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New SEC task force on financial reporting.

Last month, the Securities & Exchange Commission (SEC) announced a new task force that will be on the lookout for companies using aggressive accounting that might suggest financial reporting or accounting fraud. The Financial Reporting and Audit Task Force will be headed by David Woodcock, director of the SEC's Fort Worth Regional Office. He says the task force will use data mining and other techniques to find these companies. In an interview with Strategic Finance, Woodcock explains that instead of relying on whistleblower tips or looking at public restatements, the task force will use internal and external data mining technologies and data-bases such as the SEC's Accounting Quality Model (AQM) to locate companies that appear to be skating on thin accounting ice. "We will incubate the cases, basically kicking the tires of the company's accounting," Woodcock says. If the task force finds some potential financial reporting or accounting fraud, it will refer the company to either a regional office or the national enforcement division for additional investigation.

Woodcock appears to be well suited for this job, which he will be doing part-time. Prior to obtaining a law degree, Woodcock worked for several years at Ernst & Young and then PricewaterhouseCoopers as an auditor and earned the CMA[R] (Certified Management Accountant) certification. The full-time responsibilities of the task force will be handled by a staff of four accountants and four lawyers, who will remain in their current locations and not relocate to Fort Worth.

Some have argued that the SEC has ignored financial reporting fraud over the past decade, possibly because the Sarbanes-Oxley (SOX) reforms may have curbed those problems. Others say the agency has been pre-occupied by Wall Street and the excesses of financial companies, especially since 2008. But Francine McKenna, who writes about the accounting industry in Forbes magazine, published a story last October that stated, "The SEC's 2012 whistleblower program statistics show that the most common complaints are for corporate disclosures and financial fraud, 18.2%, even though we know now that it's the 11th straight year of fewer enforcement cases filed for accounting fraud and disclosure violations."

Woodcock doesn't think the SEC has turned a blind eye to corporate reporting fraud, but he admits he doesn't know the dimensions of the problems in that area. He aims to find out by "concentrating" the agency's resources, which have been somewhat spread around, and by going outside the agency to academic experts and others who may have some useful technologies for analyzing and finding corporate financial indiscretions. The task force will be looking at both small and large companies, paying particular attention to areas such as revenue recognition, underreporting of costs and expenses, long-term contract accounting, reserves and allowances, and non-GAAP (Generally Accepted Accounting Principles) measures.

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Title Annotation:GOVERNMENT; Securities and Exchange Commission
Author:Barlas, Stephen
Publication:Strategic Finance
Geographic Code:1USA
Date:Sep 1, 2013
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