SEC Studying Quarterly Reports

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The public is being asked to comment on how the Securities and Exchange Commission can enhance, or at a minimum maintain, the investor protection attributes of quarterly reporting while reducing the associated administrative and other burdens on reporting companies. On December 19 the SEC issued a “Request for Comment on Earnings Releases and Quarterly Reports” [File No. 57-26-18], which has a 90-day comment period after the date it is published in the Federal Register. Specifically, the SEC is asking for comments on the nature and timing of the disclosures that companies are required to provide in their quarterly reports filed on Form 10-Q, including when the disclosure requirements overlap with disclosures the companies voluntarily provide as an earnings release furnished on Form 8-K. The Commission is also requesting comments on whether there should be flexibility as to the frequency of periodic reporting, and how the existing periodic reporting system, earnings releases and earnings guidance may affect corporate decision making.

While Canada, Hong Kong and Japan have quarterly reporting requirements similar to those in the U.S., the European Union and other jurisdictions have recently developed different requirements to address concerns about the frequency of reporting, the SEC notes. The Commission reports there was a 2017 study that found when the United Kingdom no longer required companies to quarterly report, there was no significant difference between the levels of corporate investment in the UK companies that stopped quarterly reporting and those that continued quarterly reporting.

Among the questions being posed by the SEC are:

•“What is the impact of the auditor review requirement of quarterly financial information on investors, companies, and other market participants?”
•“Do investors value the independent auditor review of quarterly financial information? Why or why not?”
•”Does the auditor review requirement have a relationship to the cost of capital for companies? If so, how?”
•”To what extent are auditors involved with earnings releases? Does such involvement or the auditor review of the quarterly financial statements contribute to any delay between publication of an earnings release and the filing of a Form 10-Q?”

SEC Chairman Jay Clayton stated: “We recognize the importance of this information to well-functioning and fair capital markets. We also recognize the need for companies and investors to play for the long term. Our rules should reflect these realities.”