In what could be a big relief to corporates and auditors, the Singapore regulator recently made a significant shift in rules on quarterly results disclosure norms. Accordingly, SGX-listed firms are no longer required to adhere to quarterly reporting (QR) except firms that are associated with high risks. The new risk-based system will replace the current QR requirement from February 7.
In India, all listed companies on the BSE, the NSE and the Metropolitan Stock Exchange are mandated to disclose their unaudited results every quarter.
After long deliberation, SEBI had made QR mandatory; it came into force from March 31, 2000.
The market regulator had also prescribed several norms that a company should follow while disclosing results.
Accordingly, it has prescribed a format for financial statements and made it mandatory for companies to make an announcement to the stock exchanges, immediately after the market hours on the date of the board meeting.
Besides, companies were asked to publish an advertisement within 48 hours in an English and language dailies detailing their quarterly results.
Besides, SEBI rules had also stated that the unaudited results should not substantially differ from the audited results of the company. If the sum total of the first, second, third and fourth quarterly unaudited results in respect of any item given in the same pro-forma varied by 20 per cent when compared with the audited results for the full year, the company would need to explain the reasons to the stock exchanges.
Though these rules have since gone through several amendments, including on accounting standards and auditor certificates, they have more or less retained its core structure.
Advantages of QR
SEBI had mandated this mainly to check the menace of insider-trading that was widely prevalent during those days.
Important price sensitive information was leaked selectively to analysts, brokers and company officials, who made merry at the cost of gullible retail investors.
So, the quarterly results helped information flow seamlessly and created a level playing field for all participants. The rules also brought discipline to India Inc, which was until then a little wayward. Another important benefit is that it allowed regulators, exchanges and government authorities to closely monitor listed companies.
However, with two decades having gone by since the introduction of quarterly result reporting, the time is now ripe for an overhaul, if not doing away completely with the requirements.
At what cost?
The QR compliance comes with huge costs on several aspects — be it human resources, auditing or meeting regulatory obligations. Companies often lose focus on long-term business goals as their energies get drained to meet the QR requirements.
From the perspective of shareholders/ investors, too, the flood of frequent information actually deters them from making meaningful decisions. Instead of making the rule mandatory for all companies, SEBI could consider leaving the option to them whether they wish to come out with quarterly numbers.
To start with, this can be considered for the top 500 or 1,000 companies by market capitalisation.
However, it should continue disclosure of results on half-yearly basis.
Also, vigil should be maintained on all corporates with respect to corporate governance. Insiders and whistle-blowers should be encouraged and comforted to share details freely and without fear.