How Ending Quarterly Reporting Could Impact Investors and the Market with Trump and SEC Involvement
SEC’s Proposal to End Mandatory Quarterly Reporting: Impact on Companies and the Big Four Accounting Firms
Background of the SEC Proposal
The Securities and Exchange Commission is considering a rule to permit public companies to opt out of the existing quarterly reporting mandate. This proposed change follows a suggestion from President Trump, who argued it would save companies money and allow management to focus more on operations. SEC Chair Paul Atkins mentioned that while the proposal is underway, its potential adoption would let companies decide their reporting frequency.
Potential Benefits for Public Companies
Switching to semi-annual reports could significantly cut the costs and labor currently required for quarterly submissions. It generally takes about 180 hours and costs range from $50,000 for smaller companies to over $1 million for larger companies to prepare a quarterly 10-Q form. The shift could relieve these financial burdens.
Concerns for Accounting Firms
The Big Four accounting firms — Deloitte, EY, KPMG, and PwC — which facilitate these reports, may bear significant losses in their audit businesses if this rule passes. Up to 15% of their annual audit fees could disappear, impacting their business models. However, these firms may pivot by expanding advisory and tax services or adopting more artificial intelligence tools to offset revenue losses.
Comparison with European Reporting Norms
The concept of semi-annual reporting isn’t novel; both the EU and the UK adopted similar measures over a decade ago. While not required, many larger firms in these regions still choose to provide more frequent updates. Some analysts predict a similar pattern could emerge in the U.S., where companies might continue some form of quarterly reporting to reassure investors.
Possibilities for Public Market Growth
The reduction in reporting frequency could also incentivize more private companies to go public, potentially revitalizing the IPO market. This possibility could benefit accounting firms by expanding their client base, even as they face potential revenue losses from current clients.
Outlook for the SEC Rule Change
While the proposal offers substantial cost savings for public companies, resistance is expected from affected sectors, particularly accounting firms. However, given the current administration’s track record of deregulatory successes, the proposal has a fair chance of passing. It remains crucial for stakeholders to weigh in as the SEC reviews comments and evaluates the proposal’s implications.
