round quarterly filings and earnings calls,” Tyler Gellasch, a former SEC official who leads the institutional investor advocacy group Wholesome Markets Affiliation, advised Politico in March. “Decreasing the alternatives for that sort of accountability might sound good to executives, nevertheless it’s a nasty deal for many traders.”
What the proposal really does
Underneath the proposal, firms that select to report semiannually would choose in by checking a field on the quilt web page of their annual Kind 10-Ok, and that election would final for the next fiscal 12 months, that means firms would wish to re-select the choice yearly. Firms that don’t verify the field would proceed submitting quarterly experiences on Kind 10-Q, as they do at present.
Firms deciding on semiannual reporting would file their interim report on a brand new Kind 10-S, not the present Kind 10-Q. The fee isn’t proposing to lighten the content material necessities; Kind 10-S would require the identical narrative disclosures and monetary info as Kind 10-Q, simply overlaying a six-month interval reasonably than a single quarter. Meaning the identical impartial auditor overview, the identical Sarbanes-Oxley certifications from the CEO and CFO testifying to controls and disclosures, the identical authorized overview of MD&A and danger issue language and the identical audit committee involvement.
A lot else would stay the identical: Kind 8-Ok submitting obligations, Regulation FD necessities and earnings launch practices would all be unaffected. Firms switching to semiannual reporting would nonetheless be required to reveal materials occasions inside 4 enterprise days, and Regulation FD would proceed to manipulate selective disclosure of fabric personal info.
The fee additionally proposes to simplify the “age of monetary statements” guidelines governing registration statements, a change Troy Tougher, a company and securities companion at Bracewell, known as a welcome shock. The prevailing guidelines, he stated, are “notoriously complicated.”
The timing of the annual election creates a possible unintended consequence, stated Barry Fischer, a companion at Thompson Coburn: As a result of the Kind 10-Ok might be filed as few as 40 days earlier than the primary quarterly report could be due, an organization might theoretically elect semiannual reporting to keep away from disclosing poor first-quarter outcomes.
“If the market equates the election to vary to semiannual reporting with an try and keep away from disclosing dangerous monetary information,” Fischer stated, “the issuer’s inventory value is prone to decline on the making of the election, which might dis-incent firms from making the election.”
The US had a semiannual interim reporting system from 1955 to 1970, when the SEC required firms to file on a Kind 9-Ok. That type was extra restricted than the fashionable Kind 10-Q, capturing fundamental revenue assertion objects however not requiring a stability sheet, assertion of money flows or narrative disclosures. The present proposal’s Kind 10-S could be substantively extra strong than its historic predecessor.
Internationally, the EU and UK each tried quarterly reporting necessities earlier than shifting to semiannual techniques — the EU from 2004-13 and the UK from 2007-14. The UK expertise is maybe probably the most instructive predictor of what US firms might select to do within the close to time period if the rule change turns into official. When quarterly reporting turned non-compulsory there in 2014, a examine discovered that fewer than one in 10 UK firms stopped issuing quarterly experiences by the tip of the next 12 months.
Who is that this actually for?
The SEC’s proposed rule is out there to all home public firms that at present file Kind 10-Q, however the fee’s launch singles out rising progress firms and smaller reporting firms by title, suggesting the rule’s sensible enchantment could also be narrower than its formal scope.
Rising firms with out a lengthy reporting historical past will face fewer exterior pressures to retain quarterly reporting, and traders have fewer issues concerning the monetary efficiency of firms not but turning a revenue, making these firms pure early adopters, Fischer stated. Tougher agreed that prices are comparatively larger for smaller firms and the transition simpler for these with out a longtime quarterly reporting historical past.
Bigger firms might elect semiannual reporting as effectively, each Tougher and Dubow famous. For smaller filers particularly, Dubow flagged a danger that cuts towards the cost-savings argument: firms with much less rigorous management environments might discover that issues develop bigger earlier than they floor than could be the case underneath a quarterly submitting schedule.
The burden of quarterly reporting isn’t primarily in gathering monetary knowledge; most firms are already doing that repeatedly, more and more with the assistance of automated and AI-assisted instruments. The fee is within the formal compliance course of that attaches to every submitting: impartial auditor critiques, SOX certifications, authorized overview of disclosures, disclosure committee conferences and board sign-off. Chopping from three Kind 10-Qs to at least one Kind 10-S eliminates two full cycles of that course of.
