Audit Committee Considerations for SEC’s Proposal on Semiannual Reporting

What the audit committee needs to know

On May 5, the SEC issued a rule proposal that would provide an optional semiannual reporting framework as an alternative to the existing quarterly reporting framework. The optional semiannual reporting framework would be available to any registrant currently required to file a quarterly report on Form 10-Q.

Form 10-S would replace Form 10-Q for semiannual filers

A company that elects the semiannual reporting framework (a semiannual filer) would forgo filing quarterly reports on Form 10-Q (for the first, second, and third quarters of its fiscal year) and would instead file one interim report covering the first half of the fiscal year on new Form 10-S. Form 10-S would require the same information that is currently required by Form 10-Q, except that the financial information (and related disclosures) would cover the fiscal six-month period instead of a quarter. Unlike Form 10-Q, which requires presentation of both quarter-to-date and year-to-date periods, Form 10-S would only require presentation of the year-to-date (i.e. semiannual) period, though voluntary presentation of quarterly information would be permitted. The financial statements in Form 10-S would be required to be (1) prepared under US GAAP, (2) reviewed by the auditor, and (3) data tagged using Inline XBRL.

The proposed deadline for a semiannual filer to file Form 10-S would be 40 days for accelerated and large accelerated filers (45 days for non-accelerated filers) after the fiscal year’s first semiannual period end, mirroring existing requirements for Form 10-Q.

A public company would make its reporting election (semiannual or quarterly) annually

Quarterly reporting would be the default frequency, but a public company would be able to elect to report semiannually via a new check box on the cover page of the Form 10-K. The semiannual option will also be available for a company pursuing an initial registration (e.g. an initial public offering [IPO]), and that election would be indicated via a check box on the registration statement cover page. Once made, the election would apply for the entirety of that fiscal year. For example, for a calendar year-end company, the election made on the cover page of Form 10-K for the year ended December 31, 2026, would apply for interim reporting for 2027. A company may change its filing election annually and those wishing to report semiannually must make that election (via the check box) each time it files a Form 10-K.

An error with respect to the check box election could be corrected by filing a Form 10-K/A on or before the date a company’s first quarter Form 10-Q would be due.

Earnings releases and Form 8-K reporting requirements would remain unchanged

The proposal does not modify existing requirements for information to be filed or furnished on Form 8-K, including earnings releases. A registrant that elects the semiannual reporting framework may continue to issue quarterly earnings releases based on its investor communication practices. Any such disclosures would continue to be furnished to the SEC on Form 8-K.

Proposal would revise age of financial statements requirements for registration or proxy statements

The existing requirements for determining the age of financial statements included in registration statements and other filings under Regulation S-X would also change. The changes are intended to generally (1) simplify existing rules by aligning the ‘staleness’ framework for registration statements more closely with the reporting deadlines for existing Exchange Act reports (e.g. Form 10-K, Form 10-Q) and (2) adapt the ‘staleness’ framework for the proposed semiannual reporting model.

Under current requirements, a registrant must evaluate whether financial statements are sufficiently current based on a fixed number of days (generally, 129 or 134 days depending on filer status). The proposal would replace this approach with a model that aligns the age of financial statements with the information that would be required to be filed in periodic reports for existing registrants. Specifically, under the proposal, as of the filing date for a registration statement, a registrant would be required to include interim financial statements that correspond to the most recent fiscal quarter (for quarterly filers) or semiannual period (for semiannual filers) that either has been filed, or would be required to be filed, on Form 10-Q or Form 10-S, as applicable. The proposed changes would not impact the requirements for updating financial statements after the end of a fiscal year.

What’s next?

The proposed rule will be subject to a public comment process that ends on July 6, with stakeholders invited to provide input. The proposal includes specific requests for feedback on accounting, financial reporting, and auditing matters as well as questions about potential cost savings for preparers and any impacts that less frequent financial reporting would have on a company’s access to the capital markets. The proposal does not address specific effective dates or transition considerations.

Following the comment period, the SEC will evaluate feedback and determine whether to proceed with final rulemaking, which may include revisions to what was proposed.

Why is this relevant to the audit committee?

A core responsibility of the audit committee is to assist the board in overseeing the integrity of the company’s financial statements, financial reporting processes, internal controls, and disclosure practices. A change in reporting cadence would directly affect how audit committees fulfill these responsibilities. The audit committee will need to evaluate management’s consideration of the potential shift.

Initial considerations

The audit committee should understand and evaluate management’s assessment of whether transitioning to semiannual reporting is appropriate for the company. Questions the audit committee may ask include:

• Beyond SEC requirements, what other obligations (e.g. debt covenants) may necessitate quarterly reporting? More broadly, how does the reporting cadence align with the company’s future strategy?
• How might investors and other key stakeholders view a move away from quarterly financial statements that are reviewed by an auditor?
• What are peers and competitors considering in terms of reporting cadence, and how might that influence expectations?
• Could reduced frequency of financial reporting create an information vacuum for the market, and if so, how might that impact stock price?
• What are the benefits to the company of transitioning to semiannual reporting?

Additional considerations

If, after considering the initial factors, management is further exploring a transition to semiannual reporting, the audit committee should understand and evaluate management’s assessment with the following additional considerations—aligned with the audit committee’s oversight responsibilities—in mind.