Key Points

  • The U.S. Securities and Exchange Commission (SEC) on Tuesday issued a formal proposal tomake quarterly financial reporting optional, allowing public companies to choose to file semiannual reports using the new Form 10-S instead of quarterly reports or Form 10-Q filings.
  • The proposal would amend theRegulation S-X, which governs financial statement requirements, according to an SEC release Tuesday. The proposal will be published in the Federal Register, after which a 60-day public comment period will open.
  • SEC Chair Paul S. Atkins said the move is part of his"Make IPOs Great Again"agenda, aimed at reshaping the rules governing public companies by reducing the "rigidity" of SEC rules to encourage companies to go public and stay public. "In the coming months, I expect the Commission to consider a series of proposals that, if adopted, would not only redefine what it means to be a public company but also make being public attractive again," Atkins said in a statement.

Deep Dive

The move comes about eight months after President Donald Trump pushed during his first term to allow public companies toabandon quarterly earnings reportsand instead report every six months.

"This will save money and allow managers to focus on running the company properly. Have you ever heard the saying: 'China has a 50 to 100-year vision for corporate management, while we run companies quarter by quarter??? This is not good!!!'" Trump wrote in a social media post last September.

If the Commission ultimately adopts the plan, the shift would mark a significant change in the scope of compliance that CFOs of public companies have been responsible for over decades. According to a statement Tuesday from Commissioner Hester M. Peirce, semiannual reporting dates back to around 1955, while today's quarterly reporting was implemented about 15 years later.

Peirce also hinted thatmore nuanced adjustmentsshould be considered. While many companies find quarterly reporting "quite burdensome," Peirce suggested that focusing on "streamlining the Form 10-Q—rather than or in addition to making it optional—might be helpful." During the public comment period, she called on commenters to consider whether the SEC should adjust the content requirements of reports rather than the frequency of reporting.

Reactions to the SEC's long-awaited proposal are mixed. Some experts echoed Peirce's suggestion, arguing that perhaps the requirements themselves, rather than the timing, should be addressed.

Jack McCullough, founder and president of the CFO Leadership Council, told CFO Dive that some CFOs may prefer a "fix rather than end" approach to the current quarterly financial reporting cadence.

"I think most of them actually kind of like quarterly reporting; it's a good way to communicate important information to investors," McCullough said, noting that the structural discipline around earnings reports is something many CFOs have adapted to. "I don't sense any real dissatisfaction with the previous system."

Nick Araco Jr., CEO of the CFO Alliance, said he has heard more CFOs wanting "clearer signals" from the SEC on its reporting requirements rather than a reduction in reporting frequency.

"There is also genuine concern that reducing formal reporting could create a false sense of breathing room," Araco said in an email response. "In reality, many CFOs anticipate that pressure will shift inward—more reliance on internal reporting cadences, more scrutiny from boards, and finance departments having to proactively identify issues and take on more responsibility in the absence of the forcing mechanism of the 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 strongly opposes the proposal, calling it a misguided attempt that addresses quantity rather than the quality issues already affecting financial reporting.

Many companies report financial results using non-standard non-GAAP metrics in earnings releases and calls, and a lower reporting frequency means investors would have to wait longer for a clearer picture of a company's condition.

"The emphasis on alternative metrics and non-GAAP measures will only increase," McKenna said in an interview.

The SEC estimated in its proposed rule that issuers choosing to provide semiannual reports instead of quarterly filings could reduce direct compliance costs by an average of about $198,000 per fiscal year.

On the other end of the cost-benefit analysis, Neil Bass, managing member of Bass Tax Group in Coral Springs, Florida, said accountants and lawyers could lose some business if the proposal passes. Bass said he is interested in observing whether the accounting industry or investors will oppose the plan. Nevertheless, he expects the plan to move forward, although reduced regulation could increase the risk of more accounting scandals like Enron.

"Memories are short," Bass said. "Enron happened in 2001, and people have already forgotten."