But when firms are nonetheless anticipated to difficulty quarterly earnings releases to fulfill investor expectations, and if lenders require quarterly financials underneath credit score agreements, they might discover themselves doing a lot of the substantive work anyway — with out the SEC submitting hooked up.
“If firms are anticipated to proceed to report earnings on a quarterly foundation and to have their exterior accountants overview their quarterly monetary statements, how a lot would they actually save?” Tougher stated.
The overseas personal issuer angle provides one other potential class of early adopters that has obtained little consideration within the broader debate, stated Leland Benton, a companion at Morgan Lewis and former SEC lawyer. Firms that at present maintain overseas personal issuer (FPI) standing will not be topic to quarterly reporting necessities, and if the SEC’s 2025 idea launch on revising the FPI definition leads to a few of these firms shedding that standing, they might discover semiannual reporting a pretty center floor, a method to adjust to home reporting necessities with out taking over the total quarterly cadence, reasonably than deregistering their securities and exiting the SEC’s reporting regime totally.
The shareholder query
The SEC’s place is that the present disclosure infrastructure — primarily Kind 8-Ok and Regulation FD — is powerful sufficient to fill the hole between semiannual experiences. Some practitioners who spoke to CCI will not be totally satisfied.
Firms routinely disclose info in quarterly filings that may not set off a compulsory 8-Ok — leaving a spot the 8-Ok framework doesn’t tackle, Dubow stated. Firms that elect semiannual reporting will even face extra frequent analyst inquiries, notably if friends proceed reporting quarterly, creating stress round Regulation FD’s selective disclosure guidelines.
“There actually isn’t any substitute for the availability of periodic monetary experiences that’s reviewed by exterior accountants,” stated Michele Kloeppel, a companion at Thompson Coburn, including that diminished formal disclosure might result in market hypothesis primarily based on inaccurate various indicators.
Analysis from the UK transition provides context: The identical examine that tracked what number of firms stopped quarterly reporting additionally discovered that necessary quarterly reporting had been related to elevated analyst protection and improved accuracy of analyst earnings forecasts, advantages that eroded for firms that switched.
What firms needs to be doing now
A last rule is probably going months away, however there’s work to do now.
Firms eager about semiannual reporting ought to first overview their financing agreements — credit score amenities, indentures and different debt devices — to find out whether or not they’re even permitted to cease reporting quarterly, Tougher stated. Many credit score agreements embrace monetary reporting covenants tied to the quarterly cadence, and switching with out addressing these covenants might create a technical default.
Firms also needs to be sounding out friends, giant shareholders and analysts earlier than committing to any change, Dubow stated. Buying and selling home windows will want consideration as effectively: Firms that tie permissible insider buying and selling durations to quarterly earnings bulletins might want to rethink how these home windows are structured underneath a semiannual calendar.
Firms ought to assess whether or not a swap to semiannual reporting is smart given their aggressive place, capital wants, governance prices and obligations to lenders and counterparties, and they need to get enter from their numerous stakeholders, Fischer stated.
The choice includes extra variables than potential value financial savings alone, Kloeppel stated: “Whether or not that change is smart for a corporation will rely on a bunch of things, together with investor pressures, peer elections, insider buying and selling concerns, potential value financial savings in monetary reporting, potential litigation publicity because of delayed disclosures of dangerous information and the influence on numerous public firm packages.”
Making quarterly earnings experiences non-compulsory sounds easy — till you learn the effective print. CCI editorial director Jennifer L. Gaskin breaks down what specialists are saying concerning the SEC’s precise proposal, why some practitioners are skeptical the change will save firms as a lot as marketed and what company leaders want to contemplate.
In a transfer that had been anticipated for a number of weeks, the SEC on Tuesday formally issued a proposed rule that may permit public firms to file earnings experiences twice a 12 months reasonably than quarterly, probably the most important shift in US disclosure necessities for public firms since 1970.
The proposal, which the fee stated cleared White Home overview final week, would make quarterly reporting voluntary for home public firms that at present file Kind 10-Q. A 60-day-public remark is predicted to open after the rule is printed within the federal register, which suggests last approval, if it comes, could be months away.
Jay Dubow, a companion and co-lead of Troutman Pepper Locke’s securities investigations and enforcement observe group and a former department chief of the SEC’s Enforcement Division, flagged one potential structural consequence of the voluntary strategy: a fragmented disclosure panorama.
