SEC Proposes New Flexibility in Earnings Reporting
The Securities and Exchange Commission (SEC), the primary regulatory body for publicly traded companies in the U.S., unveiled a proposal that would allow firms the option to report earnings and financial results only twice a year, a significant departure from existing requirements.
Currently, under regulations established in the 1970s, companies are mandated to report their earnings on both a quarterly and annual basis. SEC Chairman Paul Atkins emphasized that while publicly traded companies are obligated under federal securities laws to provide material information to investors, the stringent reporting rules limit companies’ ability to determine the reporting frequency that best aligns with their operational needs and those of their investors.
Atkins remarked that the proposed amendments could enhance regulatory flexibility for businesses if the changes are ultimately adopted. This initiative is seen as part of a broader movement, encouraged by former President Donald Trump, who advocated for a shift away from the burdens of quarterly reporting.
In a post on Truth Social, Trump suggested that companies should no longer be mandated to report earnings quarterly, asserting that this change would reduce costs and enable management teams to concentrate on efficiently running their businesses. He criticized the prevailing quarterly reporting model, contrasting it with China’s long-term business perspective.
The SEC’s renewed focus on this proposal comes after an unsuccessful attempt in 2018, which failed to gain traction. This time, however, the involvement of Trump, who has actively promoted the idea, may bring renewed momentum to the discussion.
While some European companies already operate under a semi-annual reporting regime, critics of the proposed changes argue that the continuous influx of information bolsters the integrity of U.S. capital markets. Billionaire investor Ken Griffin, founder of Citadel, expressed skepticism, stating that withholding readily available information could be detrimental. He underscored the need for regular disclosures, arguing that accountability and transparency are vital for effective market functioning.
Notably, while the SEC does not require companies to conduct earnings calls or offer financial forecasts, many firms opt to do so to keep investors and the public well-informed. Jamie Dimon, CEO of JPMorgan Chase, publicly welcomed the idea of reduced reporting frequency but indicated that his firm would likely still issue quarterly updates, albeit with less detail.
The proposed change, if adopted, would necessitate that companies indicate their intention to switch to semi-annual reporting in their subsequent annual 10-K filings. Companies would only be permitted to make this switch annually, with a prohibition against alternating back and forth between quarterly and semi-annual disclosures.
In the coming weeks, the SEC will initiate a 60-day public comment period to gather feedback on the proposal, marking an important step in determining the future of earnings reporting in the U.S.
