The debate over quarterly reporting has become surprisingly predictable. Supporters of regulatory relief point to cost, managerial distraction and short-termism. Critics warn about information asymmetry, market efficiency and liquidity. The SEC's proposal to permit semiannual reporting has revived all these familiar arguments.
But there is another question that deserves far more attention, particularly from accountants and auditors: Which companies will actually choose to report less?
That question matters because regulatory relief is not used by an "average company." Once relief becomes optional, companies sort themselves. Boards and management decide whether lower reporting costs outweigh the benefits of more frequent transparency.
My research on an actual reporting-frequency reform suggests that this selection process may itself reveal something important about corporate governance — and the financial reporting environment surrounding companies that choose relief.
In 2017, Israel allowed small public companies to move from quarterly to semiannual financial reporting. Eligible companies could use the relief or voluntarily continue reporting every quarter. In my sample of 115 public companies, 75 switched to semiannual reporting. Forty voluntarily retained quarterly reporting.The market distinguished between the two decisions. Companies announcing a switch to semiannual reporting experienced a negative abnormal market reaction of approximately 2%. Companies retaining quarterly reporting experienced a positive reaction of roughly 2.5%. But the market reaction is only part of the story.
The two groups did not look alike. Companies voluntarily continuing quarterly reporting exhibited stronger corporate governance characteristics. Their outside directors were significantly more gender-diverse and more likely to hold multiple board positions, reflecting broader board exposure in this setting.
They also had a higher proportion of outside directors with financial expertise: 81% compared with 77% among companies switching to semiannual reporting , although this particular difference was not statistically significant.
Institutional investors held, on average, 15% of companies retaining quarterly reporting, compared with only 5% of companies switching to semiannual reporting. The companies adopting the relief were also substantially smaller.
These findings raise a question largely missing from the current debate.
Regulatory relief may be designed for the average firm. But it is chosen by individual firms and selection may itself be a governance signal.
Reporting frequency is also an audit committee question
This distinction should matter, particularly to the accounting profession. Financial reporting quality does not begin when the external auditor enters the room. It is shaped earlier by management, internal controls and the demands placed on the reporting process by the board and, especially, the audit committee.
Strong directors do more than approve financial statements. They question estimates. They challenge unusual accounting treatments. They ask why a balance moved, why an assumption changed and whether a disclosure tells investors enough.
Financial expertise is particularly relevant. Directors with financial expertise are better positioned to question accounting estimates, understand unusual financial movements and engage meaningfully with external auditors. Their presence can strengthen the demand for high-quality financial reporting from inside the boardroom.
Audit committees also interact with internal and external auditors. They can create demand for greater scrutiny, deeper discussion and additional audit attention.
Corporate governance and financial reporting quality are not separate systems. They reinforce one another.
The issue, therefore, is not simply whether a company publishes four reports or two.
It is who sits around the table when the numbers are challenged and how strongly they demand scrutiny from management and auditors.
Less reporting and less audit effort
This is what makes self-selection into reporting relief particularly important.
In my study, companies that adopted the relief experienced a sharp decline in external audit effort. Disclosed audit hours fell by almost 25%, while annual audit fees declined by approximately 19%. For companies continuing quarterly reporting, audit hours and fees remained broadly stable.
Consider the combination: The firms displaying weaker governance characteristics were more likely to choose less frequent reporting and the group choosing relief subsequently experienced substantially fewer external audit hours.
That is not merely a disclosure issue. It is an accounting oversight issue.
Cost savings are real. My research documents them. But fewer audit hours are not simply a smaller compliance bill. They also mean less external audit effort.
When that reduction occurs in the same group of firms displaying weaker governance characteristics, accountants and regulators should pay attention.
The reporting calendar creates governance checkpoints
Quarterly reporting is often discussed as if its primary output were another financial document for investors. But the process of producing that document matters too.
Management closes the books. Accountants review estimates. Unusual movements require explanations. Auditors perform work. Audit committees meet. Directors receive financial information and ask questions.
These are recurring governance checkpoints.
Eliminating two public reporting cycles may therefore do more than reduce the amount of information delivered to investors. It may reduce the frequency of institutional processes surrounding financial reporting.
A strong audit committee may compensate for fewer mandatory reporting dates. It can preserve internal quarterly reporting, meet regularly with finance executives and auditors, monitor significant estimates and continue challenging accounting judgments between public filings.
But what happens when the companies most likely to choose regulatory relief are also those with less governance capacity to recreate that discipline internally?
That is the question regulators should be asking.
Auditors do not operate in a vacuum
The SEC debate largely frames reporting frequency as a trade-off between compliance costs and information benefits.
For the accounting profession, there is another potential interaction to consider: Weaker governance demand combined with lower audit effort.
External auditors do not determine the financial reporting environment alone. Boards and audit committees matter. Directors' financial expertise matters. Management's attitude toward reporting matters. Institutional monitoring matters.
Some governance environments create demand for questions, scrutiny and discussion. Others may quietly accept less of all three.
Reducing mandatory reporting frequency may therefore have an uneven effect.
In a company with a strong board, financially sophisticated directors, an active audit committee and robust internal reporting, semiannual public reporting may primarily change the external reporting calendar.
In a company with weaker governance, the same relief may weaken part of the financial reporting oversight infrastructure itself.
My findings do not establish that semiannual reporting causes weaker corporate governance. Nor do they suggest that every company choosing relief has a weak board.
The concern is different: The companies choosing relief may systematically differ from those that do not.
Regulators should not treat that selection as irrelevant.
The SEC should study who opts out
The SEC should look beyond the average compliance cost of quarterly reporting.
It should examine the companies most likely to choose semiannual reporting. Does board composition predict the decision? Does the financial expertise of directors and audit committee members matter? Is institutional ownership associated with the choice? And what happens to external audit efforts after companies report less frequently?
Most importantly, regulators should ask whether companies choosing reduced reporting frequency have adequate governance mechanisms to substitute for monitoring that may disappear with two reporting cycles.
This does not necessarily require preserving quarterly reporting for every public company forever. But it may require guardrails.
At a minimum, a board choosing semiannual reporting could explain why it made that decision and how the audit committee intends to maintain financial oversight between public reporting dates. Investors should know whether quarterly internal financial reviews will continue. Audit committees should consider whether their meeting frequency should remain unchanged. Auditors should be part of the discussion about how reduced reporting frequency affects the timing and intensity of their work.
Regulatory relief creates real cost savings. But fewer audit hours are not an abstract compliance saving. Fewer reporting cycles are not simply fewer documents.
They may mean fewer moments when an accountant reviews an estimate, an auditor raises a question, or a financially sophisticated director asks management to explain the numbers.
The SEC is debating how often companies should report. Accountants should be asking a different question: Who will still demand high-quality financial reporting when the reporting calendar demands less?
