The US Securities and Exchange Commission is considering a proposal that changes how public companies report their earnings. Currently, companies must disclose their earnings quarterly, but the new proposal could shift this frequency to twice a year.
Reports indicate that this proposal could be unveiled next month. Prior to finalizing the plan, the SEC has been engaging with major stock exchanges to discuss necessary adjustments to their listing requirements. Should this proposal move forward, it will enter into the SEC’s rulemaking process, which includes a public comment phase lasting a minimum of 30 days. After this period, the commission will decide whether to adopt the proposed changes, although approval is not guaranteed.
It is important to note that this proposal does not eliminate quarterly reporting altogether. Instead, it offers companies the choice to release their financial results every six months, if they wish to do so. This initiative follows a growing call for reducing burdensome reporting requirements, driven in part by the Long Term Stock Exchange's request to eliminate mandatory quarterly earnings reports. Shortly after this petition was initiated, prominent figures including President Donald Trump and SEC Chairman Paul Atkins expressed their support for the flexibility to report earnings semiannually.
Since 1970, quarterly earnings reports have been a fundamental aspect of the U.S. capital markets, introduced with the Form 10-Q requirement to provide steady updates on company performance to investors.
Proponents of this shift argue that reducing the frequency of earnings reports can alleviate short-term pressures faced by management. They contend that this change could also decrease compliance costs for organizations and possibly assist in reversing the decline of publicly listed companies in the U.S.
On the other hand, critics caution that moving to less frequent reporting might compromise transparency. They worry that important financial information could be delayed, impacting investors' ability to make informed decisions about corporate performance and associated risks.
Interestingly, the United States is one of the few regions still mandating quarterly earnings reporting. Countries in the European Union abolished their quarterly disclosure rule in 2013, and the UK followed suit shortly after. However, many businesses in these markets still voluntarily provide quarterly updates, illustrating a potential trend within global financial reporting practices.