SEC Solicits Comment On Quarterly Reports – Part 3
Posted by Laura Anthony, Esq. on March 11, 2019
SEC Solicits Comment On Quarterly Reports – Part 3- Today is the continuation of a LawCast series talking about the SEC’s recent public inquiry on earnings releases and quarterly reports. Many companies that file quarterly Form 10-Q’s also voluntarily issue quarterly financial results through earnings press releases, earnings calls and/or forward-looking earnings guidance. Other than through the anti-fraud rules, the presentation of non-GAAP financial measures and the requirement to file a Form 8-K, the SEC does not regulate these disclosures. Although when a company does issue earnings release information, it is generally duplicative to some information in the Form 10-Q, the Form 10-Q is more robust and includes XBRL interactive data. Disclosures in a Form 10-Q that are not in an earnings release also include full financial statements and notes to financial statements as opposed to summaries and a management discussion and analysis. Moreover, the financial statements in the Form 10-Q are reviewed by an independent auditor and the filing includes Sarbanes-Oxley certifications by the principal executive and financial officers. Contrarily, a Form 10-Q generally does not include expectations of future performance or forward-looking earnings guidance.
In addition to the general request for comment on the issues and matters I’ve talked about in this Lawcast series, the SEC drills down their requests for public comment into specific questions on the topic, such as why companies choose to issue earnings releases in addition to a Form 10-Q and what would be the impact on these releases if quarterly reports were not required. The SEC seeks information on the specific benefits of both earnings releases and Form 10-Q and standard market expectations and responses to both. Certainly, as a regulator the SEC understands the legal impact of “furnished vs. filed” and the various liability provisions, but their questions are more focused on the market players and investors uses of and needs for information as well as the burdens of providing same. The SEC also touches on XBRL, which has also been oft debated, especially for smaller reporting companies. The SEC lists 14 multifaceted questions in this area under the heading “Information Content Resulting from the Quarterly Reporting Process.”
The SEC requests comment on 3 additional multi-layered points related to the timing of the quarterly reporting process including vis-à-vis earnings releases. In particular, some companies issue an earnings release prior to the Form 10-Q while others wait until the same day or close thereafter. Earnings calls can be scheduled anywhere around the time of either filing or after. The SEC queries the reasons why and impacts of the timing.
The next area of questions relates to whether earnings releases should be the core quarterly disclosure, with 12 multi-layered queries. In this area it seems that the SEC is considering making an earnings release an optional alternative to a Form 10-Q by allowing the Form 10-Q to incorporate the earnings release by reference and/or only provide supplemental information in the Form 10-Q to the extent it was not included in the earnings release.
Finally, the SEC tackles the topic of reporting frequency, including considering semi-annual reporting with 17 in-depth, multifaceted questions for consideration.