[Federal Register Volume 83, Number 245 (Friday, December 21, 2018)]
[Proposed Rules]
[Pages 65601-65609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27663]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 230, 239, 240, 243, and 249

[Release No. 33-10588; 34-84842; File No. S7-26-18]


Request for Comment on Earnings Releases and Quarterly Reports

AGENCY: Securities and Exchange Commission.

ACTION: Request for comment.

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SUMMARY: The Commission is requesting public comment on how we can 
enhance, or at a minimum maintain, the investor protection attributes 
of periodic disclosures while reducing administrative and other burdens 
on reporting companies associated with quarterly reporting. We are 
specifically requesting public comment on the nature and timing of the 
disclosures that reporting companies are required to provide in their 
quarterly reports filed on Form 10-Q, including when the disclosure 
requirements overlap with disclosures these companies voluntarily 
provide to the public in the form of an earnings release furnished on 
Form 8-K. We are interested in exploring ways to promote efficiency in 
periodic reporting by reducing unnecessary duplication in the 
information that reporting companies disclose and how such changes 
could affect capital formation, while enhancing, or at a minimum 
maintaining, appropriate investor protection. We also are requesting 
public comment on whether our rules should provide reporting companies, 
or certain classes of reporting companies, with flexibility as to the 
frequency of their periodic reporting. In addition, we are seeking 
comment on how the existing periodic reporting system, earnings 
releases, and earnings guidance, standing alone or in combination with 
other factors, may affect corporate decision making and strategic 
thinking--positively or negatively--including whether these factors 
foster an inefficient outlook among registrants and market participants 
by focusing on short-term results, sometimes referred to as ``short-
termism.''

DATES: Comments should be received by March 21, 2019.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/other.shtml); or
     Send an email to [email protected]. Please include 
File Number S7-26-18 in the subject line.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number S7-26-18. This file number 
should be included in the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's website (http://www.sec.gov/rules/other.shtml). Comments 
also are available for website viewing and printing in the Commission's 
Public Reference Room, 100 F Street NE, Washington, DC 20549, on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
All comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Courtney L. Lindsay, Attorney-Adviser, 
or Lilyanna L. Peyser, Special Counsel at (202) 551-3430, Division of 
Corporation Finance, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Background

Overview of Quarterly Reporting

    In addition to annual and current reports, companies subject to the 
periodic reporting requirements under the Securities Exchange Act of 
1934 (``Exchange Act''), other than foreign private issuers, must file 
quarterly reports \1\ on Form 10-Q,\2\ which include interim financial 
statements \3\ and other disclosure items.\4\ Form 10-Q is often 
forward incorporated by reference into certain registration statements 
under the Securities Act of 1933 (``Securities Act''), thereby avoiding 
unnecessary duplication of information about an issuer's recent 
financial results and material business developments that was 
previously filed and remains available electronically on EDGAR.\5\ This 
forward incorporation helps reduce the time and costs associated with 
frequent updating of a registration statement to reflect such 
developments. A company's Form 10-Q must comply with the requirements 
of Sections 13(a) or 15(d) of the Exchange Act, as applicable, and is 
subject to liability under Sections 10(b) and 18 of the Exchange Act 
and Rule 10b-5 thereunder.\6\ In addition, in certain circumstances, 
including in the offer and sale of securities, reporting companies, 
affiliates, and underwriters may be subject to liability for their

[[Page 65602]]

