Accounting groups have concerns about the end of quarterly reporting

A torrent of public comments has poured into the SEC’s servers the past three months—including many from the accounting world—on its proposed switch from mandatory quarterly reporting for public companies to giving them the option to report just twice a year.

The SEC’s website displayed about 225,000 public comments on the semiannual reporting rule as of August 6, and accounting professionals are in the thick of the discussion.

The messages from state CPA societies and accounting industry groups range from mildly supportive to firmly opposed.

For the most part, those professional associations acknowledged the proposal would offer more flexibility, but warned that fewer financial updates would weaken transparency for investors and potentially create larger financial risks for organizations, CFO Brew found when digging through the comment letters.

One such letter, sent by members of the Texas Society of Certified Public Accountants’ Professional Standards Committee, offers “qualified support” to the proposal because “we expect that preparers will be in favor of the optionality provided.” However, the TXCPA committee warned the rule “is inconsistent with the goal of timely reporting of financial information” and could lead to less comparability and consistency for investors.

“We’re sort of saying [in our letter that], well, OK, we can go along with it, but we want [the SEC] to be aware that these are the things we are concerned about if this proposal goes through,” Jeffrey Johanns, chair of the TXCPA Professional Standards Committee, told CFO Brew.

Members of the Institute of Management Accountants’ Financial Reporting Committee wrote that they supported the proposal because it “would enable issuers to provide investors with timely, reliable, and decision-useful information in a manner that is appropriate for their industry, stage of development, and investor base.”

However, the IMA committee cautioned, the rule “should not result in reduced rigor for information” that companies file with the SEC. They added that the commission “should provide additional clarity and guidance” for semiannual filers who wish to file interim reports, such as “earnings release materials which may contain non-GAAP information.”

Members of the American Accounting Association’s Auditing Standards Committee warned in their submitted letter that the proposal could weaken audit quality.

Quarterly reports prompt regular reviews by auditors “that may facilitate the earlier identification and resolution of accounting issues before they affect annual financial statements,” the AAA committee members wrote, adding that “[e]liminating two review periods may increase the time during which material weaknesses go undetected, potentially increasing the costs to remediate when eventually discovered.”

But the TXCPA committee doubted that semiannual reporting would be the end of “the fundamental structure and process of quarterly reporting,” an idea some finance execs have echoed. Companies “want this six-month proposal because they want the optionality, just because it’s an option,” Johanns said, “but they’re not going to deconstruct any internal reporting or controls” they built for a quarterly cadence.

Zoom out. The SEC introduced its semiannual reporting proposal this spring, and accepted public comments through early July. It’s part of a “tsunami” of proposed reforms aimed to ease the regulatory burden on public companies and (the agency hopes) encourage more companies to go public.

“[T]he 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,” SEC Chair Paul Atkins said in a statement when the proposal was announced in May.

The TXCPA’s Johanns said he personally feels the SEC and Atkins are “determined to have this” rule in place. He called the rule a “quick victory” that the commission can show public and pre-IPO companies, “Here’s something I’m giving you to make your life easier.”