CFOs who question the value of the Securities and Exchange mission’s mandate to have panies use XBRL (eXtensible Business Reporting Language )formatting,believing it doesn’t add value to their anizations and is just another pliance burden,need to take a fresh look at the data reporting standards.

XBRL is a giant step toward providing high quality,transparent financial information to investors for analysis and decision-making.Aording to XBRL U.S.,since the mandate became effective,more than 9,300public panies have filed approximately 71,000XBRL submissions,making the mandate one of the most suessful regulatory pliance initiatives in the world.As a result of the large number of filings,the SEC has llected a massive data repository of financial information.Indeed,aess to filing information has been democratized.It is simple to aess and download financial filings by using an XBRL viewer,such as the SEC’s viewer.

But proper XBRL formatting also helps rporate executives stay out of trouble with the SEC.While the rollout date for the SEC’s Aounting Quality Model (AQM),which would trigger alerts if any unusual findings ourred in a pany’s XBRL tagging,has not been announced,CFOs should take immediate steps to strengthen their XBRL filing tagging processes to produce aurate filings.

The AQM’s analytical power,after all,has the potential to produce an exponential increase in a pany’s ment letter issues.The AQM essentially allows the SEC to dig into panies’XBRL filings to look at problems and red flags that need further explanation and analysis.It is a sophisticated enometric-based model to identify filings’abnormal and outlier information.

Think of it as data mining and analysis for examining registrants’filings and identifying risk exposures.Developed by the SEC’s Division of Risk,Strategy and Financial Innovation (RSFI)and headed by SEC Chief Enomist Craig Lewis,the AQM is based on a model that evaluates hedge fund risk and performance to identify funds that need further review.Under the Sarbanes-Oxley Act (SOX),the mission is required to examine all public panies’filings every three years.The AQM streamlines the screening process for this review by performing an analysis as soon as the filing is submitted.Filings evaluated by the model are assigned a risk assessment sre and are then ranked.The Division of rporate Finance can use the ranking as a selection criterion for further examination.

The initial focus of the AQM is to measure panies’aounting disclosures and earnings management characteristics that uld be used to predict misleading or fraudulent aounting practices.This uld include evaluating aruals and reserves booked by a pany.Had this capability been available in early 2000,the major aounting frauds like Enron and World might have been averted.The model can also pare a pany’s filings to its industry peer group to determine whether or not a pany’s financial reporting is aligned with its industry’s reporting characteristics.

Similarly,while audits of XBRL tagged data prior to submission are not required,CFOs should nsider engaging their internal or external auditors to review the auracy of tagged data.

Increased Scrutiny of Financials

Though no guidance has been released about the implications of the expiration of the SEC’s limited liability provision on October 31,2014,which was a grace period where mistakes can be made in XBRL tagging without repercussions,it is highly unlikely that the SEC’s patience for tagging errors will last indefinitely.When the liability provision goes away,it should lead to increased scrutiny of panies’financial filings,though,such as Forms 10-K and 10-Q.

As of April 2013,approximately 1.2million errors were identified in XBRL-filed financial statements.During the adoption phase of the XBRL Mandate,XBRL submissions were nsidered furnished to the SEC,not filed,until 24months after a pany’s initial filing.Filers have been protected from the normal SEC penalties assessed for inaurately filed financial information as long as the pany made a good faith effort to file aurately tagged financial statements and rrect errors in a timely manner.

Thus,the dual exposures of the limited liability provision expiration and the adoption of the AQM by the SEC mean CFOs and their panies should put renewed focus on XBRL filing quality.

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