Securities and Exchange Commission Chairman Jay Clayton wants to raise the bar on financial reporting and audit quality around the globe as investors are increasingly exposed to companies that have financial reports based on a patchwork of regulations.
“It’s really important that there’s consistency not only across the reporting, but consistency in audit quality,” he said in Dec. 9 remarks at the American Institute of CPAs conference in Washington.
Auditors around the world touch some aspect of multinational companies’ financial reporting. But investors can’t easily distinguish between reporting and auditing requirements across countries and determine how they impact a company’s financial statements, Clayton said.
“The answer to that is not to try and make those distinctions. The answer to that is to try and raise everybody to a level where investors can reasonably rely,” he said.
Clayton also urged companies not to underestimate the challenge of transitioning away from the reference rate known as Libor and to raise questions sooner, not later.
“It’s going to be a challenge, and we should face up to that and have a robust dialogue around how to meet that challenge,” Clayton said. “Hope is not a strategy.”
Clayton said supplemental metrics should reflect how management monitors its business. Any quarterly adjustments in what are known as non-GAAP metrics should be clearly explained.
“I don’t like it when the calculation changes from quarter to quarter, because you lose that comparability,” he said.
He urged companies to discuss their workforces, including how they plan to attract talented staff, with investors. The quality of a company’s workforce increasingly drives value, he said.
“Let’s see if we can move that disclosure forward to reflect the more modern economy,” he said.