President Donald Trump is advocating for a significant shift in corporate earnings reporting requirements, suggesting that companies should only be obligated to report their financial performance every six months instead of the current quarterly mandate. This proposal, outlined in a post on his Truth Social platform, aims to alleviate the pressure on companies, allowing them to concentrate more on long-term strategies rather than short-term performance.
The quarterly reporting rule has been in effect since 1970, and Trump’s initiative, which would require approval from the U.S. Securities and Exchange Commission (SEC), has reignited discussions about the efficiency and efficacy of such frequent disclosures. Trump’s argument hinges on the belief that reducing the frequency of reports could save companies money and improve their management processes.
In his message, Trump contrasted the United States’ approach to financial disclosures with China’s longer-term focus, suggesting that Chinese companies maintain a “50 to 100 year” perspective on corporate management, whereas U.S. firms face the pressure of quarterly earnings reports. He noted that, unlike U.S. regulations, the Hong Kong Stock Exchange allows companies to opt for voluntary quarterly disclosures but mandates reports only twice a year.
This isn’t the first time Trump has raised the issue. During his presidency, he called on the SEC to examine the possibility of fewer disclosures, citing input from business leaders who believed less frequent reporting would foster long-term business planning. However, no substantial changes came from the SEC at that time.
The conversation surrounding quarterly versus semiannual reporting has resurfaced with a mixture of support and opposition. Usha Haley, a professor at Wichita State University, remarked that Trump’s re-emphasis on reducing reporting burdens reflects a growing sentiment about the costs linked to quarterly disclosures and their impact on long-term goals. While SEC Chair Paul Atkins has advocated for increased transparency, resistance remains from various sectors, including the Long Term Stock Exchange, which recently declared its intentions to petition the SEC to abolish the quarterly requirement.
Critics of the proposed change warn that transitioning to semiannual reporting could diminish transparency for investors. Chad Cummings, a CPA, pointed out that reduced reporting frequency might allow companies to obscure critical financial issues, including worsening cash flows or significant changes in auditor opinions. He raised concerns about potential negative consequences, such as accounting fraud and the suppression of whistleblower reports.
Cummings also highlighted challenges that the SEC could face if it attempted to implement such a change, including internal pushback, legal obstacles, and potential litigation under the Administrative Procedure Act which governs the regulatory process.
Haley further critiqued Trump’s reference to China’s reporting structure, emphasizing that the strength of U.S. markets rests on their tradition of transparency and investor protections. She cautioned that weakening these standards could erode investor confidence, a crucial element of the U.S. capital markets’ success.
As discussions continue, the future of corporate reporting standards remains uncertain, with stakeholders weighing the pros and cons of altering a long-standing regulatory framework.
