How scrapping the quarterly reporting requirement will affect finance

Picture it now—the “future” (read: early 2000s) as speculated in the 1950s: You’d take your flying car to work, scarf down some freeze-dried food, and return to your fully automated smart home, which absolutely had to include a robotic dog, for some reason.

It’s the future that wasn’t. And that same brand of overeager speculation could apply to a much less flashy event: The end of quarterly reporting, which almost certainly wouldn’t involve jetpacks or robot dogs.

But when the Wall Street Journal first broke news in March of the Securities and Exchange Commission’s plans to draft a proposal eliminating public companies’ longstanding quarterly reporting requirement and offering a semiannual reporting option, you’d be forgiven for assuming a seismic shift was afoot in corporate America, given the attendant hoopla. Was the sky falling?

Now that the dust has settled, a more interesting future is emerging: Experts have argued the SEC’s potential proposal may not actually disrupt business as usual as much as first anticipated. But CFOs may nevertheless have to make a case for one reporting cadence over the other, and that could lead to deeper questions.

Risks and rewards. When Justin Moreschi, assistant corporate controller at Quaker Houghton, a publicly traded chemical manufacturer, first heard about the SEC’s proposal, his thought process was as follows.

First, he wondered how it would impact his team’s workflow (answer: not that much); then, he pondered what the external reaction might be to a new reporting cadence (answer: probably dramatic).

“We’re still going to close the books every month, because regardless of how we report externally, we still, every month, report results internally to our management, our executive leadership team,” Moreschi told CFO Brew. “We’re still going to go through the same close process that we always go through every month, regardless if the SEC requires us to report quarterly or report semiannually.”

“If we just didn’t have to file a 10-Q, it’s almost like we were doing 80% of the work anyway to support the close and to report to our board,” he added. “Finishing up and just finalizing the 10-Q filing [is] not a whole lot more work.”

From there, it becomes a risk-reward calculation with some fairly straightforward math.

“The risk of market reaction, in my opinion, would outweigh any benefit we would get from not going through the couple-week process of getting our 10-Q ready to be filed with the SEC,” Moreschi said, adding that this wasn’t an official company stance.

Reporting impacts decisions. Public companies across the board are likely having similar conversations, and many have reason to land on a similar conclusion.

“My gut reaction is that most companies will end up in the same situation they already are in,” Steven Skolnick, chair of law firm Lowenstein Sandler’s capital markets and securities practice, told us.

While time and cost savings have been touted as potential benefits of a change in reporting tempo, Skolnick thinks they’ll be slight for many companies.

“I still think companies are still going to internally produce monthly reports, because you need them for operational purposes,” he said, adding that capital raising and keeping up with peers will also likely play a role in companies continuing to report quarterly. “There might be some cost savings, but it may not be as much as people think.”

Tom Shea, CEO and co-founder of enterprise finance management platform OneStream, which recently went private, told us, “The interesting thing about changing the reporting cycle, to me, is not the fact that we’re reducing the burden to report to the SEC, because if you have to do it twice a year or you have to do it four times a year, you still have to have all the audit, all the compliance, all the team to be able to do it.”

“What is interesting, as a publicly traded CEO [or] CFO, is how reporting affects your decision-making ability, especially in times of high transformation [like] right now, where we see AI and longer-term investments needed to make sure your company is properly positioned for the future,” he added.

All in the timing. And that brings us to the deeper considerations CFOs should grapple with as the SEC irons out the proposal’s details, namely where their company falls on long-term versus short-term thinking.

It’s currently unclear who will determine if a company reports quarterly or semiannually, but in the event that companies get a say, CFOs will want to have those conversations early and often, given the broader implications of either decision.

The Long-Term Stock Exchange, which was founded in 2016 with the aim of reversing “the epidemic of short-term thinking” in corporate America, was an early advocate of amending quarterly reporting requirements, arguing that it would allow for a greater focus on long-term strategy.

Shea views things similarly. “If you’re going to make a decision in January that is an investment, and we have quarterly reporting and you don’t think that that investment is going to pay off—meaning produce positive income results or growth results until six months or a year later—if you’re on a quarterly reporting cycle, you might be feel pressured to not make that decision,” he said.

“I still don’t even know that six months is the ultimate correction,” he added. “I would even push for longer, to be honest with you.”

But even for teams that might benefit from freeing up time otherwise spent on quarterly reporting, the trade-offs are sharp, Quaker Houghton’s Moreschi said.

“If you report semiannually, you’re just reporting on more information for the first time,” he said. “You have six months that have gone by; that’s six months of potentially significant transactions that may require complex accounting or complex disclosures.”

And given CFOs’ growing obligations as storytellers, sticking with quarterly reports could make translating financial data into a clear narrative easier, he said.

“If you had to recap a [TV] series to the team, and you’re trying to explain to them what happened in the first episode [rather than the first five], it’s just easier,” he explained, by way of comparison.

Since an argument could be made at many companies for either reporting cadence, it’s going to be crucial to get everyone on the same page. Moreschi recommends CFOs actively seek out “feedback from different stakeholders…talk to your head of IR, talk to corporate development or treasury,” he said.

And then pass those conversations along. “It’s like when people say, ‘If you want your voice heard, go vote,’” Moreschi added. “If you want your voice heard, write to the SEC, take advantage of [the] comment period.”