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Thoughts Shared on Earning Releases and Quarterly Reporting

April 30, 2019

“There is an ongoing debate regarding the effects of mandated quarterly reports and the prevalence of optional quarterly guidance,” said SEC Chairman Jay Clayton.

“Our markets thirst for high-quality, timely information regarding company performance and material corporate events.  We recognize the importance of this information to well-functioning and fair capital markets.  We also recognize the need for companies and investors to plan for the long term.  Our rules should reflect these realities.  I look forward to receiving thoughtful comments as we think about ways to encourage long-term investment in our country.”[1]

In response to this ongoing debate, the SEC published File Number S7-26-18 – Request for Comment on Earnings Releases and Quarterly Reports (the “Release”) on December 18, 2018. Mazars USA LLP (“Mazars”) and over 70 other accounting firms, attorneys, investors, academics, and other prominent members of the capital markets community seized the opportunity to comment on the Release.

Mazars observed that in the Release, the SEC made significant efforts to balance investor protection with the burdens quarterly reporting places on issuers. Changing the volume and frequency of the flow of information could both positively and negatively impact capital markets, the relative consistency, applicability, and comparability of the information, and corporate strategic planning

. We do believe that the content of quarterly reporting should be reconsidered, but diminishing the frequency of interim reporting to anything less than quarterly would negatively impact the quantity and quality of information available to investors. Encouraging earnings guidance diminishes optimal management and investor decision making.

For almost 50 years, the SEC has required quarterly reporting by domestic issuers, with auditors being required to review the Form 10-Q for approximately 15 years. The goals of these requirements focus on transparency and investor protection. The Release pointedly highlights many of the issues and concerns regarding current practices with respect to earnings releases, quarterly reporting, and earnings guidance.

The inconsistencies in the information included in earnings releases, increased complexity of, and burden from, enhanced disclosure requirements of the Financial Accounting Standards Board (“FASB”) coupled with the requirements of SEC Regulation S-K, timing difference between the earnings release and the filing of the Form 10-Q, and the forward looking projections of enhanced guidance all contribute to a lack of comparable information available in the marketplace at a given time, thus challenging these goals.

Our understanding, based on numerous published scholarly studies and speaking with other professionals, is that inconsistencies do exist throughout issuers. These variations in handling the increasingly complex reporting environment necessitate changes to existing standards to ensure that all issuers consistently release relevant, timely, and consistent information to the public.

We support appropriate augmentations through clarification and modification of the existing standards that could lead to heightened investor protection, greater consistency in interim reporting, members of the profession meeting standards, realistic investor, audit committee, and company expectations, and increased efficiency in the audit and review processes.

Information Content Resulting from the Quarterly Reporting Process

The information contained in the Form 10-Q follows SEC and GAAP guidelines which enable all investors to obtain comparable information prepared and presented under the same standards. Users of the Form 10-Q can find the same type of information in designated sections of any Form 10-Q they read. The MD&A section contains a discussion of the performance of the company as well as compliance, risks, and future plans.   Certain schedules and exhibits are required to be included, if applicable. In accordance with FASB, Accounting Standards Codification Topic 205, Presentation of Financial Statements, the notes to the financial statements are considered an integral part of the financial statements.

The notes provide additional details behind the numbers, so that a user of the financial statements can obtain insight into the specific facts and circumstances of a company and compare them to other companies. The incremental nature of quarterly reporting on Form 10-Q is important to companies and investors alike, because it allows the sharing of the organization’s progress throughout the year. This information can be utilized for a wide variety of reasons due to the existing XBRL taxonomy.

Conversely, no real guidelines exist for an earnings release. Earnings releases come in all shapes and sizes. A non-accelerated filer may not publish an earnings release or may publish a five-page document, where as a large accelerated filer may publish numerous documents with approximately one hundred pages of information. The extensive use of non-GAAP measures, reconciled to generally accepted accounting principles (“GAAP”), in earnings releases places increasingly complex and customized information out into the marketplace.

Furthermore, the absence of the notes to the financial statements in the earnings release prevents the user of the information from obtaining a full understanding of the results of the company as presented. Due to the lack of comparability in the data presented in earnings releases, coming up with a taxonomy for earnings release would be extremely costly and limited in value.

The availability of two sets of financial data on the same company can be confusing and skew investor analyses. An undue burden currently exists on a company to prepare two presentations of financial data and, in many cases, in different ways. If the data included in the earnings release is used by an investor and not compared to the management certified and independent auditor reviewed data in the Form 10-Q, valuable information may not be considered. The necessity to compare the earnings release and the Form 10-Q, could prove onerous and duplicative to an investor and other users of the financial statements.

Earnings guidance places inappropriate pressure on management to meet or beat earnings projections. Business decisions, including accounting related decisions like estimates, should not be driven by anything other than fair and accurate recording of the company’s financial performance during a given period. If there is relevant information about the plans and goals of the company, GAAP provides guidance on how to include and report on such information, to ensure that a user of the financial statements obtains all appropriate information to make the best possible decision.

We see an enormous value to the auditor review of the financial statements included in Form 10-Q and ensuring consistency in the information presented in the other sections of filing. Discussions with members of management and the board of directors, including the audit committee, regarding the progress of the implementation of new accounting standards, a complex transaction, or the impact of social, economic, and/or political factors affecting the company and reviewing documentation during the quarters enables the engagement team to gain a timely understanding of performance of the company throughout the year and to more efficiently and effectively execute the audit at year-end.

