With insights flowing from the CXO’s including Indra Nooyi the CEO of PepsiCo, President Trump has requested the Securities and Exchange Commission to change the reporting style from the routine quarterly wise to twice a year. This move is proposed so as to give the companies some breathing space which supposedly will increase their performance & thus profits.
The Quarterly Report
Since the time of the Great Depression in the 1930s, Quarterly reports have become a routine. Basically, the idea is to be aware of the performance of a company so as to increase transparency. Going by these short-term reports will help in eradicating any foul plays including manipulating earnings report.
Quarterly reports have since then become part and parcel of the United State’s corporate life. The report will include the profits and revenue of the respective company with other basic financial elements, published every three months. The fact that this is available to the public is a deal breaker.
This report not only gives the immediate history of the company’s performance but also serves as a forecast report to the upcoming quarters. Just like the weather forecast, quarterly reports will indicate the investors if it is going to be a happy sunny year or if a hurricane is going to hit the profits.
The let-down of this practice is that filing a quarterly report demands huge data including time and effort put in by the companies. Huge sums of money go under the expense criteria just to file these reports. As the CEO of Pepsico, the one who acted as the backbone of the company during its great depression says, the change in the reporting time will allow companies to be more flexible.
The pressure on filing and reaching the targets for every quarter has led to business executives indulge in all kind of moves. Another reason stated by the President was that through this move both American countries & American families basically investors will start practicing long-term investment rather than getting hyped about short-term returns.
However mixed reviews have been flowing on the move just like the one from Professor Charles Elson from the corporate governance team of the University of Delaware. He says that whether it is the short term quarterly report or the half-yearly report doesn’t really matter as only the timing differs, but the target and pressure can lead to earnings manipulation either way.
Quarterly reports are a sign of warning
Adding to his previous view, he also commented that quarterly reports serve as a sign of warning for any manipulation or earning’s drop that can be expected in the near future. Change in this pace will throw a blind’s eye to the investors regarding the company’s performance and future forecast.
And there are other business executives who believe that whether it is the quarterly report or the annual report, it doesn’t matter as the work is an uphill task.
However, experts from the University of London claim that short-term reporting pressures companies on short-term goals at the cost of long-term profits.