The SEC is deploying an innovative computerized data-mining tool designed to automatically detect suspicious trade and accounting activities and trigger alerts to publicly traded companies.
The SEC plans to roll out the early warning system this year. The proposed warning system will have a “rich capillary of information”, constantly provided by companies through official filings including annual reports. Based on computer-readable “XBRL tags”, the new technology will be able to compare financial data between businesses across the globe.
The accounting version will examine whether a company “sticks out from the pack” in areas such as accruals, which are non-cash entries that can be manipulated by management. The system will also send alerts pertaining to factors including a high proportion of off-balance-sheet transactions, frequent changes in auditor and delays to earnings announcements.
Craig Lewis, SEC Risk, Strategy and Financial Innovation Division Director, said “that the launch of the technology will take nearly nine months, however it might appear earlier.”