Accounting Workloads Set for a Shake-Up Under Plan to Drop 10-Qs

The Trump administration’s effort to move public companies from a quarterly to semiannual financial reporting schedule is poised to shift corporate accountants’ workloads and increase risks that fraud will go undetected.

The renewed push to reduce the frequency of required filings aims to cut costs and streamline corporate workflows, encouraging more public listings. But even if semiannual reporting becomes an option, accountants would still need to stay on top of financial metrics and check in with C-suite executives regularly, professionals say.

“They may have more work to do in some ways, even though they don’t have the three-ring-circus of quarterly reporting,” accounting analyst Jack Ciesielski said.

President Donald Trump’s proposal—which SEC Chair Paul Atkins recently pledged to fast-track—has renewed a debate over whether the quarterly filings, called Form 10-Qs, are necessary for transparency and fraud prevention.

Investors insist the reports, which do not undergo a formal audit but are still reviewed by outside auditors, strengthen ongoing financial analysis and enhance transparency. Semiannual reporting could make it easier to hide fraud, they say.

Atkins argued in a Sept. 29 Financial Times column that the proposal is “hardly novel” given that the current schedule didn’t begin in the US until 1970, and would simply put a “renewed focus on market-driven disclosure practices.”

The European Union and the United Kingdom follow a semiannual schedule with an option for businesses to report quarterly.

“I don’t think anyone in the accounting department is going to shed a tear should quarterly reporting be done away with and it go to a six-month cadence,” said Dan Berman, managing director at FTI Consulting.

Still, the change wouldn’t have nearly as much of an impact on accounting teams as it might seem, given that financial reporting can be an ongoing process, according to Steve Soter, vice president and industry principal at financial compliance platform Workiva.

“The work of accounting happens every month and actually almost daily, particularly in this kind of new world of data availability and real-time close and real-time reporting,” Soter said.

Longer-Term Thinking

Current requirements force corporate management to prioritize short-term metrics over business-building, Long-Term Stock Exchange Inc. said in a recent petition asking the SEC to amend the rules by allowing a semiannual reporting option.

The “never-ending drumbeat” of quarterly deadlines can be hard on accounting departments, especially smaller ones, Berman said. Altering those deadlines could allow more time to breathe and focus on longer-term priorities, like automating workflows with artificial intelligence or assessing internal financial guardrails.

Dropping the quarterly requirement still may not be the “panacea” it seems, Berman said. Some companies could decide to maintain the frequency to appeal to investors.

More than 85% of investing professionals surveyed by the non-profit CFA Institute in 2019—the year after Trump’s first-term call to consider eliminating 10-Qs—said flexible reporting frequencies would complicate comparisons across companies.

Ultimately, senior management could benefit more than accounting teams from the shift, Joseph Floyd, partner and co-founder of Floyd Advisory, said. C-suite executives could continue to gather information from accountants at a similar rate, but it would not have to be subjected to outside scrutiny.

Ongoing Work

Corporate decision-makers continually want accurate financial information, whether or not that information is in filings, Berman said.

These needs and other ongoing work mean it wouldn’t be smart to cut accounting staff even if 10-Qs go away, according to accounting professionals.

“There could be companies that reduce and find out that there’s other work that needed to be done and realize they made a mistake,” Ciesielski said.

Financial statements in 10-Qs are prepared using US generally accepted accounting principles, or GAAP, easing comparisons of metrics across companies.

These statements are distinct from other parts of the 10-Qs and earnings-focused press releases that contain management analysis and non-GAAP metrics, like adjusted net income.

Companies choosing to continue publishing quarterly press releases on earnings would consider whether to follow the same processes used in 10-Q preparation.

Accounting teams would likely advise similarly robust processes to avoid reputation-damaging errors, Soter said. They would also still have incentives to continue executing certain internal procedures regularly to be efficient, he said.

These measures, called SOX controls after the Sarbanes-Oxley Act, are key to ensuring financial reporting is accurate as mandated by the landmark, post-Enron law.

For example, retailers may have formal documentation processes to ensure they’re using accurate inputs and assumptions in their calculations predicting how much seasonal gear customers will return.

“At accounting, it wasn’t an extra exercise that we were only going to do a couple times a year,” said Soter, who worked for an online retailer that was not public at the time.

Audit Risks

Eliminating mandatory 10-Qs could also add pressure to the auditing process.

High-level check-ins throughout the year give auditors the opportunity to find and discuss anomalies in financial reporting, like gross margin changes, and get face-time with corporate leaders, said Cassie Mongold, assistant professor at the University of Illinois Urbana-Champaign.

“If you lose those touch points, I think it does negatively impact the audit in terms of risk,” Mongold said.

Companies have time to figure out their path forward should semiannual reporting become an option. After petitions like Long-Term Stock Exchange’s are submitted to the SEC, they’re forwarded to the appropriate division or office for consideration and recommendation.

The SEC didn’t comment on the petition and next steps.

In the meantime, businesses should think about how their financial reporting process would change or need to be restructured if semiannual reporting is allowed, Berman said.

“Each individual company is going to have to look at themselves and do a self-assessment and say, ‘Hey, look, what do my investors want to hear? What must we do on a quarterly basis?’” he said.