In his former life as head of the privately held Trump Organization, President Donald J. Trump operated away from the prying eyes of public regulators.
Not surprisingly, the tweeter-in-chief appears to favor giving Corporate America more flexibility in their financial reporting requirements. Per Trump’s twitter feed, an unnamed member of “the world’s top business leaders” – funny how that works – suggested shifting from quarterly to semi-annual reporting as a way to “make business (jobs) even better in the U.S.”
The Securities and Exchange Commission (SEC) is now making good on Trump’s directive to explore the easing of standards for reporting companies when it comes to earnings releases and quarterly reports. Last month, the agency requested comment from the public on measures to cut down on “burdens on reporting companies associated with quarterly reporting while maintaining, and in some cases enhancing, disclosure effectiveness and investor protections.” The SEC noted that it also wants input on how the current reporting framework may push corporate executives and investors to obsess over short-term results at the expense of the long-term health of their companies.
“There is an ongoing debate regarding the effects of mandated quarterly reports and the prevalence of optional quarterly guidance,” SEC Chairman Jay Clayton said. “Our markets thirst for high-quality, timely information regarding company performance and material corporate events. We recognize the importance of this information to well-functioning and fair capital markets. We also recognize the need for companies and investors to plan for the long term. Our rules should reflect these realities.”
The issue of reporting frequency has actually been on the SEC’s radar for years. In 2016, the regulator put out a concept release regarding Regulation S-K that requested comment on how reporting frequency effects the companies and the market. With its latest request, the commission is apparently looking for input on potentially streamlining the current reporting rules, such as identifying overlap between disclosures on Form 10-Q and Form 8-K filings and “unnecessary duplication” of information in disclosures.
Just how much is this supposed compliance burden costing U.S. companies? Tough to say. According to a 2018 survey of more than 1,000 publicly held companies conducted by consulting firm Protiviti, compliance with Sarbanes-Oxley (SXO) rules annually result in internal costs that average between roughly $280,000 on the low end for firms with revenues of less than $100 million and $1.8 million for firms with revenues of $20 billion or more.
On the other hand, while compliance costs have climbed, Matt Kelly of Radical Compliance has pointed out that financial restatements have declined dramatically since 2005. That brings greater stability and efficiency to the markets.
Whatever the SEC ultimately decides to do regarding quarterly reporting, here’s hoping the end result strikes a careful balance between investor protection, corporate cost efficiency and transparency.