The excitement was palpable yesterday upon the release of the SEC’s semiannual reporting proposal, much like when Navin R. Johnson proclaimed “The new phone book is here! The new phone book is here!” in The Jerk some 47 years ago.

If you are wondering why we did not receive a heads-up that these proposed amendments were to be considered at an upcoming open meeting of the Commission, that is because there was no open meeting scheduled and thus no Sunshine Act notice was issued. Here is a blog from Broc from over a dozen years ago explaining the Commission’s ability to propose and adopt rules by seriatim, without the need to hold an open meeting. With the Commission now comprised of a Chairman and two Commissioners that are all from the same political party (and therefore they would be expected to unanimously approve rulemaking actions), it is likely that we will not see too many rulemaking actions considered at full-blown open meetings. As Liz explained and Meredith expanded upon in recent blogs, we are still able to get some insight into imminent rulemakings by monitoring the dashboard of the White House’s Office of Information and Regulatory Affairs (OIRA), where SEC rulemaking initiatives under review by that office are listed until the review is completed. The difference with this approach is largely that we do not have any way of predicting how long the OIRA process will take, whereas with a Sunshine Act notice you generally knew that the Commission would consider the rulemaking action within a week’s time.

As this entry from the Goodwin Public Company Advisory Blog notes, the SEC’s proposed amendments contemplating an optional approach to semiannual reporting:

The SEC proposed amendments (summarized in this Fact Sheet) that would allow public companies to elect to file semiannual reports on new Form 10-S, rather than filing quarterly reports on Form 10-Q. The SEC also proposed amendments to the financial statement reporting requirements of Regulation S-X and other rules and forms to facilitate the semiannual reporting option.

The proposal would amend Exchange Act Rules 13a-13 and 15d-13 to provide reporting companies with the option to shift from quarterly to semiannual reporting. Specifically, companies could elect to file two reports per year on a new Form 10-S and a Form 10-K, rather than filing a Form 10-K and three Form 10-Qs. Those companies that do not make this election would continue to file periodic reports on a quarterly cycle as is the case today. The election would be made by checking a box on specified filings, including the Form 10-K or certain registration statements, and is intended to provide companies with greater flexibility to choose the reporting cadence that best aligns with their business and investor needs.

Proposed Form 10-S would require the same narrative disclosures and financial information as Form 10-Q, but covering a fiscal six-month period rather than a fiscal quarter. The financial statements for a semiannual period would be prepared in accordance with U.S. GAAP and reviewed by an independent auditor, but would not need to be audited. The Form 10-S would be due 40 or 45 days after the end of the reporting period, depending on a company’s filer status.

The SEC’s proposal also includes conforming changes to Regulation S-X to align financial statement requirements with an optional semiannual reporting framework. In particular, the SEC would revise “age of financial statements” requirements to ensure that financials included in registration statements are not considered stale under rules originally designed for quarterly reporting. The amendments would also simplify and consolidate these timing requirements into a single rule, reflecting a move toward a more streamlined and flexible financial reporting regime.

Even though no open meeting was held, statements were issued by Chairman Atkins, Commissioner Peirce and Commissioner Uyeda. In his statement, Chairman Atkins noted:

Public companies have an obligation under the federal securities laws to provide information that is material to investors. Yet, the rigidity of the SEC’s rules has prevented companies and their investors from determining for themselves the interim reporting frequency that best serves their business needs and investors. Today’s proposed amendments, if ultimately adopted, would provide companies with increased regulatory flexibility in this regard.

In determining a company’s reporting cadence, a company might consider factors such as the costs and management time of preparing quarterly reports versus semiannual reports, expectations of its investors, potential effects on its cost of capital, the stage of its business development, the nature of its business model, other avenues of disclosure including earnings calls and current reports on Form 8-K, and prospects of increased research coverage, all without undermining fundamental investor protections. Ultimately, this flexibility might reduce some of the burdens of being a public company and potentially influence a company’s decision to become or remain public. The proposal seeks public input on the optional semiannual reporting framework, and I look forward to the public feedback.

Chairman Atkins went on to indicate that this semiannual reporting proposal “is just the first step of the larger, comprehensive effort to review and reshape the current SEC rules governing public companies with respect to their ongoing reporting obligations and their ability to raise capital in the public markets.”

– Dave Lynn