Many companies would continue to release earnings statements quarterly -- but not the more involved regulatory filings -- even if U.S. authorities approve an option to file only semiannually.
A new survey from KPMG provided a glimpse of the varied landscape of financial reporting that could emerge under a proposal from the SEC that would provide the option to file earnings reports twice year instead of the usual four times.
Most companies in the survey said they would provide quarterly updates in some form. Thirty-nine percent said they would continue to publish earnings press releases quarterly, but would submit regulatory filings twice a year -- a reviewed semiannual report and an audited annual one. An additional 39% said they would make no changes to their current practices, meaning they would file 10-Qs -- the regulatory form for quarterly earnings -- and publish quarterly releases.
Three percent of companies said they would file semiannual earnings and bypass any quarterly updates. An additional 7% percent said they would take advantage of the semiannual reporting option, but also publish select financial data, such as sales figures, on an interim basis outside the twice-per-year reporting periods. The remaining 12% said they were undecided.
The survey included 156 CFOs, chief accounting officers and controllers at publicly traded companies, ranging in size and across industries.
The SEC is expected to move forward with its proposal to drop quarterly reporting requirements despite strong public opposition. Supporters say the laxer regime could encourage more companies to go public; investors, hungry for data on corporate performance, oppose less-frequent reporting. The benefits to companies could include lower auditor fees and less time spent preparing the reports, currently an every-three-month grind for finance teams.
Some companies including Eli Lilly said in public comment letters they plan to file a semiannual and annual report, but would also publish earnings quarterly.
Preparing an earnings release without an accompanying regulatory filing, however, might not result in significant savings, said Brian DelGhiaccio, CFO at Republic Services, a waste management company. "The internal effort to provide that information is not substantially different than if you went the extra effort to file a 10-Q," he said.
Other companies plan to stick with quarterly reporting to ensure their stock remains attractive to investors.
"Particularly as a small-cap company, where our is strategy to attract more long-only investors, sharing less frequently is not advantageous to us," said Curtiss Bruce, chief financial and operating officer at Honest Co.mpany, which makes baby wipes and other skincare products. The company, which went public five years ago, is in the midst of a turnaround.
In the KPMG survey, more than half of companies said their financing agreements required quarterly information. Most said they have processes in place to disclose material information outside of semiannual reporting periods. Nearly all respondents -- 94% -- said they plan to maintain quarterly governance and oversight practices internally, despite fewer required SEC filings.
"We learn a lot, and we become better, and we hold each other internally accountable by going through that process," said Serge Tanjga, finance chief at Appian, a business process automation company, describing the benefits of reporting on a quarterly cadence.
In a separate survey, companies questioned whether moving to semiannual reporting would lighten the organizational burden of financial reporting, with over a third saying it would be minimal or have no impact, according to a survey conducted by the Society for Corporate Governance, a professional association. Half of respondents in the organization's survey, which included 100 companies, said the proposal would result in a moderate reduction in the burden.
Only eight percent of the Society's members said they were very likely to adopt semiannual reporting within three years. Still, the group supports the proposal for companies to have as an option, said Paul Washington, its president and chief executive.
"We think it can be left to each company to make the determination as to whether the benefits of shifting to semiannual reporting outweigh the costs," he said.
Other CFOs weighed in on the SEC proposal through comment letters. David Wells, who served as finance chief of Netflix from 2010 until 2019, said in a letter that while the four-times-per-year cycle can be a slog and lead to short-term focus, it also underpins trust, drives rigor and creates a level playing field for individual investors and large institutions, which can request check-ins with management.
While some companies may be well suited to semiannual reporting, others may adopt it because they lack financial discipline, Wells noted in his letter. Fraud, a greater value placed on insider knowledge, and a longer shelf life for bad corporate strategy would be "bogies of the slower reporting cycle," he said.
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