SEC to re-ex­am­ine quar­terly re­port­ing

The com­mis­sion will study Pres­i­dent Trump’s pro­posal

Accounting Today - - Assurance - By Michael Cohn See RE­PORT­ING on 27

Se­cu­ri­ties and Ex­change Com­mis­sion Chair­man Jay Clay­ton said the SEC is look­ing at a pro­posal from Pres­i­dent Trump to change the quar­terly fi­nan­cial re­port­ing cy­cle for pub­lic com­pa­nies.

In Au­gust, Trump tweeted, “In speak­ing with some of the world’s top busi­ness lead­ers, I asked what it is that would make busi­ness ( jobs) even bet­ter in the U.S. ‘Stop quar­terly re­port­ing & go to a six month sys­tem,’ said one. That would al­low greater flex­i­bil­ity & save money. I have asked the SEC to study!”

Clay­ton in­di­cated that the SEC is tak­ing the pro­posal se­ri­ously. “The pres­i­dent was right to raise this is­sue,” he said dur­ing Fi­nan­cial Ex­ec­u­tives In­ter­na­tional’s Cur­rent Fi­nan­cial Re­port­ing Is­sues con­fer­ence in New York. “He touched a nerve be­cause I don’t think any of us want our very im­por­tant pri­vate sec­tor en­ter­prises to be run on a short-term quar­ter-to-quar­ter ba­sis. That’s im­por­tant. I hope that most man­age­ment teams have a strate­gic plan that goes out two, three or four years and are look­ing to in­vest over that hori­zon. Look, there are peo­ple in this room that have in­dus­tries where your in­vest­ment hori­zon is 10, 15, 20 years. You can’t be run­ning your or­ga­ni­za­tion for De­cem­ber 31 of this year ex­clu­sively.”

How­ever, Clay­ton also pointed to some of the ben­e­fits of quar­terly re­port­ing for in­vestors. “That said, you can see the other side of it, which is that our cap­i­tal mar­kets thirst for in­for­ma­tion,” he said. “They thirst for re­li­able, com­pa­ra­ble, reg­u­lar in­for­ma­tion. That’s a re­al­ity. So the pres­i­dent raised a very good point, and we’re look­ing at it.”

Clay­ton noted that of­ten­times, in­vestors pay more at­ten­tion to the earn­ings press re­leases than the 10-Q quar­terly fi­nan­cial re­ports and 10-K an­nual re­ports.

“I can give you some ob­ser­va­tions that are in­form­ing the way I think about it,” he said. “You go through the Q process [four] times a year and then the K process. There was a time when in many cases the earn­ings re­lease would come out be­fore the Q. If the stock moved af­ter the Q came out and not when the earn­ings re­lease came out, you had a big prob­lem. You had a huge prob­lem, which meant re­ally all of the quar­terly in­for­ma­tion that was nec­es­sary for the mar­ket was in the earn­ings re­lease. So one of the ques­tions I’ve been ask­ing my­self is do we need that Q process ev­ery quar­ter, or do we need it ev­ery six months with some­thing that is less vo­lu­mi­nous, but still pro­vides all of the qual­ity in­for­ma­tion that in­vestors need? It’s a good ques­tion, but in terms of a quar­terly re­port­ing cy­cle, I think we all have to rec­og­nize that whether it’s your credit agree­ment or in­den­tures, all of these other parts of your cor­po­rate ecosys­tem, they’re based around this con­cept. But I very much sup­port the pres­i­dent’s ques­tion of are we man­ag­ing too much for the short term and what can we do about it?”

SEC chief ac­coun­tant Wes­ley Bricker noted that the ques­tion of dis­pens­ing with quar­terly fi­nan­cial re­ports has been on the SEC’S radar for years now, pre-dat­ing Trump’s tweet.

“This has been on an agenda through the Reg S-K con­cept re­lease where we got valu­able in­put in 2015,” he said dur­ing a press con­fer­ence. “That in­put in 2015 has con­trib­uted to our think­ing on our Reg­u­la­tory Flex­i­bil­ity Agenda, which is where the com­mis­sion and all other gov­ern­ment agen­cies de­scribe their out­look for the next 12 months. On that agenda, which is avail­able on­line, it in­cludes an en­try for look­ing at the fre­quency of re­port­ing and the na­ture of in­ter­nal re­port­ing. That’s de­signed as a re­quest for com­ment, not a spe­cific pro­posal, and cer­tainly not a fi­nal rule. It’s a re­quest for com­ment to con­tinue to gather in­put from how the bal­anc­ing of in­for­ma­tion in our mar­ket­place and the thirst for in­for­ma­tion has changed with the du­pli­ca­tion that may arise with an earn­ings re­lease and a 10-Q quar­terly fil­ing.”

Tax re­form guid­ance

Clay­ton and Bricker also dis­cussed how com­pa­nies have been pro­vid­ing other dis­clo­sures, in­clud­ing how they re­sponded to the SEC’S Staff Ac­count­ing Bul­letin No. 118, which came out shortly af­ter the Tax Cuts and Jobs Act passed last De­cem­ber. It of­fered guid­ance on how com­pa­nies could ac­count for in­come taxes af­ter the far-reach­ing changes in the cor­po­rate tax code un­der the leg­is­la­tion.

“For many of you, you un­der­stand re­lated to the timely dis­clo­sure of in­for­ma­tion about in­come taxes, par­tic­u­larly where in­come tax law had changed days be­fore many com­pa­nies were clos­ing their books,” said Bricker. “So the way we thought through that cir­cum­stance was bal­anc­ing how to get timely in­for­ma­tion to the mar­ket­place con­sis­tent with the nor­mal re­port­ing cy­cle, but also to re­flect the prac­ti­ca­bil­ity of get­ting the change in tax law di­gested into the ac­count­ing records. So I think the ap­proach they landed on was one of let­ting man­age­ment de­scribe to the mar­ket­place where they are.”

Clay­ton praised the work of the SEC’S Of­fice of the Chief Ac­coun­tant and the Di­vi­sion of Cor­po­ra­tion Fi­nance in re­leas­ing the guid­ance on the new tax law.

“It hap­pened right near the end of the year, and they came out with guid­ance very quickly, and the guid­ance had this very prac­ti­cal el­e­ment to it,” he said. “It was ‘OK, you know the rules, you know the cal­cu­la­tions are go­ing to be dif­fi­cult, but we ex­pect you to do what you can rea­son­ably do in the time al­lot­ted for it, and in­form us along the way of how you’re look­ing at it.’ That’s pretty sim­ple, but it

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