According to an online column on CFO.com by Nicolas Morgan and Jennifer Feldman, 2014 is a good year to ensure that your XBRL code is of the highest quality. Morgan and Feldman give their column — “No More Mr. Nice Guys: SEC Sharpens Talons for 2014” — a helpful subtitle:
“Don’t be complacent. The recent trough in the SEC’s enforcement of financial-reporting regulations will turn around this year.”
In addition to an alarming title, the article contains a series of warnings that could worry the Officers for any public company. As a result of an increasing “interest in pursuing enforcement of financial reporting regulations,” Morgan and Feldman write that the SEC “will be making more inquiries, analyzing more periodic reports and financial statements, and ultimately filing more lawsuits.”
This redoubled effort by the SEC to detect and prosecute fraud will include the new “Financial Reporting and Audit Task Force,” which was formed in July 2013 by the SEC’s Enforcement Division. This group will consist of “enforcement attorneys and accountants from across the country who will be tasked with identifying financial-statement, issuer-reporting and disclosure violations.”
The article certainly is attention grabbing, but we at RDG want to highlight the aspect of this article that is of immediate value to those companies with nothing fraudulent to hide, but who share the perfectly reasonable desire to stay out of the SEC’s search lights. Happily, this is also a thing that is completely within the control of companies themselves: Taking steps to ensure your XBRL data is of the highest quality.
Almost as an afterthought, Morgan and Feldman write that “one weapon in the task force arsenal is the much-discussed Accounting Quality Model (AQM), colloquially known as RoboCop. The SEC describes AQM as a quantitative analytic ‘model that allows us to discern whether a registrant’s financial statements stick out from the pack.’” What they do not mention, however, is that the RoboCop uses XBRL data as the first line of defense in its search for outliers.
For more helpful insight, we turn to a recent online article for Forbes, in which John Carney and Francesca Harker explain that “because RoboCop is an automated system looking for oddities, it is unable to account for mistakes made. This is particularly important because the AQM relies on the newly-mandated XBRL data which is prone to mistakes by the inexperienced. Sloppy entries could land your company’s filing at the top of the list for close examination.”
For those companies with nothing fraudulent to hide in their books, we like to think of investigation by the Financial Reporting and Audit Task Force as analogous to getting audited by the IRS when your taxes are properly paid but your From 1040 was filled out incorrectly. The IRS will find nothing amiss after the audit, but the process will be awful, time consuming, and expensive. This idea applies to your XBRL data. If your financial statements are in good order, but your XBRL is improperly built, the RoboCop may highlight your company as a candidate for further investigation. By ensuring your XBRL is of the highest quality possible, you can avoid any flag that the Accounting Quality Model RoboCop system might have otherwise raised.
We at RDG can help any SEC Filer who wants to know that their XBRL filings exceed SEC validation requirements, and will be in line with the enhanced standards, protocols, and guidelines already put forward by the FASB, the AICPA, the US-GAAP, XBRL-US, and others. RDG offers exhaustive XBRL Quality Assurance Services, and we have the knowledge, expertise, and experience to ensure that your XBRL documents are not vulnerable to the AQM-RoboCop and any future analysis tools deployed by the SEC.
Stewart Walker – SVP, Director of Sales