TechTalk Blog - US Securities & Exchange Commission Needs Tools Like Corporate Issuer Risk Assessment (CIRA) & XBRL to Detect Fraud

By David Colgren posted 05-20-2016 10:24 AM

  

 

Interesting guest article posted today on Kevin LaCroix’s D&O DIARY written by Robert F. Carangelo, Paul A. Ferrillo and Andrew Cauchi of the Weil Gotshal law firm. The article takes a look at the US SEC’s recent focus on financial reporting and the use of new technologies to detect financial statement accounting anomalies/fraud… In 2015, the SEC brought enforcement cases against 191 parties (in contrast to 128 parties in 2014), a significant increase over prior years.

My guess is that XBRL and structured data is being used more effectively by the US SEC and we are starting to see more enforcement actions to protect the interests of investors and support the integrity of the capital markets.

From today’s article:

“Another impetus for more SEC cases involving financial reporting may simply be that technology has created a tremendous ability for the SEC to review terabytes of information in financial statements almost instantaneously. As noted in recent speeches by Mr. Ceresney and Ms. McGuire, the SEC has new tools such as the its Corporate Issuer Risk Assessment tool (“CIRA”), which through “Big Data” technology, allows the SEC to review more than 100 different accounting methods and metrics to examine whether “things look funny” or not, “at the click of a mouse.”

Today, more than 14,500 public companies annually submit their financial statements to the US SEC for oversight.

What is the US SEC’s Corporate Issuer Risk Assessment program (CIRA) that was launched last year by the agency that allows SEC staff to detect abnormalities in financial statements?

According to a recent article in FEI daily in an interview of Mark Flannery, SEC Chief Economist and Director of DERA:

“CIRA is essentially the Accounting Quality Model on steroids. Instead of looking at just accounting anomalies or accruals, which was the main focus of the AQM, CIRA looks at all dimensions of financial data. We have about 100 different metrics that describe firms. CIRA allows SEC staff to compare any or all of those 100 metrics to different firms within a peer group. Essentially, it is a dashboard that allows us to look for possible anomalies that may warrant further investigation. So we have gone far beyond anomalous accounting information, or accounting quality, to look at a bigger group of variables and to give more flexibility to the SEC staff who use the tool.

What is CIRA’s relationship to XBRL and/or structured data?

Right now, the data come primarily from commercial databases, but some of the XBRL variables that are reported to us also go into the tool. I want to emphasize that generally we use XBRL data where it is available today, and we are very interested in expanding the availability and use of XBRL data. In the context of CIRA, as we get more XBRL data, and as we get a longer time series in XBRL data reports, we will incorporate more and more of that information directly into CIRA.

With regard to the use of XBRL more generally, one of the important things about our XBRL filings so far is that they are broader and they cover more firms than are covered by the commercial database-providers. Commercial database-providers do not provide as much information about small firms, which may be of less interest to their customers. With XBRL reporting, which includes data from small firms, we have a larger universe of firms, and that is going to be one of the benefits of expanding XBRL use in the CIRA dashboard.”

The US SEC is expanding the use of XBRL/ structured data so information is in a machine-readable format submitted to the US SEC for oversight.

In the past 18 months, the SEC has proposed or adopted 10 new rules on structured disclosure that will allow CIRA to be moved across other asset classes that the US SEC oversees and regulates for better transparency and accountability.

Stay tuned as we learn more about CIRA, how its uses XBRL and how structured data is becoming more critical to the overall regulatory function/oversight of the US SEC.

The IMA for many years has supported  the use of the XBRL data standard by the US SEC for better oversight protection of the capital markets. 

 



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