In July 2013 the SEC announced the creation of a Financial Reporting and Audit Task Force. Chair White emphasized the significance of this initiative as part of the SEC’s goal of covering the whole market. The task force has the dual purpose of improving detection and increasing prosecution of accounting fraud. The SEC’s press release on the task force made clear that the task force’s principal goals are fraud detection and increased pursuit of violations involving false or misleading financial statements and disclosures, with a focus on identifying and exploring areas susceptible to fraudulent financial reporting. The agency plans to accomplish the task force’s goals with the assistance and use of technology-based tools.
The task force will address a variety of issues, including use of reserves, revenue recognition, audit committees, and the role of auditors (with particular attention paid to independence issues). According to the SEC, the task force will develop new ways to identify accounting fraud through leading-edge technology such as the new Accounting Quality Model (known informally as “RoboCop”). In addition, the task force will solicit whistleblowers in order to learn about misconduct that would otherwise be difficult or impossible to detect. Unlike similar initiatives in the past to assist the Division of Corporation Finance in advising clients during the comment letter process, the purpose of the Financial Reporting and Audit Task Force will be enforcement, rather than prevention. In other words, this effort is not about helping companies spot errors, but rather about playing “gotcha” when there is a corporate foot fault.