The Death of Q1 and Q3? Why Accounting Groups Are Ringing the Alarm on the SEC's Semiannual Reporting Proposal

August 29, 2026 • 9 min read

Most finance leaders think the SEC's semiannual reporting proposal is about cutting red tape and reducing costs. They're wrong. This isn't a simplification. It's a dismantling of the disclosure architecture that underpins U.S. market credibility. Stretching reporting cycles to 180 days doesn't fix short-termism. It creates a six-month runway for earnings manipulation, breaks the PCAOB comfort letter window that enables capital raises, and forces a rewrite of core GAAP standards like EPS and segment reporting. The real irony? This proposal arrives just as AI makes quarterly data cheaper and faster to produce than ever before. Investors are shouting no. Accounting groups are divided. And finance teams are left wondering whether the supposed efficiency gain is worth the structural risk. That's what this article unpacks.

The Death of Q1 and Q3? Why Accounting Groups Are Ringing the Alarm on the SEC's Semiannual Reporting Proposal

For over 50 years, the "90-day treadmill" of quarterly reporting has been the basic heartbeat of U.S. stock markets. This strict cycle of sharing information, getting sign-offs, and reviews has given investors a standard way to track how companies are doing. But right now, the Securities and Exchange Commission (SEC) is thinking about changing this system in a way that has split the finance world into two camps.

The SEC's Proposed Rule on Semiannual Reporting (File Number S7-2026-15) would let public companies choose to report twice a year on a new form called Form 10-S instead of the usual quarterly Form 10-Q. The SEC says this is an important way to cut down on paperwork costs and help revive a struggling IPO market. But a group of investors and technical experts is warning that this move could accidentally tear down the transparency that makes U.S. markets the best in the world.

This proposal isn't happening by itself. It's part of a "triple threat" of rule changes that also includes plans for Filer Status Simplification and Registered Offering Reform. Together, these changes aim to make it easier for companies to go public. But critics, including major accounting firms, say the SEC is rushing ahead without studying how all these overlapping rules will affect market quality.

1. The Investor Consensus: Transparency Over "Optionality"

Data from the investment community shows strong support for keeping things the way they are. A January 2026 survey of 2,500 investment professionals by the CFA Institute found:

62% of respondents oppose replacing quarterly reporting with semiannual (twice-yearly) reporting.
63% believe the benefits of quarterly reporting are worth more than the costs of complying with the rules.
70% oppose letting companies choose their own reporting schedule.

While investors see "optionality" (giving companies choices) as a step toward less information and making it harder to compare companies, the accounting world doesn't all agree. The Audit Committee Council (ACC), an independent advisory group of the Center for Audit Quality, has said they support the proposal. The ACC argues that giving companies the option to report twice a year lets management and audit committees pick a schedule that best matches their specific business patterns, as long as trust and openness stay central.

2. The Short-Termism Paradox: Does Less Reporting Equal Long-Term Thinking?

One main reason for this proposal is the wish to reduce "short-termism." Supporters like Norges Bank Investment Management (NBIM) and FCLTGlobal argue that the 90-day cycle creates tunnel vision for managers, forcing executives to focus on near-term results instead of long-term value drivers like research and development. NBIM points out that places like the UK and Singapore have already switched to semiannual models to encourage long-term strategy.

However, the North American Securities Administrators Association (NASAA) and the CFA Institute say this misses the real problem. They argue that short-termism comes from how executives get paid and voluntary earnings predictions, not the "scoreboard" of the 10-Q.

What's more, NASAA points to a serious real-world example: the United Kingdom. When the UK moved away from required quarterly reporting, this happened during a time when the London Stock Exchange struggled to attract and keep new companies. This suggests that reducing transparency isn't the cure for the IPO market that the SEC hopes for.

3. The "Six-Month Runway" for Insider Trading and Fraud

A big concern raised by critics is the creation of a "dark period." By stretching the time between required reports to 180 days, the gap between inside information and public knowledge gets much wider.

The BDC Risk Factor

As Columbia University Professor Shivaram Rajgopal has pointed out, this risk is especially high for Business Development Companies (BDCs). BDCs hold assets that are hard to sell and need frequent judgment calls to value them. Rajgopal warns that the quarterly 10-Q acts as a necessary check that prevents managers from hiding losses they haven't realized yet. A semiannual cycle gives management a "six-month runway" to put off necessary write-downs.

