President Donald Trump on Monday brought the idea of a company that no longer offers quarterly revenue reports, and instead switched to six months.
In the Truth Social Post, Trump said the idea was “subject to SEC approval” and “saving money and allowing managers to focus on running the business properly.”
“Have you heard of a statement that China has a 50-100-year view on managing its company, while it runs a company quarterly?” Trump said.
During his first term, Trump had asked the Securities and Exchange Commission to study the issue, but there were no recommendations on the issue.
The wisdom of quarterly reporting has been questioned previously. In the 2018 operational work of the Wall Street Journal, Warren Buffett of Berkshire Hathaway and CEO Jamie Dimon, JP Morgan Chase, advocated for quarterly guidance, although not reporting revenue.
“In our experience, quarterly revenue guidance often places an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability,” writes Pair.
Current regulations require businesses to report revenue quarterly, but are voluntary to provide forecasts. The rules may be changed from one of the Securities and Exchange Commission or may be changed by Congress.
Materially, the move does not require support from Congress, but rather requires a majority vote for the SEC, which currently has a 3-1 vote majority and has one open seat. Sarah Bianchi, chief strategist of international political issues and public policy at Evercore ISI, said the process would likely take six to 12 months.
“The administration must vary in degrees in Trump’s orders, taking into account policy measures towards the SEC.
This is something that must now be taken seriously as a possibility. “Bianchi, a former US counter-trade representative, said, “However, the SEC has historically been able to operate with some independence.”
Paul Atkins of SEC Chair has not spoken about the issue.
“If efforts to rethink the profits of quarterly reporting in the SEC get steam, it could also encourage conversations about how companies can issue guidance and communicate with investors that have a significant impact on the open market,” Bianchi added.
Advocates of the current system say it provides investors with timely opportunities and transparency about public companies.
Art Hogan, Chief Market Strategist at B. Riley Wealth Management, said: “I think it will cause more difficulties than adding profits because we have to wait six months for the official results.”
While executives have received some criticism for reporting misleading revenue, the commonly accepted accounting principle of GAAP helped to provide guardrails that guarantee standardization. As such, US reports are considered to be one of the most transparent and reliable in the world.
Despite Trump’s comments on China, the companies out there have similar, if not stricter, reporting requirements to the US. Chinese companies are required to submit quarterly revenue reports and six-month and annual reports.
However, companies listed on the Hong Kong Exchange only report every six months.
Trump’s proposal is in line with UK and European Union practices, with businesses required to submit quarterly reports if they choose to issue.
However, Hogan said that a comparison between US and European companies is not effective.
“How many companies have a market capitalization of trillions of dollars in the European market, are increasing revenues at 60% per year, or have a total margin of 50% north?” he said. “Investors are better off having more information than frequent information.”
Earlier this year, Norwegian Sovereign Wealth Fund proposed a switch to semi-annual reporting, inferring that extending time frames would allow companies to focus on the long term. The long-term securities trading platform also supports infrequent reporting.
The White House declined to comment further on the Trump Post. CNBC contacted the SEC for comment.
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