“The non-compulsory nature of the proposal might end in some firms switching to semi-annual reporting whereas others preserve the quarterly format,” he stated. “Uncommon to have two totally different disclosure calendars.”
Supporters of the change argue that the quarterly earnings report cycle is expensive to firms and pushes administration to fixate on short-term outcomes on the expense of longer-term technique. In a Fortune op-ed printed shortly after the proposed rule was introduced by the SEC, Morningstar CEO Kunal Kapoor steered the established order — quarterly reporting — is a barrier to public-markets participation.
“The price of doing all this 4 occasions per 12 months as a substitute of twice is actual,” he wrote, “and it falls hardest on the smaller, youthful firms shaping the economic system’s future.”
Critics see issues in a different way, usually citing shareholder pursuits.
“Boards hearth CEOs when traders get mad, and that always occurs round quarterly filings and earnings calls,” Tyler Gellasch, a former SEC official who leads the institutional investor advocacy group Wholesome Markets Affiliation, advised Politico in March. “Decreasing the alternatives for that sort of accountability might sound good to executives, nevertheless it’s a nasty deal for many traders.”
What the proposal really does
Underneath the proposal, firms that select to report semiannually would choose in by checking a field on the quilt web page of their annual Kind 10-Ok, and that election would final for the next fiscal 12 months, that means firms would wish to re-select the choice yearly. Firms that don’t verify the field would proceed submitting quarterly experiences on Kind 10-Q, as they do at present.
Firms deciding on semiannual reporting would file their interim report on a brand new Kind 10-S, not the present Kind 10-Q. The fee isn’t proposing to lighten the content material necessities; Kind 10-S would require the identical narrative disclosures and monetary info as Kind 10-Q, simply overlaying a six-month interval reasonably than a single quarter. Meaning the identical impartial auditor overview, the identical Sarbanes-Oxley certifications from the CEO and CFO testifying to controls and disclosures, the identical authorized overview of MD&A and danger issue language and the identical audit committee involvement.
A lot else would stay the identical: Kind 8-Ok submitting obligations, Regulation FD necessities and earnings launch practices would all be unaffected. Firms switching to semiannual reporting would nonetheless be required to reveal materials occasions inside 4 enterprise days, and Regulation FD would proceed to manipulate selective disclosure of fabric personal info.
The fee additionally proposes to simplify the “age of monetary statements” guidelines governing registration statements, a change Troy Tougher, a company and securities companion at Bracewell, known as a welcome shock. The prevailing guidelines, he stated, are “notoriously complicated.”
The timing of the annual election creates a possible unintended consequence, stated Barry Fischer, a companion at Thompson Coburn: As a result of the Kind 10-Ok might be filed as few as 40 days earlier than the primary quarterly report could be due, an organization might theoretically elect semiannual reporting to keep away from disclosing poor first-quarter outcomes.
“If the market equates the election to vary to semiannual reporting with an try and keep away from disclosing dangerous monetary information,” Fischer stated, “the issuer’s inventory value is prone to decline on the making of the election, which might dis-incent firms from making the election.”
The US had a semiannual interim reporting system from 1955 to 1970, when the SEC required firms to file on a Kind 9-Ok. That type was extra restricted than the fashionable Kind 10-Q, capturing fundamental revenue assertion objects however not requiring a stability sheet, assertion of money flows or narrative disclosures. The present proposal’s Kind 10-S could be substantively extra strong than its historic predecessor.
Internationally, the EU and UK each tried quarterly reporting necessities earlier than shifting to semiannual techniques — the EU from 2004-13 and the UK from 2007-14. The UK expertise is maybe probably the most instructive predictor of what US firms might select to do within the close to time period if the rule change turns into official. When quarterly reporting turned non-compulsory there in 2014, a examine discovered that fewer than one in 10 UK firms stopped issuing quarterly experiences by the tip of the next 12 months.
Who is that this actually for?
The SEC’s proposed rule is out there to all home public firms that at present file Kind 10-Q, however the fee’s launch singles out rising progress firms and smaller reporting firms by title, suggesting the rule’s sensible enchantment could also be narrower than its formal scope.
