The Securities and Exchange Commission is currently evaluating President Trump‘s proposal to contemplate a regulation that eliminates the requirement for public companies to submit quarterly reports, which could result in significant savings in both time and finances for firms, while the Big Four accounting firms may face considerable setbacks.
A few weeks back, Trump initially suggested a transition to semi-annual reporting in a post on Truth Social, indicating that it would “save funds, and let managers concentrate on effectively leading their companies.”
SEC Chair Paul Atkins remarked to CNBC soon after that a proposal is in progress, but he indicated any changes would allow companies the choice to modify their reporting timelines. “For the benefit of shareholders and public corporations, the market should determine the appropriate rhythm,” said Atkins.
With semi-annual filings, firms could potentially reduce the substantial expenses and efforts linked to submitting quarterly reports by half. However, the independent external accounting firms, notably the “Big Four” — Deloitte, EY, KPMG, and PwC — who assist in their preparation, stand to forfeit a significant share of their audit revenue. Typically, preparing a mandatory form 10-Q takes approximately 180 hours, costing anywhere from $50,000 for smaller firms to more than $1 million for large-cap companies, not including costs for internal audit teams and functions.
It is crucial to understand the difference between a quarterly report, or 10-Q, and an earnings report. The SEC-mandated 10-Q is compiled and examined by independent auditors, adhering to rigorous disclosure standards. Concurrently, companies release a quarterly earnings report — which is unaudited — to media and stakeholders, showcasing revenue, profit, and other vital metrics outlined in the official 10-Q.
“I’m certain [the Big Four] are closely monitoring this initiative as it potentially advances through the SEC,” stated Jerry Maginnis, a CPA and former audit partner at KPMG. “It could significantly affect their business strategy.”
He estimates that as much as 15% of the firms’ annual audit revenue “could vanish.”
While the Big Four might recover some of the lost income by broadening their advisory and tax services, they may have to contemplate cost reductions, according to Larry Rand, a visiting economics professor at Brown University and a financial consultant. “If you’re facing a considerable reduction in revenue, you’re certainly going to need to explore ways to cut expenses,” he noted. “They will employ fewer individuals and leverage more artificial intelligence tools,” he added.
This trend is already unfolding. PwC announced in August that it anticipates hiring one-third fewer graduates by 2028 — 39% fewer in audit — partly due to the rapid rise of AI and its transformation of entry-level roles. The SEC’s proposed rule change might serve as another setback for accounting firms’ personnel.
The suggested SEC regulatory change came as somewhat unexpected. It had not appeared among Trump’s wide range of deregulation targets, from immigration to DEI, nor was it part of the now-foreseen Project 2025 playbook.
However, during Trump’s first term, he advocated for a similar change in 2018. “That would provide more flexibility & reduce costs,” he tweeted (now X). “I have urged the SEC to investigate!” The SEC received feedback from various impacted parties — including the accounting sector, investment research firms, institutional and retail investors, and scholars — but ultimately, the initiative lost momentum.
This phase will likely undergo a similar process, but has a better chance of success, especially with the current administration’s deregulatory achievements thus far and agencies’ consistent alignment with Trump’s directives. Indeed, a spokesperson from the SEC stated that the agency “is prioritizing this proposal to further eliminate unnecessary regulatory burdens on companies.”
All four of the Big Four accounting firms declined to provide comments.
While today’s economic landscape is significantly different from that of 2018 — consider tariffs, trade conflicts, and AI — it is valuable to revisit the remarks accounting firms made back in 2018 when the SEC initially examined the quarterly reporting matter.
Unsurprisingly, given the potential adverse effects on the industry, all four firms favored retaining the quarterly schedule, each highlighting its advantages for investors and capital markets. For instance, Deloitte stated, “By assisting in ensuring that investors receive regular, timely, and trustworthy information, the SEC framework has bolstered the U.S. markets as the strongest and most reliable globally.”
“We contend that quarterly reporting diminishes information asymmetry between management and investors and mitigates market uncertainty,” EY noted. “Quarterly reporting also helps lower risks in the corporate financial reporting system by promoting the prompt identification and resolution of potential accounting and reporting concerns.”
KPMG pointed out that financial statement users “have traditionally depended on the negative assurance provided by the auditors’ review for their investment decisions.”
PwC, commenting on the challenges of reforming reporting, stated that the “unstructured nature of earnings releases could complicate investors’ ability to discern what information underwent independent auditor’s review procedures. Additional guidance would need to be formulated.”
While opposing the rule modification, the firms were careful to respect the SEC’s authority to appraise its quarterly reporting framework, which has been mandated since 1970. For example, KPMG expressed, “We commend the Commission’s ongoing initiatives to reassess the financial reporting standards…to refresh and refine them for the benefit of all market stakeholders.”
EY stated that the reporting mechanism “could gain from selective enhancements that would lessen the compliance load on firms.”
The advantages have been extensively discussed by business leaders and investors, yet the notion of semi-annual reporting has historical precedence. The European Union and the U.K. transitioned from a quarterly schedule over a decade ago, although companies maintain the option to voluntarily issue quarterly reports.
These foreign firms “are not mandated to disclose quarterly, but a significant number of large companies continue to do so,” even if such disclosures don’t constitute an official earnings announcement, noted Dominic Pappalardo, chief multi-asset manager at financial research firm Morningstar.
Pappalardo envisions a similar situation being implemented in the U.S. “If firms perceive an advantage in providing quarterly updates to investors, they will likely persist in doing so. I believe that some, if not numerous, [would] continue issuing some type of quarterly update,” he mentioned.
Some commentators back in 2018 remarked that any public company needing to raise debt or equity frequently might be compelled to disclose quarterly figures to avoid incurring a higher cost of capital. There will also be a degree of peer monitoring in the market — if a public firm diverges from key competitors in reporting timeliness, investors could redirect their funds away.
For these reasons and many others, the concerns of accounting firms about losing clients might be less severe than they appear initially. “Even if it’s not mandated by the SEC,” Maginnis asserted, “it would not shock me if [certain clients] wish for their accounting firm to be engaged similarly to the current scenario. In those instances, revenue streams might not be as adversely affected,” he added.
In addition to reducing the financial burden and difficulties of quarterly reporting, a further argument for a semi-annual requirement is that it may motivate private firms to become public. The number of publicly traded companies in the U.S. has decreased from over 7,000 in 1996 to fewer than 4,000 in 2020.
Revitalizing the IPO market — which has recently been gaining traction — would also be a means for the Big Four to maintain their standing. “From their perspective, it’s a zero-sum game,” Rand stated. “They might lose revenue from their current client base but could gain income from more companies going public if they understand that they only need to report semi-annually.”
The SEC will require several months to gather and evaluate feedback on this proposal again. While the Big Four gently resisted Trump’s 2018 proposal, the firms may adopt a more accommodating stance this time — possibly due to concerns over the kind of persuasion that has characterized Trump 2.0. “That is a widespread sentiment among numerous potential commenters,” Rand noted. “I doubt it would be prudent to do otherwise.”
Nevertheless, Maginnis believes the conditions are favorable for the scheduling adjustment. “Given the president’s endorsement and encouragement of this, along with the current SEC leadership’s perspective on the regulatory environment, I would argue it stands at least a 50-50 chance of passing, perhaps even a bit higher.”}
