Semi-annual reporting standards are relatively common outside of North America, though in Canada, the idea has generated concern even among its proponents.Tijana Martin/The Canadian Press
As the United States embarks on a path toward less frequent corporate earnings disclosures, Canada has already spent years developing its own rules to lengthen the gaps between financial reports from small companies.
On Friday, U.S. Securities and Exchange Commission chair Paul Atkins told CNBC that the market watchdog will propose allowing public companies to report earnings twice per year, rather than the current quarterly requirement.
Supporters argue semi-annual reporting would allow companies to focus on longer-term strategy and save money, but opponents warn less reporting will mean less transparency.
In Canada, where the majority of public companies are relatively small venture issuers, regulators have been mulling a semi-annual reporting option for more than a decade. In 2021, the Canadian Securities Administrators – an umbrella group for provincial and territorial market regulators across the country – formally launched a consultation on a proposal for a twice-yearly reporting regime that would specifically apply to venture issuers.
CSA spokesperson Ilana Kelemen said Friday that the organization is currently working on publishing proposed new semi-annual reporting rules for smaller companies.
In the meantime, the head of Canada’s largest stock exchange expects the new regime to arrive soon.
“The CSA has done the work,” Loui Anastasopoulos, chief executive of the TMX Group-owned Toronto Stock Exchange, said in an interview. “We understand that they are actively considering implementing something.”
“If I was a betting man, I would say we will probably see something in the next 12 to 24 months,” he added.
In the U.S., the SEC’s Mr. Atkins suggested the semi-annual reporting option will be made available to all issuers regardless of size, which differs from the Canadian focus on junior issuers.
Ms. Keleman did not comment on whether the SEC plans will have any impact on what the CSA is preparing, while Mr. Anastasopoulos said Canada should not feel pressured to follow the Americans.
“We are not reacting to an announcement out of the U.S. market,” he said. “It has been something we have worked on for at least the past 10 years in the Canadian market.”
Between the TSX Venture Exchange and the Canadian Securities Exchange, there are more than 2,500 public companies in this country with an average market value of less than $60-million. Bryce Tingle, N. Murray Edwards chair of business law at the University of Calgary, said “quarterly reporting is completely pointless” for many of them.
“Nobody is investing in these companies because of their earnings,” Mr. Tingle said in an interview. “They don’t have earnings. What they have is a geology report.”
Opinion: Trump is wrong. Nixing quarterly reports won’t fix Wall Street’s ‘short-termism’
The SEC and the CSA are both considering voluntary regimes, meaning companies would be able to choose whether they want to report on a semi-annual or quarterly basis.
“For some of the larger venture companies that do have more active businesses, they likely will have a requirement from shareholders and investors to be more frequent in their reporting,” Mr. Anastasopoulos said. “So, you will ultimately see a bit of a mix there, no question about it.”
For companies that try to oppose shareholder demands to maintain quarterly reporting, Mr. Tingle said “their cost of capital might increase, and their share price might go down.”
Some studies have shown that moving to semi-annual reporting does not encourage companies to make longer-term investments, as proponents of the practice often claim.
“On balance, the evidence is that moving from quarterly to semi-annual probably doesn’t make major changes to the way companies conduct strategy,” Mr. Tingle said.
Other research suggests that cutting back on quarterly reporting requirements leads to cost savings. However, Jean-Paul Bureaud, executive director of the Canadian Foundation for the Advancement of Investor Rights, said those savings could come at the cost of critical investor protections.
“Quarterly reporting keeps companies transparent and boards alert by helping them spot potential problems early, especially in volatile markets,” Mr. Bureaud said in an email. “Less frequent reporting risks weakening governance and leaving investors in the dark.”
Mr. Anastasopoulos said moving to reporting twice a year is more about changing reporting calendars than cutting disclosure requirements.
“Less frequency doesn’t mean less investor protection or less transparency in any way,” he said. “Rules regarding timely disclosure of material information would remain in place. All of the safeguards that are there now would continue to be there.”
Semi-annual reporting standards are relatively common outside of North America, though in Canada, the idea has generated concern even among its proponents. During the CSA’s 2021 consultations, the Canadian Securities Exchange expressed reservations.
“In the small and micro-cap space, a lot can happen in six months, particularly with cash,” Richard Carleton, CEO of the CSE, said in a Friday interview. “But I have changed my mind on the issue over the last while, primarily because of the work that we have done in Australia.”
Earlier this year, the CSE bought the National Stock Exchange of Australia, where semi-annual reporting is widely allowed, but with some caveats. One restriction in that market, Mr. Carleton said, is that smaller companies or companies with a going concern note on their financials must still release quarterly cash flow statements.
“That is obviously far less intrusive and expensive,” he said. “But they do provide the critical data points to the marketplace, which is how much cash they have in the kitty.”
“That will ultimately reduce the cost of capital for some companies without compromising some of the critical information and disclosure to the marketplace,” Mr. Carleton said.
He believes a similar approach could be successful here, but that ultimately, wherever the U.S. goes, Canada is likely to follow.
“My strong suspicion is that we would be working to provide harmonization with any kind of implementation in the United States,” Mr. Carleton said.