On December 18, 2018, the Securities and Exchange Commission published a request for comment on earnings releases and quarterly reports, available here. The request was issued the day before, and in place of, the SEC's previously scheduled open meeting to consider whether to issue such a request, as discussed here.
In April 2016, in connection with the SEC's concept release on the business and financial disclosure requirements of Regulation S-K, the SEC collected comments on the frequency of periodic reporting and the reporting process generally. More recently, the topic of quarterly reporting by public companies gained widespread attention when President Trump tweeted that he had asked the SEC to study the possibility of changing the reporting requirements for public companies from quarterly to semi-annual. Speaking at a Financial Executives International conference in November 2018, SEC Chairman Jay Clayton said that the SEC had been considering the matter even before the President brought up the idea in August.
The idea of moving from quarterly to semi-annual reporting is neither novel nor outrageous. In fact, both the European Union and United Kingdom have eliminated the requirement for quarterly reporting. Eliminating the requirement, however, does not automatically trigger change. For example, the U.K. eliminated the quarterly reporting requirement in 2014; yet as of 2017 less than 10% of U.K. companies made the switch to semi-annual reporting (as reported by MarketWatch). In a speech at the Bipartisan Policy Center in October 2018, Chairman Clayton said that the quarterly report is driven by investor demand, and he pointed out that even in countries that do not have a quarterly reporting requirement, companies will still produce the information. He also observed that while the quarterly report does play a role in driving short-term thinking, it is not the only factor. In addition, we note that, in light of requirements under the Securities Act of 1933 and the demands of underwriters and investors, quarterly reporting may continue to be essential for any company that wants to access the capital markets quickly. Therefore, even if the SEC decides to eliminate a requirement for quarterly reporting, the practice will likely continue but perhaps with only the substance that investors and reporting companies consider the most meaningful.
The purpose of the SEC's request for comment is to solicit public input on the nature, timing, format and frequency of periodic reporting. Specifically, the SEC is soliciting comment on the following items:
- How the SEC can reduce administrative and other burdens on reporting companies associated with quarterly reporting while maintaining or enhancing appropriate investor protection.
- The nature and timing of the Form 10-Q disclosure requirements, including when the disclosure requirements overlap with disclosures companies voluntarily provide to the public in the form of an earnings release furnished on Form 8-K.
- How the SEC can promote efficiency in periodic reporting by reducing unnecessary duplication in the information that reporting companies disclose and how any such changes could affect capital formation, while enhancing, or at a minimum maintaining, appropriate investor protection.
- Whether SEC rules should provide companies, or certain classes of companies, with flexibility as to the frequency of their periodic reporting.
- How the existing periodic reporting system, earnings releases, and earnings guidance, standing alone or in combination with other factors, may affect corporate decision making and strategic thinking, including whether these factors foster an inefficient outlook among registrants and market participants by focusing on short-term results, sometimes referred to as “short-termism."
The comment period will remain open for 90 days following publication in the Federal Register. Comments may be submitted by accessing this website and selecting the “Submit comments on S7-26-18" link. Gibson Dunn securities regulation lawyers are available to assist with submission of comments.
Special appreciation to associate Kyser Blakely for assistance with this post.