The Securities and Exchange Commission is considering President Trump’s proposal to end the mandate for public companies to file quarterly reports. This move could save companies time and money, but the Big Four accounting firms may lose a significant portion of their audit business, impacting revenue and potentially leading to cost-cutting measures.
SEC Chair Paul Atkins confirmed a rule proposal is in progress, suggesting companies may have the option to change their reporting schedule. The market would determine the proper cadence of reporting, giving flexibility to companies and shareholders. The change from quarterly to semi-annual reporting could cut costs associated with filing reports in half.
The distinction between a quarterly report (10-Q) and an earnings report is crucial. The former is audited and follows strict disclosure standards, while the latter is unaudited and highlights key financial metrics. The proposed rule change could lead to a significant impact on the business model of the Big Four accounting firms, potentially resulting in a decrease in their annual audit fees.
If the Big Four accounting firms lose a substantial portion of their revenue due to the rule change, they may need to consider cost-cutting measures such as hiring fewer people and utilizing more artificial intelligence tools. PwC, for example, plans to hire fewer college graduates due to the rise of AI, which could further impact accounting firms’ workforces.
Although the SEC’s proposed rule change was not part of Trump’s initial deregulation targets, it has a good chance of succeeding given the current administration’s focus on deregulation. The SEC aims to eliminate unnecessary regulatory burdens on companies, prioritizing this proposal to streamline reporting requirements and reduce compliance burdens.
The Big Four accounting firms declined to comment on the potential impact of the rule change. In 2018, when the SEC first considered the quarterly reporting issue, the firms expressed support for retaining the quarterly reporting schedule, citing its value to investors and capital markets. They acknowledged the SEC’s authority to review reporting requirements while advocating for targeted improvements to reduce compliance burdens.
While the debate over quarterly reporting continues, the concept of semi-annual reporting has precedent in the European Union and the U.K. Companies in these regions can voluntarily choose to issue quarterly reports, even though it’s not mandatory. This model could potentially be adopted in the U.S., offering companies more flexibility in reporting while reducing compliance burdens. Some experts believe that companies will likely continue to provide quarterly updates for investors, despite the SEC considering a switch to semi-annual reporting. Public firms issuing debt or equity may face higher costs of capital without quarterly numbers. Accounting firms may still be involved in some capacity to meet client demands.
Advocates for semi-annual reporting argue that it could reduce the burden on companies and encourage more private companies to go public. The Big Four may benefit from a reinvigorated IPO market, offsetting potential revenue losses from existing clients. The number of publicly listed companies in the U.S. has significantly decreased over the years.
The SEC will take time to review feedback on the proposal, which may receive more acceptance this time around. With President Trump’s support and the SEC’s stance on regulatory changes, the shift to semi-annual reporting has a decent chance of approval. Accounting firms may need to adapt to potential changes in reporting schedules.
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