Financial Executive International’s Committee on Corporate Reporting (CCR) issued a comment letter last week in response to the U.S Securities and Exchange Commission’s effort to rethink the current quarterly reporting process.
In the comment letter, CCR supported the SEC’s willingness to evaluate and reassess the current quarterly reporting process and to consider related improvements. CCR continues to support quarterly 10-Q filings, but if investors provide feedback in favor of exploring more flexible reporting cadence, CCR would support the SEC’s efforts to pursue a change in reporting frequency.
In its request for comment, the SEC proposed an approach to quarterly reporting that would allow companies to use the earnings release to satisfy certain Form 10-Q requirements (the “Supplemental Approach”). While CCR supports the SEC looking for ways to improve the process, it is in favor of retaining the current voluntary earnings releases and believes the process should be left as is. CCR believes that quarterly earnings releases provide great value to investors and that changes to the earnings release process such as the Supplemental Approach may compromise those benefits.
The SEC’s request for comment also asked for areas where the current Form 10-Q process could be improved. CCR’s main recommendations focused on ways to revise the content of the Form 10-Q. Specifically, CCR suggested that greater prominence is needed around the concept and application of new and materially different information in Form 10-Q filings.
In Article 10 of Regulation S-X, the SEC’s interim reporting framework outlines that interim disclosures should be provided for significant events that have occurred since the most recent Form 10-K and should encompass significant changes over the period. However, CCR observed that certain requirements in Regulation S-K and many within the FASB’s codification, require more information than what is needed to comply with the SEC’s interim reporting framework. Therefore, CCR recommended that the SEC, in coordination with the FASB, bring interim disclosure requirements closer in alignment with the SEC’s interim framework by providing more clarity around materiality in relation to changes from the 10-K and allowing more judgment in determining whether to include or omit disclosures based on both quantitative and qualitative materiality considerations. This would allow for a report that is more focused and informative for investors, while also reducing the cost of the quarterly reporting process.
On December 18, 2018, the SEC published a request for comment on Earnings Releases and Quarterly Reports. The request included 46 questions regarding the nature, timing, frequency, purpose, and benefit of earnings releases and quarterly reports (Form 10-Q for United States filers). The SEC sought feedback on four main areas:
- Information Content Resulting from the Quarterly Reporting Process,
- Timing of the Quarterly Reporting Process,
- Earnings Release as a Core Quarterly Disclosure
- Reporting Frequency.
This request for comment aligns with the SEC’s ongoing focus to simplify disclosures. CCR supports this focus and believes that it is possible for the SEC to continue to simplify disclosures while protecting and improving the amount of information that investors receive. The comment period for this request ended on March 21, 2019, and in total, the SEC received 43 comment letters from various stakeholders. To review these comment letters, visit the SEC’s website. Read CCR’s comment letter here.