Deterrence and Liability

Quarterly reporting stops fraud through three main ways:

Faster Detection: Cheating, like recording fake revenue, becomes harder to keep up over a 90-day cycle.
Officer Certifications: Sarbanes-Oxley (SOX) requires quarterly sign-offs that create personal legal risk for CEOs and CFOs.
Reporting Discipline: The requirement to "close the books" every 90 days strengthens internal controls.

Importantly, critics argue that simply "furnishing" voluntary updates (through Form 8-K) rather than "filing" them reduces the legal power of disclosure, since furnished reports carry less legal risk under Section 18 of the Exchange Act.

4. The Technical "Iceberg": GAAP and Audit Complexities

The EY comment letter points out major technical problems "below the surface" of this proposal. Quarterly rules are deeply built into U.S. GAAP (Generally Accepted Accounting Principles), and a shift to semiannual reporting would disrupt:

ASC 260 (Earnings Per Share): Specifically, the treasury stock method calculations that rely on quarterly time periods.
ASC 270 (Interim Reporting): The standards governing how interim periods are measured.
ASC 280 (Segment Reporting): Critical information for analysts about how business segments are performing.
Goodwill Impairment Testing: The standard practice of using the third quarter as a benchmark for impairment testing.

The "Comfort Letter" Obstacle

The proposal could also accidentally slow down raising capital. In securities offerings, underwriters need "comfort letters" from auditors. However, PCAOB AS 6101 limits auditors to providing "negative assurance" only within a 134-day window after the last audited or reviewed period. In a semiannual model, companies would often find themselves outside this window, requiring costly, unplanned interim reviews to satisfy underwriters. This would actually cancel out any intended cost savings.

5. The AI Irony: Why Now?

There's a big irony in the timing of this proposal. As the CFA Institute and EY point out, the rise of Artificial Intelligence is making financial data faster and cheaper to produce and analyze. Investors find it backwards that the SEC is proposing to cut reporting frequency at the very moment when tech disruption and economic ups and downs demand more timely, organized information. From the investor's viewpoint, the goal should be moving toward continuous sharing of information, not pulling back into six-month silences.

6. Featured Expert Perspective

"The pressure comes from the broader incentive architecture: analyst consensus estimates, quarterly earnings guidance, compensation tied to [earnings per share], and institutional investor focus on near-term results. The 10-Q is the scoreboard, not the game. Removing the scoreboard does not change how the game is played."
— Professor Shivaram Rajgopal, Columbia University
7. Practical Implications for Finance Operators

If the proposal moves forward, corporate finance professionals must prepare for several big changes:

Close Process Strategy: Audit committees will need to decide whether to keep a formal quarterly "hard close" or move to a more informal process, weighing the risk of finding errors later and internal control (ICFR) weaknesses.
Materiality and Information Leakage: As NBIM warns, the threshold for 8-Ks may need to be made clearer. "Gradual or cumulative changes" in financial condition that don't trigger a separate 8-K event might have been caught in a 10-Q, leading to possible "information leakage" during long gaps.
Role of the Audit Committee: Committees will face greater responsibility in explaining the reason for a reporting schedule change and making sure the shift doesn't weaken financial reporting discipline.
Negative Assurance Gaps: Finance teams must work closely with underwriters and auditors to manage the 134-day PCAOB limit for comfort letters during capital raises.

8. Conclusion: A Forward-Looking Summary

The debate over File Number S7-2026-15 reveals a basic tension about the SEC's core mission. Under the National Securities Markets Improvement Act of 1996 (NSMIA), the SEC is legally required to prioritize investor protection as a threshold consideration. While the Commission wants to revive capital formation, the overwhelming feedback from the investment community suggests that the proposed solution may actually increase the cost of capital by raising the risk premium demanded by investors.

The ultimate question remains: is the U.S. market willing to sacrifice the quarterly "scoreboard" that has anchored its global reputation for trust in exchange for the unproven hope of reduced corporate friction?

The Death of Q1 and Q3? Why Accounting Groups Are Ringing the Alarm on the SEC's Semiannual Reporting Proposal

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