Rising firms with out a lengthy reporting historical past will face fewer exterior pressures to retain quarterly reporting, and traders have fewer issues concerning the monetary efficiency of firms not but turning a revenue, making these firms pure early adopters, Fischer stated. Tougher agreed that prices are comparatively larger for smaller firms and the transition simpler for these with out a longtime quarterly reporting historical past.
Bigger firms might elect semiannual reporting as effectively, each Tougher and Dubow famous. For smaller filers particularly, Dubow flagged a danger that cuts towards the cost-savings argument: firms with much less rigorous management environments might discover that issues develop bigger earlier than they floor than could be the case underneath a quarterly submitting schedule.
The burden of quarterly reporting isn’t primarily in gathering monetary knowledge; most firms are already doing that repeatedly, more and more with the assistance of automated and AI-assisted instruments. The fee is within the formal compliance course of that attaches to every submitting: impartial auditor critiques, SOX certifications, authorized overview of disclosures, disclosure committee conferences and board sign-off. Chopping from three Kind 10-Qs to at least one Kind 10-S eliminates two full cycles of that course of.
But when firms are nonetheless anticipated to difficulty quarterly earnings releases to fulfill investor expectations, and if lenders require quarterly financials underneath credit score agreements, they might discover themselves doing a lot of the substantive work anyway — with out the SEC submitting hooked up.
“If firms are anticipated to proceed to report earnings on a quarterly foundation and to have their exterior accountants overview their quarterly monetary statements, how a lot would they actually save?” Tougher stated.
The overseas personal issuer angle provides one other potential class of early adopters that has obtained little consideration within the broader debate, stated Leland Benton, a companion at Morgan Lewis and former SEC lawyer. Firms that at present maintain overseas personal issuer (FPI) standing will not be topic to quarterly reporting necessities, and if the SEC’s 2025 idea launch on revising the FPI definition leads to a few of these firms shedding that standing, they might discover semiannual reporting a pretty center floor, a method to adjust to home reporting necessities with out taking over the total quarterly cadence, reasonably than deregistering their securities and exiting the SEC’s reporting regime totally.
The shareholder query
The SEC’s place is that the present disclosure infrastructure — primarily Kind 8-Ok and Regulation FD — is powerful sufficient to fill the hole between semiannual experiences. Some practitioners who spoke to CCI will not be totally satisfied.
Firms routinely disclose info in quarterly filings that may not set off a compulsory 8-Ok — leaving a spot the 8-Ok framework doesn’t tackle, Dubow stated. Firms that elect semiannual reporting will even face extra frequent analyst inquiries, notably if friends proceed reporting quarterly, creating stress round Regulation FD’s selective disclosure guidelines.
“There actually isn’t any substitute for the availability of periodic monetary experiences that’s reviewed by exterior accountants,” stated Michele Kloeppel, a companion at Thompson Coburn, including that diminished formal disclosure might result in market hypothesis primarily based on inaccurate various indicators.
Analysis from the UK transition provides context: The identical examine that tracked what number of firms stopped quarterly reporting additionally discovered that necessary quarterly reporting had been related to elevated analyst protection and improved accuracy of analyst earnings forecasts, advantages that eroded for firms that switched.
What firms needs to be doing now
A last rule is probably going months away, however there’s work to do now.
Firms eager about semiannual reporting ought to first overview their financing agreements — credit score amenities, indentures and different debt devices — to find out whether or not they’re even permitted to cease reporting quarterly, Tougher stated. Many credit score agreements embrace monetary reporting covenants tied to the quarterly cadence, and switching with out addressing these covenants might create a technical default.
Firms also needs to be sounding out friends, giant shareholders and analysts earlier than committing to any change, Dubow stated. Buying and selling home windows will want consideration as effectively: Firms that tie permissible insider buying and selling durations to quarterly earnings bulletins might want to rethink how these home windows are structured underneath a semiannual calendar.
Firms ought to assess whether or not a swap to semiannual reporting is smart given their aggressive place, capital wants, governance prices and obligations to lenders and counterparties, and they need to get enter from their numerous stakeholders, Fischer stated.
The choice includes extra variables than potential value financial savings alone, Kloeppel stated: “Whether or not that change is smart for a corporation will rely on a bunch of things, together with investor pressures, peer elections, insider buying and selling concerns, potential value financial savings in monetary reporting, potential litigation publicity because of delayed disclosures of dangerous information and the influence on numerous public firm packages.”
