SEC weighs semiannual reporting, easing quarterly burden, aligning with global markets and potentially boosting IPO appeal for smaller US companies.
Financial reporting for US companies may soon be in step with the rest of the world as the US Securities and Exchange Commission (SEC) is expected to propose a rule change that would permit semiannual earnings reporting.
The rule proposal may come as early as this month, according to the Wall Street Journal. After a 30-day comment period, the market regulator is likely to vote to approve the rule change, as President Donald Trump and SEC Chairman Paul Atkins have each said they want to fast-track the process.
The greatest benefit of such a move would be to free companies from having to manage to a quarterly deadline rather than work to longer-term strategic investment targets, such as in research and development.
Other jurisdictions appear to be getting the same memo. Three days after the Wall Street Journal report appeared, the Canadian Securities Administrators (CSA) adopted a pilot project that allows eligible venture issuers listed on the TSX Venture Exchange and the CNSX markets to voluntarily adopt a semiannual financial reporting framework for the second and fourth quarters.
The SEC proposal “is certainly targeted to the smaller caps right now, but there is a push for it to go bigger,” says Christine Short, head of research at corporate event data analysis provider Wall Street Horizon. The Long-Term Stock Exchange noted in its petition last September to change the reporting rule that quarterly filing expenses can deter small companies from going public.
“In a 2019 letter to the SEC, a public company CFO estimated the cost of 10-Q compliance for her firm as more than 1,000 hours and $100,000 per quarter,” the petition’s authors noted. “If such amounts are significant for a company with over $1 billion in market capitalization, they can obviously be decision-changing for smaller companies.”
A secondary benefit, says Short, would be reporting harmonization, “which would simplify operations for multinational corporations and make US and Canadian exchanges maybe more attractive to foreign issuers.” Currently, most listed companies in the EU and the UK report semiannually, while in Japan, they report quarterly. India requires quarterly filings, as do China’s Shanghai and Shenzhen stock exchanges.