disclosure in Form 10-Q under Sections 11, 12, and 17 of the Securities 
Act.\7\
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    \1\ See 17 CFR 240.13a-13 and 17 CFR 240.15d-13.
    \2\ 17 CFR 249.308a.
    \3\ See 17 CFR 210.8-03 (``Rule 8-03'') and 17 CFR 210.10-01 
(``Rule 10-01'').
    \4\ Form 10-Q also requires a management's discussion and 
analysis of financial condition and results of operations 
(``Management's Discussion and Analysis''), along with disclosures 
on quantitative and qualitative market risk, company disclosure 
controls and procedures, legal proceedings, material changes to 
previously disclosed risk factors, unregistered sales of equity 
securities and the use of proceeds from such sales, defaults upon 
senior securities, mine safety disclosures, and any information 
required to be disclosed in a report on Form 8-K during the period 
covered by the relevant 10-Q that was not reported.
    \5\ See 17 CFR 230.415 (``Rule 415''), Item 12(a) of Part I of 
Form S-1 [17 CFR 239.11], and Item 12(a) of Part I of Form S-3 [17 
CFR 239.13]. All documents, not just a Form 10-Q, subsequently filed 
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act 
may be forward incorporated by reference on Form S-3. Smaller 
reporting companies may forward incorporate by reference on Form S-1 
all documents subsequently filed pursuant to Sections 13(a), 13(c), 
14, or 15(d) of the Exchange Act.
    \6\ 15 U.S.C. 78m; 15 U.S.C. 78o; 15 U.S.C. 78r; 15 U.S.C. 
78j(b); and 17 CFR 240.10b-5. General Instruction F.1. of Form 10-Q 
states that pursuant to Rule 13a-13(d) [17 CFR 240.13a-13(d)] and 
Rule 15d-13(d) [17 CFR 240.15d-13(d)], the information presented to 
satisfy the requirements of Part I Items 1, 2 and 3 shall not be 
deemed filed for purposes of Section 18 of the Exchange Act or 
otherwise subject to the liability of that section, but shall be 
subject to other provisions of the Exchange Act. Further, companies 
must submit their Form 10-Q financial statement disclosures in the 
eXtensible Business Reporting Language (``XBRL'') format, and these 
XBRL structured financial statement disclosures are subject to the 
same disclosure liability. See 17 CFR 229.601(b)(101) (``Item 
601(b)(101) of Regulation S-K''). The Commission recently adopted 
amendments requiring Inline XBRL, a newer XBRL technology, with 
phased compliance dates depending on filer status: Large accelerated 
filers and accelerated filers that prepare their financial 
statements in accordance with U.S. GAAP must comply with the 
requirements for fiscal periods ending on or after June 15, 2019 and 
June 15, 2020, respectively; all other filers must comply with the 
requirements for fiscal periods ending on or after June 15, 2021. 
See SEC Release No. 33-10514 (Sept. 17, 2018).
    \7\ 15 U.S.C. 77k; 15 U.S.C. 77l; and 15 U.S.C. 77q. Each of 
these provisions, which we reference throughout this Request for 
Comment, imposes liability on companies in certain instances for 
making any untrue statements of a material fact or omitting to state 
a material fact necessary in order to make the statements made, in 
the light of the circumstances under which they were made, not 
misleading. Liability under certain of these provisions, such as 
Sections 11 and 12 of the Securities Act and Section 18 of the 
Exchange Act, attaches only to documents that are filed with the 
Commission or incorporated by reference into a Securities Act 
registration statement. For example, Section 11 liability can result 
from disclosure in a Form 10-Q that is incorporated by reference 
into a Securities Act registration statement. There are instances, 
however, when liability may attach to documents that are not deemed 
to be filed. For example, liability under Section 10(b) and Rule 
10b-5 of the Exchange Act may attach to documents that are furnished 
to, in addition to documents that are filed with, the Commission.
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    By contrast, foreign private issuers \8\ subject to the periodic 
reporting requirements of the Exchange Act are required to file annual 
reports, but are not required to file quarterly reports.\9\ Foreign 
private issuers are required to furnish reports on Form 6-K to the 
extent that the ``issuer (i) makes or is required to make public 
pursuant to the law of the jurisdiction of its domicile or in which it 
is incorporated or organized, or (ii) files or is required to file with 
a stock exchange on which its securities are traded and which was made 
public by that exchange, or (iii) distributes or is required to 
distribute to its security holders.'' \10\ Among other information 
required to be furnished in this context, foreign private issuers must 
disclose material information about changes in business, changes in 
management or control, changes in the registrant's auditors,\11\ the 
financial condition and results of operations, material legal 
proceedings, and related party transactions.\12\ Foreign private 
issuers are subject to liability for the disclosures they make in Form 
6-K under Section 10(b) of the Exchange Act and Rule 10b-5 
thereunder.\13\ In addition, foreign private issuers, affiliates and 
underwriters are subject to liability for the disclosures they make in 
Form 6-K under Sections 11, 12, and 17 of the Securities Act \14\ to 
the extent the Form 6-K is incorporated by reference into a Securities 
Act registration statement.
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    \8\ A foreign private issuer is any foreign issuer other than a 
foreign government, except for an issuer that has more than 50% of 
its outstanding voting securities held of record by U.S. residents 
and any of the following: A majority of its officers or directors 
are citizens or residents of the United States; more than 50% of its 
assets are located in the United States; or its business is 
principally administered in the United States. See 17 CFR 230.405 
and 17 CFR 240.3b-4(c). Foreign private issuers with a class of 
securities listed on the NYSE or NASDAQ must submit semi-annual 
unaudited financial information under cover of Form 6-K within six 
months following the end of the second fiscal quarter. See NYSE Rule 
203.03 and NASDAQ Rule 5250(c)(2). Similarly, Item 8.A.5 of Form 20-
F requires a foreign private issuer to include interim financial 
statements when its registration statement is dated more than nine 
months after the end of the last audited financial year. In 
addition, foreign private issuers may have more frequent reporting 
requirements based on the laws of their home country.
    \9\ Issuers conducting Tier 2 offerings under Regulation A also 
are required to file annual and semi-annual reports, as well as 
current reports, with the Commission, but are not required to file 
quarterly reports. See 17 CFR 230.257(b).
    \10\ 17 CFR 249.306.
    \11\ Commission rules and forms use various terms to refer to 
the accountant that is independent and performs the audit and review 
of the registrant's financial statements as required by Regulation 
S-X. For example, Rule 2-01 of Regulation S-X uses the term 
``auditor'' interchangeably with ``certified public accountant,'' 
``public accounting firm,'' or ``public accountant.'' Form 6-K uses 
the term ``certifying accountants.'' In this Request for Comment, we 
refer to these accountants as ``auditors.''
    \12\ 17 CFR 249.306.
    \13\ 15 U.S.C. 78j; 17 CFR 240.10b-5.
    \14\ 15 U.S.C. 77k; 15 U.S.C. 77l; 15 U.S.C. 77q.
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    There are many jurisdictions and foreign exchanges that have 
quarterly reporting requirements similar to the United States, 
including Canada, Hong Kong and Japan.\15\ The European Union and other 
jurisdictions, by contrast, recently developed requirements that differ 
from those in the United States to address concerns about the frequency 
of reporting. The evolution of reporting requirements in these 
jurisdictions may inform the policy considerations presented by 
potential changes to the United States reporting system. In 2004, the 
European Union adopted the Transparency Directive (2004/109/EC), which 
governs the ongoing disclosure requirements for companies whose 
securities are listed on a European Economic Area (``EEA'')-regulated 
market.\16\ The Transparency Directive required listed companies to 
publish a quarterly report, known as the interim management statement 
(``IMS'').\17\ Unlike a quarterly report on Form 10-Q, an IMS did not 
require financial statements, but rather, needed to include only a 
``general description of the [company's] financial position and 
performance since the last half-yearly or annual report and [explain] 
any material events and transactions that have since taken place.'' 
\18\
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    \15\ See Hong Kong Stock Exchange Listing Rule 18.66, National 
Instrument 51-102 Continuous Disclosure Obligations (Canada), and 
Financial Instruments and Exchange Act (Act No. 25 of 1948) (Japan).
    \16\ Directive 2004/109/EC on the Harmonisation of Transparency 
Requirements in Relation to Information about Issuers Whose 
Securities Are Admitted to Trading on a Regulated Market and 
Amending Directive 2001/34/EC (Dec. 15, 2004) (OJ L 390, 31.12.2004, 
p.38-57) (``Transparency Directive'').
    \17\ A key argument in favor of quarterly reports was to 
increase investor protection and investor confidence, as well as to 
``close the transparency gap between the USA and the EU.'' See 
Thomas Schleicher & Martin Walker, Are Interim Management Statements 
Redundant? 233 (Mar. 2015), available at http://dx.doi.org/10.1080/00014788.2014.1002444 (``Are Interim Management Statements 
Redundant?''). Prior to the Transparency Directive, most European 
Union member states required only semi-annual and annual reports, 
although several countries required quarterly reports, specifically: 
Finland, Greece, Portugal, Sweden, Italy, and Spain.
    \18\ See Transparency Directive, supra note 16. Commentators 
observed that ``IMSs are lightly regulated trading statements with 
management retaining considerable control over form and content'' 
and that ``the issuer can choose which financial statement line 
item, if any, to comment on . . . .'' See Are Interim Management 
Statements Redundant?, supra note 17.
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    In 2013, the EU adopted the Revised Directive on transparency 
requirements (2013/50/EU), or the Revised Transparency Directive, which 
abolished the requirement to publish IMSs.\19\ Although a report that 
preceded the Revised Transparency Directive noted that IMSs were 
generally well-perceived by market participants,\20\ the Revised 
Transparency Directive noted that the IMSs were a burden for small and 
medium-sized issuers \21\ without being necessary for investor

