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SEC Using XBRL to Flag Reports for Review

Seal of the U.S. Securities and Exchange Commi...Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

Not too long ago, I heard Craig M. Lewis, Director and Chief Economist of the Securities and Exchange Commission’s Division of Risk, Strategy and Financial Innovation, give a presentation on the SEC’s new predictive accounting quality model, nicknamed “RoboCop” by the trade press, which will enable the SEC to monitor and flag reports for further review.

What makes AQM so useful, Mr. Lewis said in an interview with Merrill Compliance Solutions, is that, by using XBRL, the tool can be “applied broadly to the entire filer space.” Previous versions of the tool used Compustat data, which did not include all filing companies. With XBRL, 100 percent of filing companies will be analyzed by AQM.

I think what’s really important to note is that, with AQM, the quality and consistency of XBRL tagging can make the difference between a smooth filing year or a company undergoing extra scrutiny by the SEC’s Department of Enforcement. “Now that there is an actual liability associated with inaccurate XBRL statements, I fully expect quality to improve,” Mr. Lewis said.

At the end of the day, individual companies are responsible for their tagged financial statements--whether or not they outsource the process. Many of these errors can be avoided simply by understanding the SEC's requirements and the U.S. GAAP Taxonomy. The AICPA is working with XBRL U.S. to help overcome this learning curve and take the guesswork out of XBRL creation with the new XBRL U.S. GAAP Certificate program.

How has your organization prepared your finance staff for these changes? I would love to read your comments below.

Arleen Thomas, CPA, CGMA, Senior Vice President - Management Accounting, American Institute of CPAs.

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