U.S. Securities Law Briefing: SEC to Review the Quarterly Reporting Model

One of the key aspects of the U.S. public company reporting model is now up for review, following President Trump’s August 2018 tweet asking the U.S. Securities and Exchange Commission (the “SEC”) to examine the quarterly reporting system under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). The SEC has now issued a Request for Comment on the topic, a first step toward potential rulemaking to change the quarterly reporting system.

The purpose of the Request for Comment is to obtain public input on the nature, timing, format and frequency of periodic reporting, as well as the relationship between the periodic reports that U.S. domestic Exchange Act reporting companies must provide and the earnings releases that they must furnish on Form 8-K, to the extent they choose to issue such releases. The SEC is soliciting comments to help it explore ways to promote efficiency in periodic reporting and address “short-termism” possibly fostered by quarterly reporting while still maintaining appropriate investor protections. The Request for Comment takes note of developments in the European Union and United Kingdom in recent years, noting the evolution of the Transparency Directive and Financial Conduct Authority’s regulations and companies’ and investors’ behaviors in response to these changes.

The Request for Comment does not commit the SEC to any particular path for change (or to make any changes at all), and the questions posed in the release suggest that the SEC is open to a wide range of options, including:

  • Allowing companies that issue earnings releases to use the releases to satisfy the core disclosure requirements of Form 10-Q (by using Form 10-Q to supplement a Form 8-K earnings release with additional material information required by the Form 10-Q not already presented in the Form 8-K, or alternatively incorporate by reference disclosure from the Form 8-K earnings release into Form 10-Q);
  • Requiring earnings guidance to be filed with or furnished to the SEC;
  • Requiring interactive data filings (XBRL) in connection with earnings releases;
  • Reconsidering the auditor review requirements for Form 10-Qs;
  • Permitting companies to omit certain disclosures currently furnished on Form 10-Q, such as unregistered sales of securities, so long as the information is provided elsewhere, such as on their websites;
  • Requiring registrants to file Form 10-Q simultaneously with, or prior to, any earnings release filed or furnished on Form 8-K;
  • Moving to a semi-annual reporting model for all issuers, or only certain categories of issuers; and/or
  • Permitting companies, or certain categories of companies, to select an approach to periodic reporting that best suits their needs and the needs of their investors (such as allowing a company conducting an initial public offering to announce its approach to periodic reporting, such as semi-annual periodic reporting, during registration and implement the elected approach going forward).

A move away from quarterly reporting would be a significant shift for the United States, moving it closer to the European Union’s reporting regime. For many U.S.-listed foreign private issuers, who are generally exempt from the SEC’s quarterly reporting requirements, such a change could also mean less market pressure to report quarterly on a voluntary basis.

However, the Request for Comment is only the first step in a possibly yearslong process that may ultimately only result in small changes. We will continue to monitor developments in this area and welcome any queries you may have.