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protection.\22\ Furthermore, the IMSs were thought to encourage a focus 
on short-term performance and discourage long-term investment.\23\
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    \19\ Directive 2013/50/EU Amending Directive 2004/109/EC on the 
Harmonisation of Transparency Requirements in Relation to 
Information About Issuers Whose Securities are Admitted to Trading 
on a Regulated Market, Directive 2003/71/EC on the Prospectus to be 
Published When Securities are Offered to the Public or Admitted to 
Trading and Commission Directive 2007/14/EC Laying Down Detailed 
Rules for the Implementation of Certain Provisions of Directive 
2004/109/EC of the European Parliament and of the Council of 22 
October 2013 Amending Directive 2004/109/EC, (Oct. 22, 2013) (OJ L 
294, 6.11.2013, p. 13-27). This followed the 2010 European 
Commission report reviewing the operation of the Transparency 
Directive, which considered whether quarterly disclosures 
contributed to undue focus on near-term results. The report noted 
that abolishing the quarterly information requirement would 
alleviate pressure on issuers and establish incentives for a longer-
term vision. See Report from the Commission to the Council, the 
European Parliament, the European Economic and Social Committee and 
the Committee of the Regions--Operation of Directive 2004/109/EC on 
the Harmonisation of Transparency Requirements in Relation to 
Information About Issuers Whose Securities are Admitted to Trading 
on a Regulated Market (May 27, 2010) (SEC 611) (``EU Commission 
Report'').
    \20\ See EU Commission Report, supra note 19.
    \21\ See Commission Recommendation of 6 May 2003 Concerning the 
Definition of Micro, Small and Medium-Sized Enterprises, (May 5, 
2003) (OJ L 124 20.5.2003, p. 36-41) (defining ``micro,'' ``small'' 
and ``medium-sized'' enterprises as ``enterprises which employ fewer 
than 250 persons and which have an annual turnover not exceeding EUR 
50 million, and/or an annual balance sheet total not exceeding EUR 
43 million'' and further clarifying that ``small'' enterprises as 
those that ``[employ] fewer than 50 persons and whose annual 
turnover and/or annual balance sheet total does not exceed EUR 10 
million.'').
    \22\ See Revised Transparency Directive, supra note 19 at 13 
(``The obligations to publish interim management statements or 
quarterly financial reports represent an important burden for many 
small and medium-sized issuers whose securities are admitted to 
trading on regulated markets, without being necessary for investor 
protection.'').
    \23\ See the Revised Transparency Directive at 13 (``Those 
obligations also encourage short-term performance and discourage 
long-term investment. In order to encourage sustainable value 
creation and long-term oriented investment strategy, it is essential 
to reduce short-term pressure on issuers and give investors an 
incentive to adopt a longer term vision. The requirement to publish 
interim management statements should therefore be abolished.'').
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    Under the Revised Transparency Directive, a European Union member 
state may require issuers to publish additional periodic financial 
information on a more frequent basis than the annual or half-yearly 
reports only under specific conditions.\24\ Companies may nonetheless 
publish quarterly information on a voluntary basis.
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    \24\ Specifically, more frequent reporting may be instituted if, 
after an assessment of the impacts, it is shown that such additional 
requirement does not lead to (a) an excessive focus on short-term 
results and performance of the issuers and (b) to a negative impact 
on the access of small and medium sized issuers to regulated 
markets.
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    In addition, effective November 7, 2014, the Financial Conduct 
Authority (``FCA'') of the United Kingdom \25\ eliminated IMS 
requirements. Issuers are permitted to continue to publish IMSs on a 
voluntary basis, but the FCA does not treat them as regulated 
information.\26\ A 2017 market survey found that, in a sample of 516 
U.K. companies, 471 (91.3%) continued issuing quarterly reports in 
2015.\27\ A more recent analysis found that ``between October 2016 and 
[August 2017], the number of [Financial Times Stock Exchange 
(``FTSE'')] 100 companies issuing quarterly reports fell by nearly a 
fifth, from 70 to 57. Among the FTSE 250, the figure fell by a quarter, 
from 111 to 83.'' \28\
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    \25\ The FCA is the conduct regulator for financial services 
firms and financial markets in the United Kingdom and the prudential 
regulator for many of those firms.
    \26\ See Removing the Transparency Directive's Requirement to 
Publish Interim Management Statements, Financial Conduct Authority 
(Nov. 2014), available at https://www.fca.org.uk/publication/policy/ps14-15.pdf.
    \27\ See Suresh Nallareddy, Robert Pozen & Shivaram Rajgopal, 
Consequences of Mandatory Quarterly Reporting: The U.K. Experience, 
Columbia Business School Research Paper No. 17-33 (Mar. 1, 2017), 
available at https://ssrn.com/abstract=2817120 (the survey also 
found evidence that the companies that ceased issuing quarterly 
reports were smaller than average, were less likely to provide 
marginal guidance in mandatory reporting, and were more likely to be 
in the energy industry). See also PricewaterhouseCoopers' survey on 
quarterly reporting for listed companies and transition to IFRS 16 
(Nov. 9, 2017), available at https://www.pwc.no/no/publikasjoner/kapitalmarkedstjenester/PwC-survey-quarterly-reporting-listed-companies-and-transition-ifrs-16.pdf (finding that 5% of surveyed 
companies stated that they would not continue to report quarterly or 
had not yet made a decision).
    \28\ Owen Walker, The Long and Short of the Quarterly Reports 
Controversy, Financial Times (July 1, 2018), available at https://www.ft.com/content/e61046bc-7a2e-11e8-8e67-1e1a0846c475.
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    We also note that a 2017 study found that when quarterly reporting 
was no longer required of U.K. companies in 2014, there was no 
significant difference between the levels of corporate investment of 
the U.K. companies that stopped quarterly reporting and those that 
continued quarterly reporting.\29\ There was, however, a general 
decline in the analyst coverage of those companies that reduced the 
frequency of reporting.\30\
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    \29\ See Robert Pozen, Suresh Nallareddy & Shivaram Rajgopal, 
Impact of Reporting Frequency on UK Companies, CFA Institute 
Research Foundation (Mar. 2017).
    \30\ Id.
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Observations on Quarterly Reporting and Earnings Release Practices

    Many companies required to file Form 10-Q also voluntarily 
communicate certain quarterly financial results through earnings 
releases.\31\ Federal securities laws do not require reporting 
companies to publish earnings releases, conduct earnings calls with 
investors and analysts, or issue forward-looking earnings guidance.\32\ 
To the extent that a company makes such communications, neither the 
disclosure of specific information, nor the structure of that 
information, is regulated by the Commission. The Commission does, 
however, regulate the presentation of certain financial measures by 
reporting companies, including in their earnings releases.\33\ To the 
extent that a company elects to make a public announcement or release 
of earnings information,\34\ it must furnish the earnings release on 
Form 8-K.\35\
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    \31\ Among all Form 10-Qs filed with the Commission in calendar 
year 2017, we estimate that 63% were accompanied by prior or 
concurrent earnings releases furnished on Form 8-K. For Form 10-Qs 
filed by S&P 500 and S&P 1500 Super Composite companies in calendar 
year 2017, we estimate that 97% and 98%, respectively were 
accompanied by prior or concurrent earnings releases furnished on 
Form 8-K.
    \32\ The term ``earnings release'' as used in this Request for 
Comment means a public announcement or release by a company, or 
person acting on its behalf, of material non-public information 
regarding a company's results of operations or financial condition 
for a completed quarterly or annual financial period. The 
requirements of Item 2.02 of Form 8-K are triggered by the 
disclosure of this information. Forward-looking information provided 
by a company to its investors on a quarterly basis in a method other 
than Form 8-K or Form 10-Q is referred to as ``forward-looking 
earnings guidance'' or ``earnings guidance.''
    \33\ See 17 CFR 244.100 and 17 CFR 229.10. In addition, earnings 
releases and related communications are subject to the antifraud 
provisions of the federal securities laws.
    \34\ Generally, a company publishes an earnings release prior to 
the occurrence of any associated conference call with investors and 
analysts.
    \35\ See Item 2.02 of Form 8-K [17 CFR 249.308]. Forms 8-K that 
are furnished to, as opposed to filed with, the Commission are not 
automatically incorporated into Securities Act registration 
statements or subject to liability under Section 18 of the Exchange 
Act; however, they are subject to liability under Section 10(b) and 
Rule 10b-5 of the Exchange Act. An issuer also may choose to file, 
rather than furnish, earnings release information on Form 8-K, for 
example, in order to ensure that a registration statement currently 
in use does not contain a material omission of the information 
contained in an earnings release.
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    While some companies provide earnings releases in advance of the 
corresponding Form 10-Q filings, many companies now issue earnings 
releases concurrently with their Form 10-Q filings.\36\ Given the 
potential overlap between the financial information provided in the 
earnings release and the Form 10-Q, some market participants view the 
Form 10-Q primarily as a compliance document that subsequently (or 
concurrently) confirms the material information about the quarterly 
period included in an earnings release issued before (or at the same 
time as) the Form 10-Q.\37\ Other market participants, however, view 
the Form 10-Q as distinct from earnings releases and as an

