On 22 June 2018, the Wall Street Journal, relying on a source familiar with the matter, reported that the SEC has launched a probe into whether certain issuers may have improperly rounded up their earnings per share to the next highest cent in quarterly reports. The article stated that the investigation was incited by the release of an academic research paper which found the number "4" appeared at an abnormally low rate in the first decimal place of companies' earnings per share, expressed in cents. Companies whose earnings per share come out to 5 or higher in the first decimal place should round up to the next higher cent (e.g., 55.5 cents would be rounded up to 56 cents), while if the first decimal place is a 4 or lower, it should be rounded down to the next lower full cent (e.g., 55.4 cents would be rounded down to 55 cents).
Although the SEC's investigation into the matter has not been officially confirmed, the Journal reports that the SEC has sent inquiries to at least ten companies requesting information about such adjustments that could have inflated reported earnings.
The Wall Street Journal article is available at:
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