As the Securities and Exchange Commission is currently pursuing President Trump’s request to consider rules that end mandate public companies to file quarterly reports, businesses will have much of their time and money, and there is much to lose for four big accounting firms.
Trump originally proposed switching to six months ago to reporting in a post about True Social a few weeks ago, saying, “saving money and ensuring managers can focus on running the business properly.”
SEC Chairman Paul Atkins told CNBC that a proposal for the rules was ongoing soon after, but suggested that the changes would give businesses the option to change reporting schedules. “For shareholders and public companies, the market can determine what the right cadence is,” Atkins said.
Semi-annual reporting allows businesses to theoretically reduce the substantial costs and labor force associated with submitting quarterly reports. However, independent, external accounting firms, especially the “Big Four” – Deloitte, EY, KPMG, PWC, etc., can help prepare you to lose a large portion of your auditing business. On average, it takes about 180 hours to prepare the required Form 10-Q. This costs can be well over $50,000 for a small business to $1 million for a large business. It also does not include internal audit teams and operations spending.
It is important to note the distinction between quarterly reports or 10-Q and revenue reports. The SEC Requed 10-Q is prepared and reviewed by an independent auditor in accordance with strict disclosure standards. Around the same time, through press releases, companies publish quarterly revenue reports (not audited) to media and investors, highlighting revenue, profits and other key metrics featured in the Official 10-Q.
“We’re looking forward to seeing you in a new way,” said Jerry Maginnis, former audit partner at KPMG’s CPA and former audit partner. “It can have a very big impact on their business model.”
He estimates that up to 15% of a company’s annual audit fees can “lose.”
Larry Rand, visiting professor of economics and financial consultant at Brown University, said the Big Four might be able to recover some of its lost revenue by expanding its consultation and tax services, but it should consider cutting costs. “If you lose a significant income stream, you certainly need to see a way to save money,” he said. “They’ll hire fewer people. They’ll use more artificial intelligence tools,” he added.
That’s happening just as it is. The PWC said in August it expects to hire a third of the university’s campus by 2028. This is driven in part by the rapid emergence of AI and the changing entry-level employment. Changes to SEC rules could be another blow to the accounting firm’s workforce.
The proposed changes to SEC rules were somewhat surprising. It was not among Trump’s volatile targets, from immigrants to DEI.
However, during Trump’s first term, he abandoned the same pitch in 2018. “It’ll save you more flexibility and money,” he posted on Twitter (now X). “I asked the SEC to study!” The SEC elicited comments from a variety of affected stakeholders, including the accounting industry, investment research firms, institutions and individual investors and academics, but ultimately the momentum was stalled.
This iteration could go through the same process, but it is likely to succeed, especially considering the current administration’s previous deregulation victory and steady compliance with Trump’s hopes. In fact, a SEC spokesman said the agency “prioritizes this proposal to further eliminate unnecessary regulatory burdens on businesses.”
Each of the Big 4 accounting firms declined to comment.
Today’s economy is markedly different from the 2018 economy, but not more than tariffs, trade wars and AI, but it is useful to review comments from accounting firms that recede in 2018, when the SEC first took on the issue of quarterly reporting.
Not surprisingly, given the negative implications for the industry, all four supported maintaining a quarterly rhythm. Each cites the value it brings to investors and capital markets. Deloitte, for example, said, “By ensuring investors receive regular, timely and reliable information, the SEC regime has helped make the US market the strongest and most reliable in the world.”
“We believe that quarterly reporting will minimize information asymmetry between management and investors and reduce market uncertainty,” EY said. “Quarterly reporting also helps reduce the risks of the corporate financial reporting system by promoting the timely identification and resolution of potential accounting and reporting issues.”
A user of the financial statements said, “Historically, it has relied on the negative assurances that auditor reviews provide for investment decisions.”
Speaking about the difficulties in reforming the report, PWC said, “The unstructured nature of revenue releases could make it difficult for investors to determine what information is subject to the interim review procedure for independent auditors. Additional guidance needs to be developed.”
As they opposed the changes to the rules, businesses carefully acknowledged the SEC’s authority to review quarterly reporting schedules, which have been mandated since 1970. For example, KPMG said, “We applaud the committee’s continued efforts to re-examine its financial reporting requirements and to renew and streamline it for the benefit of all market participants.”
The reporting process “may benefit from targeted improvements that reduce the burden on companies’ compliance.”
The benefits have long been debated by business leaders and investors, but the concept of six-month reporting is precedent. The European Union and the UK switched from quarterly cadences over a decade ago, but businesses can choose to voluntarily publish quarterly reports.
Dominique Pappard, chief multi-asset manager at financial research firm Morningstar, said these foreign companies “doesn’t have to report quarterly, but a significant number of big companies are still doing it,” even if it’s not an official revenue release.
Papalard can predict the same scenarios adopted in the US, he said. “If a company thinks it’s profitable to provide investors with quarterly information, they continue to do so. I believe they will continue to provide some quarterly updates, if not many,” he said.
In 2018, some commentators said public companies that need to issue debt or stocks at any time have no option but to report quarterly figures or have a higher cost of capital. Additionally, some peer checking is conducted in the market. If a public company is a step away from its major competitors on reporting schedules, investors’ money could leave.
For these and many other reasons, the fear of losing an accounting firm’s business may be less extreme than it appears to be superficial. “Even though it’s not mandated by the SEC, Maginnis said, “It’s not surprising (certain clients) want the accounting firm to be involved somewhat similarly to what’s happening now. In these cases, revenue streams may not be so affected,” he added.
In addition to reducing the costs and rigours of quarterly reporting, another argument in favor of the semi-annual mission is to encourage private companies to go public. The number of publicly available companies in the US has dropped from over 7,000 in 1996 to under 4,000 in 2020.
Revitalizing the IPO market – which has been gaining momentum recently – is an additional way for the Big Four to maintain their heads above the water. “From their perspective, it’s a zero total,” Rand said. “They can lose revenue from their existing client base, but knowing they have to report every six months will make revenue from more companies.”
It will take several months for the SEC to reunit and sift through comments on this proposal. The Big Four were gently pushed back against Trump’s 2018 proposal, but this time the companies could be more settled. “It’s a broad response to a lot of potential commenters,” Rand said. “I don’t think it’s safe.”
Anyway, Maginnis believes the stars are in favour of scheduling changes. “Whether it’s between the president’s support and encouragement for this, and between the current SEC leadership approach to the regulatory landscape, I would say it’s going to be experiencing at least 50-50 opportunities, and perhaps a little better than that.”