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essential component of market transparency.\38\
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    \36\ See Arif, Salman et. al. A Growing Disparity in Earnings 
Disclosure Mechanisms: The Rise of Concurrently Released Earnings 
Announcements and 10-Ks (June 6, 2018), Kelley School of Business 
Research Paper No. 16-50, available at https://ssrn.com/abstract=2801701 (stating that ``the fraction of concurrent 
[earnings releases and Form 10-Q filings] has increased from 20% in 
2002 to more than 60% by 2015'') (``A Growing Disparity in Earnings 
Disclosure Mechanisms'').
    \37\ See The Promise of Market Reform, Nasdaq, (May 2017), 
available at https://business.nasdaq.com/media/Nasdaq_Blueprint_to_Revitalize_Capital_Markets_April_2018_tcm5044-43175.pdf (stating that ``companies provide key data via an earnings 
press release each quarter'' and that ``[f]or virtually all 
investors, the press release is the quarterly report. Yet companies 
are then required to file a formal Form 10-Q . . . which is complex, 
time-consuming, and provides little additional actionable 
information that cannot be found in the press release'') (``The 
Promise of Market Reform''). See, also, Diamond, Colin J. and Irina 
Yevmenenko, Earnings Releases and Earnings Calls, White & Case LLP 
(2015), available at https://www.whitecase.com/sites/whitecase/files/files/download/publications/article-earnings-releases-and-earnings-calls.pdf (stating that ``earnings releases and calls are 
among the most material announcements that reporting companies 
make'' and ``often result in significant movements in a reporting 
company's stock price,'' and that ``a company's stock price usually 
is not affected by the filing of its Form 10-K or Form 10-Q 
following a corresponding earnings release, because all material 
information has already been disclosed in the earnings release'').
    \38\ See, e.g., Jamie Dimon & Warren E. Buffett, Short-Termism 
Is Harming the Economy: Public companies should reduce or eliminate 
the practice of estimating quarterly earnings, Wall St. J. (Jun. 6, 
2018) (``Dimon and Buffet WSJ Article''), available at https://www.wsj.com/articles/short-termism-is-harming-the-economy-1528336801 
(stating that the authors' misgivings about quarterly earnings 
forecasts should not be misconstrued as opposition to quarterly and 
annual reporting that offers a retrospective look at actual 
reporting); Michael Posner, Why Quarterly Reporting Makes Business 
Sense, Forbes (Aug. 17, 2018), available at https://www.forbes.com/sites/michaelposner/2018/08/17/why-quarterly-reporting-from-business-makes-sense/#1416b5c67ed8 (discussing information that is 
contained in the Form 10-Q that is distinct from what is providing 
in an earnings release); Robert C. Pozen & Mark Roe, Keep Quarterly 
Reporting, Brookings Institution (Sept. 5, 2018), available at 
https://www.brookings.edu/opinions/keep-quarterly-reporting/ 
(opposing quarterly earnings guidance and expressing a belief that a 
semi-annual reporting would not be beneficial).
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    Form 10-Q typically contains most, if not all, of the historical 
information presented in an earnings release along with additional 
information, such as the financial disclosures required by U.S. GAAP. 
The information in Form 10-Q is typically provided in greater detail 
than in an earnings release and is easier to machine process and 
analyze, through the aggregation of results and comparison across 
filers, because it is required to be structured in interactive data 
format. While financial statements in Form 10-Q are unaudited, 
Regulation S-X \39\ specifies that the interim financial statements 
included in Form 10-Q must be reviewed by an auditor \40\ and U.S. GAAP 
prescribes the form and content of interim financial statements.\41\ In 
addition, the Form 10-Q requires certification by the principal 
executive and financial officers of the reporting company.\42\ A Form 
8-K, however, is not subject to such requirements. Some of the 
potential changes and flexibility described in this Request for 
Comment, therefore, may require coordination with standard-setters, 
such as the FASB, PCAOB, as well as the stock exchanges and appropriate 
quoting venues.
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    \39\ Rules 8-03 and 10-01(d).
    \40\ The Public Company Accounting Oversight Board (``PCAOB'') 
is generally the standard-setter for audit and review procedures in 
the United States. The PCAOB's AS 4105, Reviews of Interim Financial 
Information, addresses the auditor requirements for reviews of 
interim financial information.
    \41\ Financial Accounting Standards Board (``FASB'') Accounting 
Standards Codification (``ASC'') 270: Interim Reporting also 
provides recognition and measurement guidance for interim periods. 
The Commission has designated the FASB as the private-sector 
accounting standard setter for United States financial reporting 
purposes. Section 108 of the Sarbanes-Oxley Act amended Section 19 
of the Securities Act to provide that the Commission ``may 
recognize, as `generally accepted' for purposes of the securities 
laws, any accounting principles established by a standard setting 
body that met certain criteria.'' The Commission has determined that 
the FASB satisfies the criteria in Section 19 and, accordingly, the 
FASB's financial accounting and reporting standards are recognized 
as ``generally accepted'' for purposes of the federal securities 
laws. See Policy Statement: Reaffirming the Status of the FASB as a 
Designated Private-Sector Standard Setter, Release No. 33-8221 (Apr. 
25, 2003) [68 FR 23333 May 1, 2003].
    \42\ 17 CFR 240.13a-14 (``Rule 13a-14'') and 17 CFR 240.15d-14 
(``Rule 15d-14''). These rules require the certifying officers to 
certify, among other things, that they have reviewed the Form 10-Q 
and that based on their knowledge: (i) The 10-Q does not contain any 
untrue statement of material fact or omit to state a material fact 
necessary to make any statements made, in light of the circumstances 
under which such statements were made, not misleading with respect 
to the period covered by the 10-Q; and (ii) the financial 
statements, and other financial information included in the 10-Q, 
fairly present in all material respects the financial condition, 
results of operations and cash flows of the company as of, and for, 
the periods presented in the 10-Q.
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II. Purpose of Request for Comment

    The purpose of this Request for Comment is to solicit public input 
on the nature, timing, format and frequency of periodic reporting, as 
well as the relationship between the periodic reports that Exchange Act 
reporting companies must provide and the earnings releases that they 
must furnish on Form 8-K, to the extent they choose to issue such 
releases. We seek to understand how we might simplify the process by 
which investors access, process, and evaluate information, for example, 
by relieving any burdens associated with investors' efforts to compare 
an earnings release and Form 10-Q to identify information that is new 
or different. We also are interested in exploring how we might enhance, 
or at a minimum maintain, the investor protection benefits of 
disclosure, while reducing the costs (including time) \43\ that 
companies spend complying with quarterly reporting requirements. For 
example, we seek comment on the potential benefits and drawbacks of 
providing an option for companies that issue earnings releases to use 
the releases to satisfy the core disclosure requirements of Form 10-Q.
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    \43\ See The Promise of Market Reform, supra note 37.
---------------------------------------------------------------------------

    In addition, we are seeking comment on how the periodic reporting 
system, earnings releases, and earnings guidance may affect corporate 
decision making and strategic thinking--positively and negatively--
including whether it fosters an inefficient outlook among registrants 
and market participants by focusing on short-term results. For example, 
some market participants have urged companies to ``move away from 
providing'' earnings per share guidance that companies give and instead 
put more focus in Form 10-Qs on demonstrating progress made against the 
company's long-term strategic plan.\44\
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    \44\ Matt Turner, Here is the Letter the World's Largest 
Investor, BlackRock CEO Larry Fink, Just Sent to CEOs Everywhere, 
Business Insider (Feb. 2, 2016) (``2016 Fink Letter to CEOs''), 
available at https://www.businessinsider.com/blackrock-ceo-larry-fink-letter-to-sp-500-ceos-2016-2 (affirming support of quarterly 
reports and stating that companies should stop publishing earnings 
per share guidance to encourage a focus on a company's long-term 
plans for value creation). See also Dimon and Buffet WSJ Article, 
supra note 38.
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    In the past, the Commission has received input related to some of 
the issues discussed in this Request for Comment.\45\ Most recently, we 
requested comment on issues related to the frequency of reporting in 
our Concept Release on business and financial disclosure requirements 
in Regulation S-K (``Concept Release'').\46\ As we continue to evaluate 
this topic, we are soliciting additional input from the public on 
issues related to the nature, timing, format, and frequency of 
reporting in the context of the more narrow scope of this Request for 
Comment. The Commission encourages commenters to provide any data and 
information that could help us quantify the effects of the approaches 
discussed herein on capital formation and investor protection.
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    \45\ See, e.g., Final Report of the Advisory Committee on 
Improvements to Financial Reporting to the United States Securities 
and Exchange Commission, Advisory Committee on Improvements to 
Financial Reporting, (Aug. 1, 2008), available at https://www.sec.gov/about/offices/oca/acifr/acifr-finalreport.pdf. See also, 
e.g., Final Rule: Conditions for Use of Non-GAAP Financial Measures, 
Release No. 33-8176; 34-47226 (Jan. 22, 2003), available at https://www.sec.gov/rules/final/33-8176.htm.
    \46\ See Business and Financial Disclosure Required by 
Regulation S-K, Release No. 33-10064; 34-77599 (Apr. 13, 2016) [81 
FR 23916 (Apr. 22, 2016)], available at https://www.sec.gov/rules/concept/2016/33-10064.pdf. Comment letters related to the Concept 
Release are available at https://www.sec.gov/comments/s7-06-16/s70616.htm.
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III. Issues for Consideration

A. Information Content Resulting From the Quarterly Reporting Process

    Certain material information required by Form 10-Q is frequently 
provided in earnings releases. However, in our observation, there is 
variation in the items and methods of presentation in earnings 
releases. Companies often report certain financial (and statistical) 
information such as net income, earnings per share, and net sales, and 
some may include condensed income statements, balance sheets, and cash 
flow statements along with segment information. This financial 
information

