The Securities and Exchange Commission estimates that publicly traded companies could save nearly $200,000 annually if they switch from quarterly to semiannual financial reports.
That’s among the chief takeaways from the agency’s 279-page proposed rule issued Tuesday. The SEC’s proposal, which details what a shift from quarterly reporting to semiannual reporting might mean for businesses, includes a call for a new type of form called 10-S that would be submitted in lieu of the existing 10-Q.
Notably, the SEC at this point is only looking to give companies the option of shifting from quarterly reporting to semiannual, meaning such a shift would not be mandatory.
“The flexibility provided under our proposed amendments would enable all Exchange Act reporting companies to choose the reporting frequency that would best serve the company and its investors,” the proposal stated. “Companies that elect semiannual interim reporting may see a reduction in compliance costs of time and money, as they would incur these interim reporting costs only one time in connection with each fiscal year instead of three times in connection with each fiscal year pursuant to quarterly reporting.”
The proposal notes that not every company may wish to make the change. “Exchange Act reporting companies could continue to file quarterly reports on Form 10-Q under the proposal,” the document stated. “Companies might continue to report quarterly, for example, where they determine that quarterly frequency is best for the company and its investors or due to factors such as expectations of investors and securities analysts, disclosure practices in a particular industry, contractual obligations, or other regulatory requirements.”
In a statement issued Tuesday, SEC Chairman Paul Atkins described the proposal as part of his “Make IPOs Great Again agenda that is aimed at incentivizing companies to go and stay public.”
The SEC’s proposal also noted that companies might still be compelled to share “certain material information … between semiannual reports and annual reports … either voluntarily or as a result of other requirements.” The proposal went on to say that other federal agency regulations or state laws “may reduce the incentives to switch to semiannual reporting under the proposed amendments for companies.”
The commission said, for instance, that it has found 143 companies that are “national banks or Federal savings institutions chartered and regulated by the Office of the Comptroller of the Currency … and, therefore OCC regulations that deem certain information to be provided when Form 10-Q filings are included in offering documents in connection with sales of non-convertible debt are relevant to these firms.”
The SEC’s proposal noted that it will be “difficult to predict which reporting category particular issuers will choose.”
“We do not expect issuers to respond homogeneously to this flexibility, since they will make reporting decisions based on how they assess the relative costs and benefits of more or less frequent periodic reporting in their particular circumstances, such as size, industry, stage of business development, financing needs, contractual obligations, investor expectations, and other regulatory requirements,” the proposal stated.
Of interest to finance and legal teams, the commission’s proposal included a breakdown of the estimated costs and benefits of making a switch to semiannual. Under the existing framework, companies are required to file three 10-Q forms and one annual 10-K form. The proposal would allow companies to file just one 10-S form in lieu of the three 10-Qs. That 10-S form would, though, “require the same narrative disclosures and financial information as existing Form 10-Q but would cover a six-month period (rather than a fiscal quarter),” the proposal stated.
Filing three 10-Qs, the agency said, is estimated to cost about $330,000 in compliance costs in a fiscal year, while filing one 10-S form would cost $132,000 over the same period. That means companies that make the switch could see a “net reduction in direct compliance costs equal to $198,000 per fiscal year.”
Trump administration leaders are billing a shift in reporting requirements as a way to both decrease costs and increase the number of public companies in the United States.
“Public companies have an obligation under the federal securities laws to provide information that is material to investors,” Atkins said in his statement. “Yet, the rigidity of the SEC’s rules has prevented companies and their investors from determining for themselves the interim reporting frequency that best serves their business needs and investors. Today’s proposed amendments, if ultimately adopted, would provide companies with increased regulatory flexibility in this regard.”
The SEC said it will have a public comment period for 60 days “following publication of the proposing release in the Federal Register.”
