A debate about the frequency in which public companies should be legally responsible for providing financial reports has been sparked by a recent tweet made by President Donald Trump.
In mid-August, the president tweeted a proposal to reduce the frequency that public companies must provide financial reports. Currently these reports are legally required quarterly, a precedent set by the Securities and Exchange Commission (SEC) in the 1930s. The proposed shift would move to a semiannual system.
Proponents of a reduction in frequency of reporting
Trump’s tweet, prompted by conversations with top business leaders such as Indra Nooyi, CEO of PepsiCo, has received some praise in the business world. By reducing the frequency of financial reporting to semiannually, many believe public companies will have greater flexibility, leading to money saved and focuses shifting from short term gains to long term business strategy. Critics of the quarterly reporting system believe that quarterly reporting pulls public companies away from long term investments.
Proponents of quarterly reporting
Others believe that maintaining the quarterly reporting tradition is integral to the health and ethics of U.S. business. Proponents of quarterly reporting view the system as setting a precedent for transparency by providing checks and balances while also reducing the chance of unethical business practices.
The U.K.: a case study
Across the pond, the U.K. has changed their reporting requirements twice in the last decade–once moving from semiannual to quarterly reporting in 2007, and then later moving from quarterly back to semiannual reporting in 2013. No significant effects were reported related to the shifts. Instead, other factors are likely at play beyond the frequency of the reporting itself.
The past and the future
Established in the 1930s during the Great Depression, the SEC has required public companies to report on their finances every three months. The intention was to give investors confidence in the businesses they were investing in. However, the SEC has considered moving away from the quarterly reporting requirement as recently as 2016. Following the president’s tweet, SEC chairman Jay Clayton stated that the SEC “continues to study” the rules and requirements.
The future reporting requirements remain uncertain while the debate rages on.
One thing’s for certain: financial reporting is important for your business, regardless of the frequency in which you use it. Flexi can help you refine your financial reports. Learn more about partnering with Flexi today. Call 800-353-9492.