[[Page 65605]]

is often accompanied by a narrative discussion of the financial 
information provided. However, more detailed information that is 
generally reported on Form 10-Q, such as the notes to the financial 
statements, a detailed and comprehensive Management's Discussion and 
Analysis, disclosure relating to contractual obligations and market 
risk, and a description of material changes to previously disclosed 
risk factors,\47\ typically does not appear in an earnings release.\48\ 
Information included in earnings releases sometimes does not appear in 
a Form 10-Q. For example, management may provide its expectations of 
the company's future financial performance or ``forward-looking 
earnings guidance'' in the earnings release or on the quarterly 
earnings call.
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    \47\ Pursuant to Rule 13a-13(d) and Rule 15d-13(d), the 
information presented to satisfy the requirements of Part I Items 1, 
2 and 3 shall not be deemed filed for purposes of Section 18 of the 
Exchange Act or otherwise subject to the liability of that section, 
but shall be subject to other provisions of the Exchange Act.
    \48\ In our observation, the financial information contained in 
earnings releases is not ordinarily presented in a manner that 
constitutes interim financial statements pursuant to Rules 8-03 and 
10-01. We also note that Rule 10-01(a)(5) includes a presumption 
that users of the interim financial information have read or have 
access to the audited financial statements for the preceding fiscal 
year. Further, it permits the omission of certain footnote 
disclosures that substantially duplicates the disclosure contained 
in the most recent annual report to shareholders or audited 
financial statements.
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Request for Comment
    1. Why do reporting companies choose to issue earnings releases, 
most typically quarterly? What are the costs to such companies in 
preparing earnings releases? Would companies choose to stop issuing 
these releases if disclosure of quarterly results was not required on 
Form 10-Q, or would this provide a greater incentive to issue them? Why 
do some companies choose to file only a Form 10-Q report and not to 
issue a separate earnings release?
    2. Do quarterly earnings releases provide benefits to investors, 
companies, or the marketplace separate and apart from the Form 10-Q 
report? If so, please describe the primary benefits. How do investors 
use earnings guidance to inform their investment decisions? To the 
extent there are benefits, do they stem largely from the content of the 
releases, their timing, or other reasons? Do they have any negative 
effects on investors, companies, or the marketplace? If so, please 
describe such effects.
    3. How do companies determine the information to present in the 
earnings release? Is there a market standard, or are companies 
otherwise generally consistent in the type and amount of information 
they present in earnings releases? To what extent is the content of 
earnings releases provided in response to investor and analyst needs or 
demands? Are such releases satisfying those needs? How would the 
content of earning releases change if they were required to be filed 
with the Commission and become subject to applicable liability 
provisions?
    4. Is the Form 10-Q or the earnings release the primary document 
upon which investors rely when a company provides both? What are the 
factors or circumstances that an investor considers when determining 
which document to rely on? Are there any benefits to investors and 
other market participants from having two sources of historical 
quarterly financial information, when only one is required? How do 
investors use quarterly financial information, and how does it inform, 
if at all, their investments decisions made throughout the year? Are 
there specific pieces of quarterly information that are important to 
long-term investors?
    5. Are there meaningful differences between the financial 
information typically provided in an earnings release and the financial 
information required by Form 10-Q? What accounts for the differences?
    6. When a company issues an earnings release that includes much of 
the information required by Form 10-Q before the form is filed, is the 
Form 10-Q still useful? Why or why not? How important to investors is 
the confirmation or interpretation by the Form 10-Q of the information 
in the earnings release? If investors rely on Form 10-Q as the primary 
document, is the historical financial information about the quarterly 
period included in the earnings release useful? Why or why not? Does 
the fact that Form 10-Qs are filed as opposed to furnished, and include 
certifications, impact the extent to which investors rely on them? \49\ 
Are there any instances when information disclosed in earnings releases 
may be useful to investors for purposes of interpreting the content of 
Form 10-Q? If so, when and how?
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    \49\ See General Instruction F of Form 10-Q.
---------------------------------------------------------------------------

    7. Does confusion arise from overlapping disclosures in the 
earnings release and Form 10-Q? If so, are there changes we could make 
to our rules that would discourage the practice of providing earnings 
releases that contain information that is different than what is 
contained in Form 10-Q? Are there unnecessary burdens to investors or 
other market participants associated with reviewing, comparing, and 
digesting two presentations of similar financial information?
    8. Some have suggested that the practice of providing quarterly 
forward-looking earnings guidance creates an undue focus on short-term 
financial results and thereby negatively affects the ability of 
companies to focus on long-term results.\50\ Is this the case and, if 
so, are there changes we could make to our rules that would discourage 
this practice or address this concern? For example, should we require 
that earnings guidance be filed with or furnished to the Commission? 
Are there other factors that promote a focus on short-term results? If 
so, what are they and what is their impact on investors and companies?
---------------------------------------------------------------------------

    \50\ See, e.g., Dimon and Buffet WSJ Article, supra note 38 
(stating that public companies should move ``away from providing 
quarterly earnings-per-share guidance'' because it ``often leads to 
an unhealthy focus on short-term profits at the expense of long-term 
strategy, growth and sustainability''); 2016 Fink Letter to CEOs, 
supra note 44 (noting that ``CEOs should be more focused in these 
reports on demonstrating progress against their strategic plans than 
a one-penny deviation from their EPS targets or analyst consensus 
estimates''). See also, e.g., Darr, Rebecca and Tim Killer, How to 
Build an Alliance Against Corporate Short-Termism, McKinsey & 
Company (Jan. 2017), available at https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-to-build-an-alliance-against-corporate-short-termism (stating that longer-
term investors, who have ``an outsize influence on a company's share 
price over time'' due to their ownership of seven in ten shares of 
U.S. companies, ``generally oppose earnings guidance, especially 
quarterly guidance'' and ``don't like quarterly calls and find them 
a waste of time'' due to the quality of the calls).
---------------------------------------------------------------------------

    9. What are the specific benefits of the required Form 10-Q 
disclosures to investors and the marketplace separate and apart from 
the earnings releases? Do they stem largely from the incremental 
financial statement disclosures, incremental management discussion and 
analysis, auditor review, officer certificates or other items? Are 
there sections of the Form 10-Q that are particularly informative for 
investors? Are there any quarterly disclosure requirements that we 
should eliminate because they elicit disclosures that are not material 
to investors to make it easier for investors to focus on the 
disclosures that are material? If so, which requirements should be 
eliminated?
    10. Do the XBRL requirements of Form 10-Q enhance accessibility 
and/or usability of quarterly information relative to what is available 
from earnings releases, which are not required to be structured for 
machine readability or processing? \51\ If so, how is

[[Page 65606]]

that information used and by whom? Would similar benefits be achieved 
if companies structured earnings releases using XBRL? Why or why not? 
How would the costs of structuring earnings releases in XBRL compare to 
the costs of complying with the XBRL requirements for Form 10-Q?
---------------------------------------------------------------------------

    \51\ See Item 601(b)(101) of Regulation S-K. See also Ken 
Tysiac, Driving Faster Decisions, Journal of Accountancy (Apr. 13, 
2015), available at https://www.journalofaccountancy.com/issues/2015/apr/data-driven-auditing.html.
---------------------------------------------------------------------------

    11. What is the impact of the auditor review requirement of 
quarterly financial information on investors, companies, and other 
market participants? Do investors value the independent auditor review 
of quarterly financial information? Why or why not? Does the auditor 
review requirement have a relationship to the cost of capital for 
companies? If so, how?
    12. What are the cost burdens associated with the preparation of a 
Form 10-Q? Are these cost burdens borne solely from the preparation of 
the Form 10-Q? How do the costs of preparation vary among different 
sections of the report? Would there be costs to a company to the extent 
it does not file a Form 10-Q? Would additional cost burdens be 
associated with the preparation of a registration statement in which a 
company would otherwise incorporate by reference a previously filed 
Form 10-Q?
    13. Are there other sources of information investors use to 
supplement information from earnings releases or quarterly reports? If 
so, please describe these sources.
    14. Are there approaches the Commission should consider to help 
alleviate any burden associated with the preparation of a Form 10-Q 
without adversely affecting the total mix of information provided to 
investors? For example, should we permit companies to omit certain 
disclosures currently furnished on Form 10-Q, such as unregistered 
sales of securities, so long as the information is provided elsewhere, 
such as on their websites? If so, should the information provided 
elsewhere be expressly incorporated by reference into the Form 10-Q, 
such that the same liability attaches to the disclosure of that 
information? What would be the benefits and drawbacks to investors and 
other market participants of such additional flexibility?

