Financial Reporting: A Shift to Semi-Annual Isn’t the Answer

by Ian Charles

While the stress of reporting quarterly is undeniable, the benefits of less frequent semi-annual reporting are not.


The Trump Administration, in its push to lighten the regulatory burdens on businesses, has floated the idea of a policy change that would require publicly-held companies to report their finances on a semi-annual basis, instead of the current quarterly cadence. 

It’s easy to understand why some companies might find the six-month cycle more attractive, especially when you consider some of the perceived negative effects that come with the more-frequent cycle. As a CFO with both public and private company experience, and as CFO of a company that (among other things) helps customers prepare financial reports, I’ve weighed both the pros and the cons of a regulatory change and the type of impact that a shift like this might have. It’s my opinion that companies – and the public - would be better served if things were left on the quarterly cycle for now. 

Mind you, this is not an opinion that’s based on simply sticking with the status quo. Instead, it’s a decision based on perceived benefits vs. potential pitfalls and the short-term or long-term gains that might – or might not – stem from the change. With any decision, you have to ask whether the gains outweigh the downsides. In this case, they do not.

The Pressure of Performance

For some time, companies have complained about Wall Street’s pressures to deliver strong results every quarter – or be punished by a stock price punch because of a sub-par quarter – prevents management from embarking on attractive, long-term projects that could help the company with its extended growth initiatives. But a paper published by the Harvard Law School Forum on Corporate Governance and Financial Regulation pours cold water on that argument by questioning whether an additional three months between reporting cycles is really the incentive that executives need to be embark on a five-year investment project, for example.

Certainly, there’s pressure on company executives to deliver strong quarterly results but there’s little data out there that suggests that that pressure is resulting in poorer decisions for the company. In fact, I might argue that, in today’s data-rich business environment, there’s ample decision-making information available to executives to help them make better decisions for the company, as well as investors, in near real-time. Dashboards and automated reporting are becoming more prevalent and pervasive as companies want to keep up with the pace of change and adapt to the continuous need for improvement.

But for those who feel strongly that public market pressure and/or non-understanding of public market strategies are stifling growth opportunities, there’s always the option of going private. Most recently, Tesla CEO Elon Musk made headlines when he suggested that he might take his company private to get away from the short-terms earnings pressures. It doesn’t happen often and Musk quickly walked back the idea, but the shift from public to private does have precedent across a number of industries – from Dell and Hilton to Panera Bread and Burger King. If companies are committed to long-term structural changes to the company and want to avoid the pressures of public performance during its transitional periods, the shift to private does provide the breathing room a company needs, something it won’t get simply by changing the reporting requirements from quarterly to semi-annual.

Transparency is Key

Another important point to consider when weighing such a shift is the transparency that comes with regular reporting. Quarterly earnings reports are the bread and butter of information for stockholders and analysts who want the most up-to-date information. But they’re also regarded as a method for maintaining transparency between companies and the investment communities.

In fact, the longer six-month period actually creates more potential for a gap between the time that insider information becomes public, potentially increasing the likelihood of insider trading and other knee-jerk reactions.

In a published study, the Kelley School of Business Research concluded that investors faced with a reduction in transparency or a lack of regular informational updates would likely overreact to news from company competitors or other industry headlines. Without regular updates from the company itself, investors will invariably seek out other sources of information to make their investment decisions – a move that could have negative ripple effects. 

The Reduction of Burden for Financial Reporting

Finally, there’s an argument that a less-frequent reporting cycle could reduce the cumbersome task of producing regular reports for the investors – but that, too, is an argument that’s easily debunked. 

Financial reporting is tedious work and the push to ensure the accuracy of the numbers gets intense as the reporting period approaches. But it’s important to remember that this work doesn’t just go away if a company is private. Most private companies, following the public company lead, produce quarterly reports and, in many cases, also prepare monthly reports for management and the board of directors. 

The public financial reporting burden typically represents a relatively small increment of work added to what the company would be producing anyway.  Sure, it might reduce the strain to produce the “last mile” of those public financial reports, but that doesn’t really impact the burden of the work, as the last mile is only a fraction of the total cost.

A Solution with Real Impact

Instead, the real solution is to attack the underlying problem – the labor to consolidate, close, and report the numbers – by looking at automated solutions that make the process more efficient and timely. 

While the stress of reporting quarterly is undeniable, the benefits of less frequent semi-annual reporting are not. The modernization of finance and the role that enterprise performance management (EPM) software plays in the equation can actually make the process of disclosure more transparent, not less. As evidenced in these studies, semi-annual reporting doesn’t achieve that goal. The onus of regular financial reporting lies in the capabilities of the systems, technologies and processes that are deployed. Companies would be better off keeping the quarterly reporting cycle and instead focusing on the technologies that can reduce the burden of crunching numbers and producing reports. 

By unleashing the potential to analyze data faster and more efficiently, I’m actually surprised that the proposed shift isn’t headed to a more frequent, monthly cadence of reporting. But that’s a debate I’ll save for another time. 

Ian Charles is CFO of Host Analytics.