The scrutiny of structured financial data by the Securities and Exchange Commission may run deeper than you think.
In Merrill Corporation’s September Dimensions newsletter, Mike Willis, assistant director in the SEC’s Office of Structured Disclosure, explained in a Q&A several ways in which the agency analyzes structured data from corporate filers. Contrary to his perceptions when he joined in 2015, Willis said he found “a surprising number of technical experts using XBRL for a broad range of analytical applications” within the SEC.
“Overall, we are working to enhance the analytical insights available to the Commission, investors, analysts, and other market participants through the increased use of structured disclosure,” Willis said. That includes performing risk assessments through “proactive, persistent monitoring and ad hoc analysis,” he added.
One of the tools the SEC has developed to accomplish these objectives is the Corporate Issuers Risk Assessment (CIRA) Dashboard, which enables search queries and comparisons of XBRL data “that allow for more comprehensive and timely oversight,” Willis said. The CIRA is effective for both reviewing disclosures and detecting possible financial-reporting anomalies, which, if corroborated with other evidence, could lead to additional inquiry, he noted.
Another application the SEC uses is the Financial Statement Query Viewer (FSQV), which enables staff to search, review, and compare structured financial statement and footnote disclosures. Willis said the commission is “rapidly increasing its use of XBRL-enabled analytical applications,” and the ways in which it uses XBRL to include:
- Looking for a specific combination of disclosures that may reveal a risk pattern
- Comparing disclosure and specific sector risk profiles across targeted filers
- Searching for narrative sentiments that are misaligned with the numeric results and ratios
- Performing data-quality assessments and searching for issues such as incorrect tagging, inappropriate extensions and scaling errors
Merrill Corporation helps companies create and file periodic financial disclosures required by the SEC. It has been instrumental for more than a decade in facilitating and promoting XBRL data reporting standards to allow for better and more efficient analysis of financial reports.
“The SEC has realized the efficiencies of using interactive XBRL data versus the traditional paper-based financials. Commission staff is now using XBRL internally for multiple purposes, and the list of uses will continue to grow,” said Lou Rohman, vice president of XBRL Services at Merrill Corp.
The agency does, indeed, sound committed to a continued build-out of its capabilities in analyzing structured data. New SEC Chairman Jay Clayton has indicated his intention to increase the use of technology, such as XBRL, to better assess risks and to detect potential fraud. “Technology is not just the province of those we regulate,” Clayton said in a July speech to the Economic Club of New York. “The SEC has the capability to develop and utilize it, too. We apply sophisticated analytic strategies to detect companies and individuals engaging in suspicious behavior.”
The Dimensions newsletter also spotlighted Clayton’s testimony during a June appearance before lawmakers, in which he said “key technology initiatives” would be supported by the SEC’s latest budget request. Those include broadening data analytics tools to help the staff “detect potential fraud or suspicious behavior earlier and allocate resources more effectively.” It would also enhance the review process “through risk assessment and surveillance tools that help identify high-risk areas for further examination.”