B. Timing of the Quarterly Reporting Process

    Some companies issue an earnings release prior to filing the 
associated Form 10-Q,\52\ though, as noted above, many companies now 
issue earnings releases concurrently with the filing of these forms. 
While we did not specifically solicit comment in the Concept Release on 
issues related to earnings releases, some commenters nonetheless 
provided input on this topic.\53\ One commenter suggested requiring 
registrants to file Form 10-Q simultaneously with any earnings release 
filed or furnished on Form 8-K, on the ground that this would help 
investors to be more informed and better able to address issues with 
management on earnings calls.\54\ Other commenters suggested requiring 
the Form 10-Q to be filed prior to earnings releases and earnings calls 
to allow analysts to digest U.S. GAAP disclosures before receiving 
earnings release information, which may include non-U.S. GAAP 
disclosures.\55\ Finally, one commenter suggested that structured 
reporting in XBRL format is most effective when it is applied broadly 
to all aspects of reporting, including earnings releases.\56\
---------------------------------------------------------------------------

    \52\ See A Growing Disparity in Earnings Disclosure Mechanisms.
    \53\ See Concept Release at 280.
    \54\ See letter from R.G. Associates, Inc. (July 6, 2016).
    \55\ See letters from Council of Institutional Investors (July 
8, 2016), Railpen Investments (July 21, 2016), and California State 
Teachers' Retirement System (July 21, 2016).
    \56\ See letter from CFA Institute (Oct. 6, 2016).
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Request for Comment
    15. One study indicates that the ``average public company needed 
31.7 days to announce its earnings . . . and another four days after 
that to file its formal quarterly report.'' \57\ The study finds that 
companies that release both documents on the same day tend to ``take 
more time to deliver those pronouncements,'' while companies that 
publish an earnings release ``soon after the end of the quarter take 
more time to file their quarterly report.'' \58\ Why do some companies 
publish an earnings release before filing Form 10-Q while other 
companies publish an earnings report and file Form 10-Q on the same day 
or near the same time? Should the Commission take any action to address 
time lapses between an earnings release and Form 10-Q, and if so, what 
action? If the Commission should take action to facilitate a decrease 
in this delay, what is the best mechanism to facilitate such a 
decrease? Is it more or less burdensome to issue the two documents 
concurrently?
---------------------------------------------------------------------------

    \57\ How Long Does It Take to Announce Earnings? Calcbench, Inc. 
(Oct. 20, 2016), available at https://www.calcbench.com/home/pdf?name=CB-EarningsDays-Advisory-20161027.pdf.
    \58\ Id.
---------------------------------------------------------------------------

    16. What is the impact on investors and other market participants 
participating in earnings calls when a company publishes its earnings 
release before filing its Form 10-Q? Are investors or other market 
participants disadvantaged at the time of the earnings call by not 
having access to the more detailed information contained in the Form 
10-Q? If so, what are those disadvantages? Do the same disadvantages 
exist for the fourth quarter earnings release in comparison to the 
filing of Form 10-K?
    17. To what extent are auditors involved with earnings releases? 
Does such involvement or the auditor review of the quarterly financial 
statements contribute to any delay between publication of an earnings 
release and the filing of a Form 10-Q? If so, how? What steps could or 
should be taken to help ameliorate this delay? Do auditors conduct 
their review of quarterly financial information in phases due to 
companies' preparation of two reporting documents? If so, does this 
result in efficiencies or inefficiencies based upon the nature of the 
two disclosure documents?

C. Earnings Release as Core Quarterly Disclosure

    The Commission is requesting comment on different ways to alleviate 
burdens related to Form 10-Q reporting while maintaining investor 
protection. Among other approaches, we are requesting comment on 
whether we should provide an option for companies that issue earnings 
releases to use the releases to satisfy the core financial disclosure 
requirements of Form 10-Q. Under this option, a company would use its 
Form 10-Q to supplement a Form 8-K earnings release with additional 
material information required by the Form 10-Q not already presented in 
the Form 8-K or alternatively incorporate by reference disclosure from 
the Form 8-K earnings release into its Form 10-Q (the ``Supplemental 
Approach''). For example, registrants that do not provide interim 
financial statements in accordance with Regulation S-X \59\ in the 
earnings release would be required to include them in the Form 10-Q 
under the Supplemental Approach.
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    \59\ Item 1 of Form 10-Q requires interim financial statements 
in accordance with Rule 8-03 or 10-01. These rules require 
disclosures either on the face of the financial statements or in 
accompanying footnotes sufficient so as to make the interim 
information presented not misleading. ASC 270-10-50-1 also requires 
certain disclosures that must be provided at a minimum when 
reporting companies report summarized financial information at 
interim dates.
---------------------------------------------------------------------------

Request for Comment
    18. To what extent do companies take advantage of General 
Instructions D.1 and D.2 of Form 10-Q to satisfy the

[[Page 65607]]

requirements of Form 10-Q? \60\ What changes to our rules, if any, 
would increase the use of these Instructions? Is the required quarterly 
reporting process complex and burdensome for investors or companies? If 
so, how is it complex and burdensome? If so, what approaches should we 
consider apart from the Supplemental Approach (hereafter ``other 
suggested approach'') to simplify the process by which investors 
collect and evaluate information and ease the burdens associated with 
the publication of earnings releases and the preparation and filing of 
Form 10-Q without adversely affecting the total mix of information 
provided to investors?
---------------------------------------------------------------------------

    \60\ General Instruction D.1 of Form 10-Q permits companies to 
incorporate information by reference from a document that meets some 
or all of the requirements of Part I of Form 10-Q and General 
Instruction D.2. directs registrants to Exchange Act Rule 12b-23 
with respect to other information that may be incorporated by 
reference in response to all or some of Part II of Form 10-Q.
---------------------------------------------------------------------------

    19. Should Commission rules, accounting standards, and auditing 
standards allow for the interim financial statements to be separated so 
that certain parts could be presented only in the earnings release to 
satisfy the Form 10-Q requirements under the Supplemental Approach or 
other suggested approach? For example, should a registrant be able to 
present condensed interim income statements only in the earnings 
release and the remaining Regulation S-X required interim statements 
and footnotes in the Form 10-Q? What changes would be needed to the 
current accounting and/or auditing standards to accomplish such 
separation? Would separation of the financial statements help, harm, or 
have no effect on an investor's ability to evaluate a company's 
performance?
    20. Should information in an earnings release that is submitted on 
Form 8-K be allowed to satisfy the Form 10-Q requirements? Why or why 
not, and if so to what extent? What are the potential benefits and 
drawbacks to investors, companies, and other market participants of the 
Supplemental Approach or other suggested approach?
    21. If companies were permitted to omit from Form 10-Q information 
already contained in a Form 8-K earnings release, what specific 
information should they be allowed to omit? Is there any earnings 
release information that should not be allowed to satisfy the 
requirements of Form 10-Q? Would companies be likely to rely on the 
Supplemental Approach or other suggested approach, if available? If so, 
would certain types of companies benefit more from the Supplemental 
Approach other suggested approach than others?
    22. If we adopt the Supplemental Approach or other suggested 
approach, should we require the relevant Form 8-K to be filed rather 
than furnished? \61\ Should we further require the relevant Form 8-K to 
be incorporated by reference into the Form 10-Q, in whole or in part? 
Should we require a hyperlink from the Form 10-Q to the relevant Form 
8-K? Should we require the relevant Form 8-K to include certain 
disclosures that are otherwise required in Form 10-Q? If so, which 
disclosures should be required and why?
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    \61\ The information required by Items 1 (Financial Statements), 
2 (Management's Discussion and Analysis of Financial Condition and 
Results of Operations) and 3 (Quantitative and Qualitative 
Disclosures About Market Risk) of Part I of the Form 10-Q is not 
deemed to be filed for purposes of Section 18 of the Exchange Act, 
but an issuer may choose to file, rather than furnish, earnings 
release information on Form 8-K, for example, to ensure that a 
registration statement currently in use does not contain a material 
omission of the information contained in an earnings release.
---------------------------------------------------------------------------

