Trump asks SEC to let companies file financial reports every six months

Alicia Cross
August 20, 2018

The SEC has been reluctant to make any changes in quarterly financial reporting, which has always been a cornerstone of US capital markets. Moving away from reporting earnings every three months would be a much more dramatic change that would nearly certainly trigger resistance from shareholders who want transparency from the companies they invest in.

But executives and other investors said Trump's argument made sense because it would cut costs of compiling and filing results and remove short-term distractions for those running companies.

Trump said he called on the SEC to consider the change after talking with various business leaders.

While it's hard to determine what will come of Trump's tweet and charge to the SEC, if such a change were to occur, Wedbush Securities analyst Christopher Svezia said there could be positives for both investors and companies.

The proposal would mean rethinking a cornerstone of the country's accounting system since the Great Depression: Every three months, publicly traded companies must offer a detailed financial picture - including their revenue and profits - to shareholders. "One of the inherent issues with quarterly reporting is that it does tend to drive management to make decisions geared toward short-term metrics, which is not always in everyone's best interest".

Updates with statements from Nooyi, SEC chairman; adds background.

"We are looking at that very, very seriously".

It's unclear whether management at companies that report semi-annually take a longer-term investment strategy than management at companies reporting quarterly, said Salman Arif, a business professor at Indiana University who has studied the difference in reporting periods.

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But scrapping quarterly reporting is not now on the SEC's near-term agenda, according to public records. "'Stop quarterly reporting & go to a six month system, ' said one", he tweeted. "Earnings manipulation can take place whether quarterly or every six months".

Trump recently hosted a number of top company leaders while on vacation at his private golf club in Bedminster, New Jersey, including the heads of Apple Inc, Fiat Chrysler Automobiles NV, Boeing Co, FedEx Corp, and Honeywell International Inc. I find it very rich that he's proposing this with some veil that it's going to help companies think long-term.

The Trump administration has said it would like to reduce red tape it blames for a decline in public listings.

The change, if enacted, would have the US following other countries in reducing the frequency of reporting requirements. The report compares company earnings with that of the previous year.

There are also tremendous expenses tied to preparing quarterly and annual reports.

"Investors and other stakeholders benefit when regulations ensure that important information is promptly and transparently provided to the marketplace", said Amy Borrus, CII's deputy director.

Quarterly earnings guidance is used by Wall Street and City analysts to build their earnings estimates and gauge company performance against these figures. "Investors need timely, accurate financial information to make informed investment decisions".

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