SEC Semi-Annual Reporting Proposal: Public Comment Period Ends, What's Next?
The public comment period for the SEC's proposal to change listed companies from quarterly to semi-annual reporting recently concluded. According to tracking data maintained by Tzachi Zach, an accounting professor at Ohio State University, 99% of the over 36,000 comment letters were opposed. Daniel Brinks, a former senior SEC enforcement accountant and now a forensic accounting partner at StoneTurn, noted that the large volume of feedback creates a "massive administrative record" that could affect the SEC's decision-making pace; however, legally, the number of comments does not equal legal weight, and substantive analysis is key. This article outlines the next steps in the proposal's process, alternative suggestions from industry groups, and what CFOs should prepare at this stage.
For CFOs evaluating whether to adjust their reporting systems, the recent close of the SEC's public comment period on the semiannual report proposal has raised many questions about next steps and timelines.
The sheer volume of feedback letters surprised some SEC observers. According to tracking data maintained by Tzachi Zach, an accounting professor at Ohio State University, more than 36,000 letters expressed views on the matter, with 99% of feedback opposing the change. Professor Zach is analyzing this data.
The SEC declined to comment on its timeline for the proposal on Monday. According to Daniel Brinks, a former senior enforcement accountant at the SEC who is now a partner in forensic accounting at StoneTurn, under the Administrative Procedure Act, the SEC is obligated to consider and respond to significant comments received during the public comment period.
Brinks said the volume of feedback has created a "massive administrative record," which will affect how quickly the SEC can move forward with the proposal. He added that federal agencies would not want to push an unpopular proposal forward unless the administrative process is "rock solid."
"A thousand identical comments may not carry more legal weight than one detailed economic analysis," Brinks said in an email. "Volume gets the SEC's attention, but what the law requires the SEC to respond to is substance."
Editor's note: The following Q&A with Brinks was conducted earlier last week and has been edited for clarity and brevity.
CFO Dive: What is the SEC's timeline for moving forward on this matter?
Daniel Brinks:I have no inside information on that. Over the past two months, everyone has been looking at these comments, and it's clear they are overwhelmingly opposed. If the SEC decides, "We've reviewed these comments and will not proceed," that would be very easy—just vote it down and don't adopt it. But if they decide to move forward, that process will take a considerable amount of time.
CFO Dive: What are the next formal steps?
Daniel Brinks:Typically, proposals are not voted on as-is. They have to consider all the comments received one by one and revise based on those comments. That work will be done behind closed doors. Eventually, when an adoption release is issued, they will make their decisions public and explain why certain changes were made.
CFO Dive: In the comment letters, did you see any recurring requests for changes that might be adopted if the proposal moves forward?
Daniel Brinks:The Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA), two large industry groups, may carry more weight than others. Their comments are like, "We appreciate the Commission's efforts to reduce regulatory burden," but rather than changing from 10-Q to 10-S, they would prefer to simplify the complexity of the 10-Q overall... They support keeping the 10-Q but making it simpler. Regardless of the outcome, we will see more simplified financial statements within the next two years (before Atkins leaves). We will see more attempts to simplify financial reporting. I'm just not sure this is the right path to advance that proposal.
CFO Dive: What do CFOs need to know or do?
Daniel Brinks:For now, we are still in a wait-and-see mode. I don't think CFOs need to do anything to prepare for this standard at this point, but I would advise them to closely monitor whether the SEC makes revisions.