    23. Are there issues or concerns with the above approaches in 
relation to a registration statement and the ability to incorporate by 
reference? If so, please describe. For example, should a company 
relying on the Supplemental Approach or other suggested approach have 
to incorporate by reference the historical financial information in its 
earnings release into a Securities Act registration statement so that 
Securities Act liability would apply to that information, just as such 
liability applies to Form 10-Q information that is incorporated by 
reference into a registration statement?
    24. Would the Supplemental Approach or other suggested approach 
affect the quantity, quality, or nature of the disclosure being made to 
the public? If so, how? Would the Supplemental Approach or other 
suggested approach simplify or complicate the process by which 
investors collect and evaluate information? How would the Supplemental 
Approach or other suggested approach affect investors' evaluation of 
company performance? Overall, what impact would the Supplemental 
Approach or other suggested approach have on investors?
    25. Would the Supplemental Approach affect the timing of earnings 
releases? If so, how? If we implement the Supplemental Approach or 
other suggested approach, should we modify the due date of Form 10-Q? 
Why or why not, and if so, how?
    26. How should the Supplemental Approach or other suggested 
approach take into consideration the XBRL requirements of Form 10-Q? If 
information currently required to be structured using the XBRL format 
on Form 10-Q were instead only disclosed in an unstructured format on 
Form 8-K, would this adversely affect investors or other market 
participants?
    27. If an earnings release were used to satisfy the requirements of 
Form 10-Q, should any financial statements included in an earnings 
release be subject to auditor review procedures at the time the Form 8-
K is filed? Why or why not?
    28. Would the Supplemental Approach or other suggested approach 
reduce or add to companies' disclosure or auditor review burdens? How 
should the Supplemental Approach other suggested approach take into 
consideration the requirements regarding disclosure controls and 
procedures set forth in Rules 13a-15 and 15d-15,\62\ as well as the 
related officer certification requirements, which apply to Forms 10-Q 
but not to earnings releases furnished on Form 8-K? \63\
---------------------------------------------------------------------------

    \62\ 17 CFR 240.13a-15; 17 CFR 240.15d-15.
    \63\ Rules 13a-14 and 15d-14.
---------------------------------------------------------------------------

    29. Does the Supplemental Approach or other suggested approach 
raise concerns regarding a company's liability under the federal 
securities laws? If so, please explain.

D. Reporting Frequency

    As noted above, we previously solicited public input on issues 
related to the frequency of interim reporting in connection with the 
Concept Release. Prior to adoption of Form 10-Q in 1970,\64\ reporting 
companies were not required to provide specific information on a 
quarterly basis, other than to satisfy the requirements of Form 8-
K.\65\ However, as noted in the Concept Release, prior to the adoption 
of Form 10-Q, more than 70% of public companies produced quarterly 
reports,

[[Page 65608]]

partly in response to exchange listing standards.\66\
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    \64\ See SEC Release No. 34-9004 (Oct. 28, 1970).
    \65\ Prior to the adoption of Form 9-K in 1955, reporting 
companies were only required to provide limited information related 
to quarterly results in response to requirements on Form 8-K. See 
SEC Release No. 34-5129 (Jan. 27, 1955). With the adoption of Form 
9-K, companies were required to report certain financial information 
on a semi-annual basis. See SEC Release No. 34-5189 (June 23, 1955). 
In 1969, the Commission proposed to rescind Form 9-K and adopt Form 
10-Q for the reporting of quarterly financial and other information 
based on the observation that ``Current Reports on Form 8-K [were] 
not widely used by investors and their advisors. This may be because 
these reports [were] not filed at regular intervals and they [were] 
not truly current reports since they need not be filed until 10 days 
after the end of a month in which a reportable event occurred.'' The 
Commission reasoned that mandated quarterly reports may ``provide 
detailed information as a back-up to information released pursuant 
to timely disclosure policies.'' See SEC Release 34-8683 (Sept. 15, 
1969).
    \66\ See Concept Release at 281.
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    Commenters' responses to this issue as set forth in the Concept 
Release were mixed. Many commenters recommended a less-than-quarterly 
reporting requirement, such as a semi-annual reporting requirement, 
either for all companies or a subset of companies.\67\ A number of 
commenters expressly opposed increasing the frequency of reporting,\68\ 
with many of these commenters noting the costs and burdens associated 
with the current quarterly reporting regime as one reason for 
opposition.\69\ Many other commenters, citing a wide variety of 
reasons, specifically supported retaining quarterly reporting.\70\ Some 
of these commenters recommended evaluating the content of quarterly 
reports, rather than changing the frequency.\71\ Other commenters 
suggested that semi-annual reporting may increase the risk of insider 
trading by lengthening the time insiders would be unable to trade in 
order to comply with the insider trading prohibitions of Section 10(b) 
and Rule 10b-5.\72\
---------------------------------------------------------------------------

    \67\ See letters from Dylan Schweitzer (Apr. 20, 2016); Legal & 
General Investment Management (July 20, 2016); National Association 
of Real Estate Investment Trusts (July 21, 2016); Eric Bormel (July 
27, 2016); Ball Corporation (July 19, 2016); Frederick D. Lipman 
(May 2, 2016); Ernst & Young LLP (July 21, 2016); American Council 
of Life Insurers (July 19, 2016); Insured Retirement Institute (July 
21, 2016); and Committee of Annuity Insurers (July 21, 2016).
    \68\ See letters from American Bankers Association (July 15, 
2016) (``American Bankers Association''); U.S. Chamber of Commerce 
(July 20, 2016) (``Chamber''); FedEx Corporation (July 21, 2016) 
(``FedEx''); Business Roundtable (July 21, 2016) (``BRT''); 
Securities Industry and Financial Markets Association (July 21, 
2016) (``SIFMA''); Allstate Insurance Company (July 21, 2016) 
(``Allstate''); General Motors Company (Sept. 30, 2016); and 
Financial Executives International (Oct. 3, 2016).
    \69\ See letters from American Bankers Association; Chamber; 
FedEx; BRT; SIFMA; and Allstate.
    \70\ See letters from Sat Parashar (Apr. 20, 2016); A. Whigman 
(May 4, 2016); SEC Investor Advisory Committee (June 15, 2016); R.G. 
Associates, Inc. (July 6, 2016); US SIF and US SIF Foundation (July 
14, 2016); New York State Society of Certified Public Accountants 
(July 19, 2016); Investment Program Association (July 21, 2016); 
Committee on Securities Law, Maryland State Bar Association (July 
21, 2016) (``Maryland Bar Securities Committee''); AFL-CIO (July 21, 
2016); Bloomberg LP (July 21, 2016); Stephen P. Percoco (July 24, 
2016); National Investor Relations Institute (Aug. 4, 2016) 
(``NIRI''); Institute of Management Accountants (July 29, 2016) 
(``IMA''); Nasdaq Inc. (Sept. 16, 2016) (``Nasdaq''); and Northrop 
Grumman Corporation (Sept. 27, 2016).
    \71\ See letters from Nasdaq and IMA.
    \72\ See letters from NIRI and Maryland Bar Securities 
Committee.
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    We recognize that there is ongoing debate regarding the adequacy 
and appropriateness of mandated quarterly reporting.\73\ As we continue 
to evaluate the existing reporting frequency, we are soliciting 
additional input on reporting frequency and what alternate approaches, 
if any, should be considered that would appropriately address the 
informational needs of investors while reducing the costs and other 
burdens on registrants who provide that information.
---------------------------------------------------------------------------

