Company Financial Reporting Frequency

For decades, quarterly financial reporting has been the bedrock of fair and efficient markets. Recently, however, there's been a renewed debate about how often public companies should report their financials, with some advocating for a shift to semiannual reporting. The argument is that less frequent reporting could lower compliance costs and allow management to focus more on long-term value creation rather than short-term earnings targets. On the flip side, critics worry that this could create information gaps and increase market volatility.

While this discussion has centered on public companies, the frequency of financial reporting is a critical issue for private companies too, especially in today's unpredictable economic climate. So, how often should your business be issuing its financials?

From Wall Street to Main Street: Reporting Requirements

The U.S. Securities and Exchange Commission (SEC) mandates that public companies file annual reports (Form 10-K) and quarterly reports (Form 10-Q). This quarterly requirement, in place since 1970, was established to promote transparency and bolster investor confidence.

Private companies, however, don't operate under the same SEC rules. Most issue financial statements only at the end of the year. Reporting more frequently is typically discretionary, but it can be a strategic move. For instance, a large private business might opt for quarterly statements if it's eyeing a public offering or a merger with a public company. Similarly, a business facing financial distress or violating loan covenants might be required—or may wisely choose—to issue more frequent reports to stakeholders.

The Value of a Midyear Assessment

Financial statements offer a snapshot of a company's financial health at a specific point in time. When businesses only report annually, investors, lenders, and other stakeholders are left in the dark for twelve months. More frequent "snapshots" can provide crucial, timely insights.

Interim financial statements—whether monthly, quarterly, or semiannual—can act as an early warning system. They can signal financial trouble stemming from the loss of a major customer, significant uncollectible accounts, or even fraud. Conversely, they can confirm that a turnaround strategy is working or that a startup has finally reached profitability.

Management also benefits directly from interim reporting. By benchmarking interim reports against the same period from the prior year or against budget projections, you can ensure your company is on track to meet its annual goals. If performance is lagging, you have the opportunity to implement corrective measures to improve cash flow or update your financial forecasts before it's too late.

Quality Over Quantity: What to Watch For

While interim reports provide valuable insights, it's important to recognize their potential shortcomings to avoid year-end surprises.

First, unless an outside accounting firm reviews or audits your interim statements, the figures may not adhere to U.S. Generally Accepted Accounting Principles (GAAP). Without external oversight, these reports can contain errors, unverified balances, and omit crucial adjustments and disclosures. Moreover, there's a temptation for leaders to artificially inflate revenue and profits in interim reports to mask negative news.

When reviewing interim reports, stakeholders should ask questions to gauge the expertise of your accounting team and the robustness of your accounting procedures. Inquiring about the journal entries your external auditors made to adjust last year's preliminary numbers can be revealing. These adjustments often recur, highlighting areas where your internal numbers might need correction to conform to GAAP.

Additionally, interim reporting can be misleading for seasonal businesses. If your business has natural peaks and troughs, you can't simply multiply quarterly profits by four to predict annual performance. For seasonal operations, a more useful approach is to compare year-to-date results with the same period from the previous year.

Digging Deeper When Needed

If interim statements reveal irregularities, stakeholders might request that you hire a CPA firm to conduct agreed-upon procedures. These are targeted engagements that focus on high-risk accounts or those that have required significant auditor adjustments in the past.

Engaging a firm for agreed-upon procedures can provide stakeholders with greater confidence in your interim results. It can help identify the source of irregularities, assess your company’s ability to service its debt, and address concerns about financial mismanagement.

Find Your Business's Reporting Rhythm

Public companies currently follow a quarterly reporting mandate. Private companies, however, have the flexibility to decide how often they report and the level of assurance they provide. The right frequency for your business depends on several factors, including your resources, management's needs, and the expectations of your external stakeholders.

Finding the optimal reporting rhythm is about more than just compliance; it's about making smart, strategic decisions that drive your business forward.

Ready to find the right financial reporting strategy for your business?

At SD Mayer & Associates, we do more than just crunch the numbers. We partner with you to understand your unique challenges and goals. Let's work together to build a reporting plan that empowers you to make better decisions and achieve financial clarity.

Contact us today to get started.