This level of review and communication should make the users of the financial statements more comfortable with the information presented on a quarterly basis. In addition, if the auditors did not perform quarterly work, the cost of the audit would increase as the auditing firm would need to employ more people during the busiest times of the year to ensure adherence to PCAOB standards.

Timing of the Quarterly Reporting Process

The inconsistency among issuers in the timing of issuing an earnings release and filing the associated Form 10-Q poses a further challenge. Studies have shown that market participants respond immediately to the information received, whether it’s from an earnings release or a Form 10-Q. If the company issues the earnings release ahead of the filing of the Form 10-Q, investors will be trading on data that has not been reviewed by the auditors. Depending on the length of time between the release and filing, additional information could come to light that would be disclosed in the Form 10-Q that may have influenced investor decisions. We concur with the comments received related to the Concept Release calling for either the Form 10-Q being filed simultaneously or prior to the issuance of the earnings release.

If analysts and investors have more complete information presented in the notes to the financial statements, the information presented in the earnings release, GAAP and non-GAAP measures, would be more meaningful and clear.

Auditors’ responsibilities under current PCAOB standards are limited to information included in SEC filings, not other communications like earnings releases, investor communications, analyst calls, or other information posted on the website.

As such, we do not perform the same procedures on an earnings release that are performed on the Form 10-Q. Typically, our procedures, if any, are limited to reading the earnings release for any inconsistencies with the GAAP measures presented in the financial statements included in the filing and our knowledge of the company.

Auditor review of the earnings release could cause delays because non-GAAP measures could be extremely difficult to review for reasonableness, as no standards exist to ensure the consistency of calculations, formulae, and data. Even though the information would have to be reconciled to the GAAP measures, non-GAAP measures tend to be subjective and involve a significant amount of judgement.

If auditors were required to perform procedures on the earnings release, these procedures should be done simultaneously with the review procedures conducted on a Form 10-Q or audit procedures on a Form 10-K. The concurrent review enables the engagement team to be more efficient and ensures that all available information is accurately reflected in both documents.

Earnings Release as Core Quarterly Disclosures

As discussed previously, some of the information included in an earnings release follows GAAP, but a great deal of the information is considered non-GAAP measures. Without conformity in non-GAAP measures, it may be difficult to challenge management on the appropriateness and reasonableness of such information. Non-GAAP measures cannot, under any circumstances, substitute for GAAP measures. We do not support the Supplemental Approach, since it does not follow GAAP nor would in foster consistency from one company to another. Separating the financial statements from the notes would risk users of the financial statements relying on incomplete information.

With that said, the Form 10-Q includes some repetitive information in the MD&A section and the notes to the financial statements. This duplicative presentation increases monetary costs and the needed allocation of resources at the company and the auditing firm.

We favor standards that would eliminate any duplication of efforts while ensuring consistency in the reporting of information to the public in one document which would include the financial statements and a MD&A that includes typical earnings release, non-financial statement information. The timing of such publications should stay the same as current standards dictate. Companies and auditors should not have an issue with the timing, given that the reporting should be lessened.

Reporting Frequency

As noted above, the regulations related to quarterly reporting have been around for almost 50 years, but as the Release indicates, companies have been voluntarily reporting on a quarterly basis for much longer than that. The voluntary reporting is consistent with recent events in Europe, where companies continued to issue quarterly reports despite changing regulations having changed. to semi-annual reporting.

We believe quarterly reporting is appropriate for all publicly-traded companies regardless of size. The small to mid-size issuers benefit from the quarterly timeframe, since the level of communication between the companies and the auditors will be at a pace that ensures a higher quality of financial reporting.

One of the goals of quarterly reporting is transparency. Market participants, including investors, investment advisers, broker-dealers, and other users of the reports, require information to make educated trading decisions.

Consistency in the timing of reporting will help maintain an orderly marketplace. Allowing companies to select their preferred frequency of reporting will increase inconsistency and significantly decrease comparability. If the companies are allowed to change the frequency, they may do so when financial results are not in line with expectations. This inconsistency goes against the goals of transparency and investor protection. In addition, accounting and auditing standards would need to be tailored to allow for this flexibility.

While the theories would stay the same, nuances would have to be honed to clarify that all information is as consistent as possible, and all necessary procedures completed. For example, standards would need to be put in place that would ensure that current information is included in a registration statement. Information older than current standards dictate, 134 days for non-accelerated filers and 129 days for accelerated and large accelerated filers, would lead users of the information contained in the registrations statement to make a decision based on potentially stale and, thus, materially misleading information.

We suggest revisiting the requirements related to the content of the information included in the Form 10-Q. The elimination of duplicative data in the MD&A and the financial statements, combined with focusing the disclosures on the incremental changes from one quarter to the next could allow for enhanced reporting while potentially decreasing the overall cost of reporting.

If all of the information is contained in one filing, eliminating multiple Form 8-K’s, market participants can efficiently gather the information they need instead of having to sift through many Form 8-K’s to combine information. This amalgamation lessens the risk of missing important information. Semi-annual reporting could even cost more, because companies would need to file an increased number of 8-K’s. In addition, the auditor’s review of a semi-annual filing could cost more than the quarterly Form 10-Q’s. Economies of scale are realized when the reviews are performed more frequently.


Overall, we applaud the SEC in its efforts in continuously improving its earnings releases and quarterly reporting standards. We remain committed to participating in future discussions about how to best implement appropriate recommendations generated by the request for comment that would further enhance transparency and protect investors. Lastly, we fully support the mission of educating investors and other users of financial statements on deciphering the financial information contained in all quarterly reporting media.

[1] “SEC Solicits Public Comment on Earnings Releases and Quarterly Reports” press release, December 18, 2018,

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