    \73\ See, e.g., Zweig, Jason, The End of Quarterly Reporting? 
Not Much to Cheer About, The Wall Street Journal (Aug. 17, 2018), 
available at https://www.wsj.com/articles/the-end-of-quarterly-reporting-not-much-to-cheer-about-1534540127. See also, e.g., 
Whelan, Tensie, Trump is Right: Quarterly Earnings Reports Should 
Go, CNN Money (Aug. 23, 2018), available at https://money.cnn.com/2018/08/23/news/trump-quarterly-reporting/index.html, and La Croix, 
Kevin, Is It Time to End Quarterly Reporting? The D&O Diary (Aug. 
19, 2018), available at https://www.dandodiary.com/2018/08/articles/corporate-governance/time-end-quarterly-reporting/.
---------------------------------------------------------------------------

Request for Comment
    30. What are the benefits and costs to investors, companies, and 
other market participants associated with the current reporting 
frequency model, which requires from domestic issuers quarterly reports 
on Form 10-Q, annual reports on Form 10-K, and current reports on Form 
8-K? Does the frequency of reporting lead managers to focus on short-
term results to the detriment of long-term performance? Why or why not? 
If so, does this negatively affect investors? If so, how? Would less 
frequent reporting change management decision-making or otherwise 
positively affect investors? Or does the practice of issuing earnings 
guidance, including the frequency with which companies issue earnings 
guidance, lead managers to focus on short-term results to the detriment 
of long-term performance? Why or why not? Would more frequent reporting 
change management decision-making?
    31. Should we move to a semi-annual reporting model for all or 
certain categories of reporting companies? Why or why not, and to which 
categories of reporting companies (e.g., smaller reporting companies, 
non-accelerated filers, emerging growth companies)? Are there other 
categories of reporting companies, such as by industry, that we should 
consider? For example, are there any unique considerations we should 
give to certain commodity trusts, business development companies, and 
other collective investment vehicles? Would any other frequency of 
reporting model be more appropriate for these or other types of 
companies?
    32. What would the costs and benefits be to investors, companies, 
and other market participants of a semi-annual reporting model for all 
or certain categories of reporting companies? Are there market 
practices in place, for example contractually mandated reports to 
lenders and indenture trustees, that rely on the current regulatory 
reporting regime? If so, how would these market practices be affected 
by changes to that regime and what are the downstream effects?
    33. Would a change in reporting frequency affect the cost of 
capital to companies? Why or why not, and if so, how?
    34. How would a semi-annual reporting model affect the general use 
of Form 8-K to report material information? Should we consider any 
particular additional Form 8-K requirements or triggers under a semi-
annual reporting model? If so, what type(s)?
    35. How would a semi-annual reporting model affect the use of 
earnings releases? If we were to allow semi-annual reporting, should we 
require voluntarily published earnings releases, either on a quarterly 
or semi-annual basis, to be filed rather than furnished? Or, if we were 
to allow semi-annual reporting, should we require companies to file 
earnings releases?
    36. Should we allow for additional flexibility by permitting 
companies to select an approach to periodic reporting that best suits 
their needs and the needs of their investors? For example, should we 
allow a company conducting an initial public offering to announce its 
approach to periodic reporting, such as semi-annual periodic reporting, 
during registration and implement the elected approach going forward? 
Should a company be permitted to change its approach to frequency of 
reporting once it selects a reporting frequency? Why or why not? If it 
is permitted to change the frequency of reporting after it has 
established an approach, how often should the company be permitted to 
change its reporting frequency?
    37. What are the downstream effects of changing the reporting 
frequency to investment companies, investment advisers, broker-dealers, 
data aggregators, and other users of the reports?
    38. Should an emerging growth company or smaller reporting company 
be permitted to elect a semi-annual reporting frequency?
    39. What would the costs and benefits be to investors, companies, 
and other market participants of moving to a flexible reporting 
frequency model (rather than a mandatory quarterly or mandatory semi-
annual model)? How would a flexible reporting frequency model (rather 
than a mandatory

[[Page 65609]]

quarterly or mandatory semi-annual model) affect the ability of 
investors, analysts, and other market participants to compare results 
among companies, especially if companies in the same industry report on 
different schedules? Would companies that choose to report more 
frequently suffer adverse competitive consequences if peer companies 
choose to report less frequently (e.g., because relative performance 
and/or estimates of expected future cash flows would be measured on a 
less frequent basis)? Alternatively, would companies that choose to 
report more frequently benefit from their provision to investors of 
more and more timely information about historical results?
    40. What are the accounting and auditing changes that would be 
necessary for a flexible reporting frequency model (rather than a 
mandatory quarterly or mandatory semi-annual model)? For example, would 
there be concerns with how to apply ASC 270 Interim Reporting in U.S. 
GAAP or certain Regulation S-X disclosure requirements in a flexible 
reporting frequency model? Would there be concerns with how to apply 
auditing standards \74\ in relation to interim financial information, 
including procedures performed in relation to letters for underwriters 
and certain other requesting parties, in a flexible reporting frequency 
model?
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    \74\ For example, would there be questions about how to apply 
PCAOB AS 4105 and AS 6101, Letters for Underwriters and Certain 
Other Requesting Parties.
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    41. What other topics may raise concerns or questions with 
application under a flexible reporting model, and what are those 
concerns or questions? Do these concerns and questions exist in the 
current quarterly reporting model and would they still exist with a 
mandatory semi-annual model?
    42. Are existing U.S. GAAP taxonomies used for XBRL reporting 
appropriate for a flexible reporting frequency model?
    43. Should we limit such flexibility in reporting frequency to a 
particular group of companies as an initial step before considering 
whether to provide such an option to all companies? If so, which group 
of companies and why? Should any potential election by a company be 
limited to a specific period of time?
    44. How would a move to either a mandatory or optional semi-annual 
reporting model affect the current rules of self-regulatory 
organizations and national securities exchanges? For example, would 
exchanges still require quarterly reporting as a requirement of 
listing, as they did prior to 1970 when Form 10-Q was adopted?
    45. How would a move to either a mandatory or optional semi-annual 
reporting model affect a company's ability to comply with current rules 
relating to Securities Act offerings? For example, given that Form 10-Q 
is often incorporated by reference into certain registration statements 
under the Securities Act,\75\ how would a company that reports semi-
annually ensure that a registration statement currently in use does not 
contain a material omission of information? For example, how would an 
issuer ensure that a shelf registration statement on Form S-3 remains 
current? Under a flexible approach, would companies nonetheless elect 
to maintain a quarterly reporting model to avoid concerns about keeping 
their Securities Act registration statements current? How would 
companies meet the requirements regarding the age of financial 
statements \76\ under Regulation S-X with respect to new registration 
statements under such an approach? How would a change in reporting 
frequency impact the Commission's integrated disclosure regime, 
including, for example, determining issuer eligibility and the speed by 
which a company may offer securities? How would a change in reporting 
frequency impact companies who use reports filed in the United States 
to satisfy state or international reporting requirements?
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    \75\ See Rule 415, Item 12(a) of Part I of Form S-1 [17 CFR 
239.11], and Item 12(a) of Part I of Form S-3 [17 CFR 239.13].
    \76\ See 17 CFR 230.3-12.
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    46. Are there additional approaches that we should consider to 
better facilitate the dissemination of timely periodic information to 
investors and other market participants?

IV. Closing

    This request for comment is not intended to limit the scope of 
comments, views, issues or approaches to be considered. In addition to 
investors and companies, the Commission welcomes comment from other 
market participants, in particular statistical, empirical and other 
data from commenters that may support their views and/or support or 
refute the views or issues raised.

    By the Commission.

    Dated: December 18, 2018.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27663 Filed 12-20-18; 8:45 am]
 BILLING CODE 8011-01-P