Security and Exchange Commission Refocuses on Accounting Fraud

Friday, May 31, 2013 Print Email

The Securities and Exchange Commission (SEC) is periodically throwing its attention to accounting fraud cases after being unfocused in current years to Ponzi schemes, and submarine mortgage fraud in the wake of the financial emergency.

In the wall street journal, it is mentioned that the once again SEC is preparing strategy to target financial disclosures cases, and accounting fraud, which used to build up a big share of civil enforcement cases. Almost 25 percent of SEC’s enforcement actions are comprised by this proportion from year 2003 to 2005, but it dropped to 11 percent at the end of September 30, 2012.

No doubt, SEC’s Division of Corporate Finance is also playing an important role in this regard. The leaders of this department frequently encourage accountants at conferences to be more precise in their financial reports, and they issue a regularly efficient financial reporting manual with suggestions, and recommendations for getting better MD and A portion of reports.

Now the SEC is using more efficient software that will analyze terms in the examination portion of financial reports, and management discussions. The SEC is also using leverage technology like Extensible Business Reporting Language (XBRL) to identifying signs of doubtful activity. XBRL promises with to help investors for comparing, and analyzing companies across different industries. The SEC has been having need of public companies to submit their financial reports in XBRL in current years. The data stored in XBRL is also used in the U.S. GAAP Reporting Taxonomy that the Financial Accounting Board now preserves, and the SEC needs public companies to utilize.

Seeing that, the SEC’s focus on fraud shifts from Wall Street to Main Street, business management will have to do some additional care about the language they use in their financial reports to the SEC, and make sure they sincerely reveal the threats, and accounting options potentially upsetting their shareholders. Or else, if they fail to provide all the necessary information require in the financial reports, they will soon receive the ‘Dear CFO’ letter in their mail box to explain all the issues to the SEC

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