This Week in XBRL: Using XBRL for Fraud Auditing

The Blog for the Central Virginia Chapter of the Association of Certified Fraud Examiners has posted an in-depth study of potential uses for XBRL within the realm of fraud discovery and prevention. Originally posted on November 20th, the article does an incredible job of explaining alternative uses for XBRL, and how your company can use the language to keep a better eye on major financial issues.

Below, we have shared an excerpt from the blog post. To read the full text, click here, or the link at the bottom of the quote.

As one of its many projects to improve financial reporting, the SEC supports the use of Extensible Business Reporting Language (XBRL) to tag corporate financial transaction-level data as a way to connect financial accounts in a database like Oracle Financials to the underlying account detail and make browser-user instituted data query results available in close to real time on the corporate web-site.  This gives the general browser  user (whether s/he be an investor or a fraud examiner) a level of access to financial data unfettered by the conventional time-period, quarterly  based financial statement model of  financial  data reporting.   Investors can make investment decisions and fraud examiners and auditors can obtained up-to date financial data to test on a concurrent basis.

Conventional auditing, unsupported by on-line access to current data, is like trying to capture Niagara Falls in a bucket.  Not only is the data available frequently so out of date as to have limited value for testing; often it’s place and significance in the wider corporate financial picture is difficult to discern.  Is an identified problem a fluke limited to just a few transactions or is it an example of a wider, more significant control issue?  Real time availability of recent, sub-totaled, quarterly transaction level data on a multi-year basis,  can answer such a question with ease.

 

The ability to concurrently test for the presence (or suspected presence) of an on-going fraud scenario using up-to-date financial data has tremendous appeal for any fraud examiner or forensic accountant.  But there are problems; there always are.   The financial reporting model we all learned in business school  requires our client firm to prepare its financial statements under a strict set of rules and then to disclose the complete set of information at a pre-defined time.  Under the type of concurrent XBRL based system envisioned by the SEC,  financial information is available at times the user (auditor, investor, etc.) determines; all she has to do is write a database query and the information is at her finger tips.   That’s the rub.  Query language is not standard English and the consequences of using data output from an auditee system based on an erroneous query would be disastrous for  your employing attorney’s case.  So, any auditor with the desire to use such systems must either have the requisite query building skill to do so with confidence (very few do) or, better,  rely on third party experts (information systems auditors or the equivalent) as compensated assistants.

Please click here for the full article text.

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Merrill Corporation is proud to offer XBRL Complete, a suite of services that meets - and has options to exceed – the mandated requirements for XBRL for mutual funds. For more information, please click here or call 866-367-9110.

FINRA Issues Reporting Rules Amendments

A FINRA announcement has just gone out regarding a number of rules regulating the finance industry. Here is FINRA's summary of those changes.

The SEC approved amendments to NASD Rule 2711 and Incorporated NYSE Rule 472 to conform to the requirements of the Jumpstart Our Business Startups Act (JOBS Act) and make certain additional changes to quiet period restrictions consistent with the policies underlying the JOBS Act. Most of the changes to NASD Rule 2711 and Incorporated NYSE Rule 472 are effective retroactively to April 5, 2012; changes to those rules regarding quiet periods after secondary offerings and after the expiration, termination or waiver of a lock-up agreement became effective upon approval by the Securities and Exchange Commission (SEC) on October 11, 2012.

Cutting through the alphabet soup, the amendment essentially allows research analysts to attend meetings with the management of an issuer that meets the definition of an emerging growth company (EGC), even if investment bankers also attend the meetings.

If you'd like to read more detail on these rules changes, the full text of the amended rules is available at www.finra.org/notices/12-49. Alternatively, FINRA has released a PDF summarizing the specific rules affected.

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Merrill Corporation is proud to offer XBRL Complete, a suite of services that meets - and has options to exceed – the mandated requirements for XBRL for mutual funds. For more information, please click here or call 866-367-9110.

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Merrill Corporation is proud to offer XBRL Complete, a suite of services that meets - and has options to exceed – the mandated requirements for XBRL for mutual funds. For more information, please click here or call 866-367-9110.

What are the Benefits of Data Transparency?

We’ve been covering the progress of the DATA Act on this blog since the middle of last year. Throughout that process, we’ve been explaining some of the potential benefits that this legislation could bring. Over the next few weeks, we’ll be re-examining the idea of transparency in finance, and by extension, exploring what has come out of the DATA Act since it was signed in July of this year.

The Background

We first wrote about the DATA Act in October of 2011, wherein we explained how the Act was going to use XBRL to improve transparency across the nation’s industries.

By requiring the Secretary of the Department of Health and Human Services to consider XBRL, the federal government is getting the tools it needs to deliver better data -- which will help the Department better administer its child welfare programs and ultimately help states better serve children…We need to know who is and isn't receiving federal aid to more effectively help our children in greatest need. I think it's fitting that the first U.S. law mandating XBRL is helping our government better meet the needs of our most vulnerable children.

Then, in May of 2012, we started covering the senatorial debates standing between the Act and federal approval. The DATA Act was quickly approved by the House of Representatives, largely due to a high-profile scandal in which millions of dollars was wasted on an over-the-top Las Vegas conference. As it turned out, it moved through the senate just as quickly.

The DATA Act was a huge step in the fight for government financial transparency, and it was a wonderful moment to watch the Act pass uncontested.

Next week, we’ll update you with some of the research and results from this legislation, and we’ll follow that up by reporting on how this legislation could benefit your company.

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Merrill Corporation is proud to offer XBRL Complete, a suite of services that meets - and has options to exceed – the mandated requirements for XBRL for mutual funds. For more information, please click here or call 866-367-9110.