Innovation In The Era Of Big Data

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THE EVOLUTION OF THE
ACCOUNTING QUALITY MODEL
Sam Ferguson
Regis University

Innovation in the Era of

“Big Data” provided a standardized
Computer Readable
Language
&

eXtensible
Business
Reporting
Language

Oversight

&

The U.S. Securities &
Exchange Commission’s

“RoboCop”

Introducing...
XBRL
 In 1998, Charlie Hoffman, the
“father of XBRL,” combined XML with HTML for user-defined data tagging  Each tagged element offers currency, balance type, and period.
 Layer in taxonomies linking the data to accounting principles.
 Offers standardized financial report format.  XBRL becomes a “Twitter hashtag for the financially savvy”

THE ACCOUNTING QUALITY MODEL
THE SEC”S

“ROBOCOP”
ANALYZES DISCLOSURES WITHIN 24-HOURS POSTED TO EDGAR
Provides quantitative analytics to degree of anomalies in filing
GENERATES RISK SCORE AS TO LEVEL OF POSSIBLE FRAUD
RISK SCORE USED TO COBORRATES/INVALIDATES FRAUD TIPS
SEC EXAMINERS FURTHER REVIEW FLAGGED FINANCIALS
SEC RESPONDS WTIH COMMENT LETTER, INFORMAL INQUIRY, OR AUDIT

“RoboCop’s” Profiling Techniques
Earnings Management Analysis
• Revenue Earned but not
Received
DISCRETIONARY
&
NON-OBLIGATORY

• Add Expenses incurred but not
Paid
Accrued
Revenue

Accrued
Expense
s

ACCRUALS
Deferred
Revenue

• Transfer to a Liability Revenue but not Earned
Risk Indicators:
 Earnings Quality Management
 Quality & Quantity of
Discretionary Accruals
Comparative to Peer Industry
Group

NON-DISCRETIONARY
&
OBLIGATORY

Deferred
Expense

• Transfer to an Asset Unused
Expense Amount

Risk Inducers:
 Decrease of Market Share
 Lower Profitability Margins

FALSE POSITIVES*
*”RoboCop” analysis produces risk score for benign anomalies

PROS

CONS

✚ Customizable factor-based analysis to specific needs
✚ Includes discretionary accruals factors in its regression analysis

-

Costly disruptions of sec inquiries damaging effects to reputation

EVOLUTION OF THE “ROBOCOP”

 Creation of Financial Reporting & Audit Task Force and Microcap
Fraud Task Force
 Provides accounting & legal oversight to “RoboCop”
 Expands policing to securities issued by microcap companies
 New analytical tool to review supporting written documentation to disclosures  Parses the word & phrases common in past fraudulent activity
 Seek out overuse of words & “under-disclosure of risk”

Recommendations for compliance  File Accurate XBRL Reports
 Implement Conservative
Accounting Policies
 Conform to Peer Industry
Group Practices
 Adequately Document
Policies
 Stay Current on SEC
Regulatory Activity
 Be Prepared for an SEC
Inquiry

Bibliography
ACFE. (2013, August). The Fraud Examiner. Retrieved July 15, 2014, from ACFE: http://www.acfe.com/fraudexaminer.aspx?id=4294979300&terms=(check)
Anderson, G. (2014, August 15). Retail Wire. Retrieved August 16, 2014, from Forbes: http://www.forbes.com/sites/retailwire/2014/08/15/will-amazon-be-using-merchants-who-use-amazon-localregister/ Brands, C. K. (2012, December). The SEC and Interactive Data. Strategic Finance , pp. 56-57.
Brands, CMA., K. (2013, September). XBRL SEC Filings Are Hampered By Errors. Strategic Finance , pp. 56-57.
Brands, K. (2014, June 28). Discussions. Retrieved June 30, 2014, from Regis University World Class: https ://connect.regis.edu/p66ymuyj580/?launcher=false&fcsContent=true&pbMode=normal
Brands, K. (2014, June 27). Discussions. Retrieved June 30, 2014, from Regis University World
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