By 2024, the SEC will use artificial intelligence-powered investigative tools to better identify companies that have violated disclosure requirements. Similar to speed cameras that enhance police traffic enforcement, this data tagging technology—known as inline XBRL—allows the Securities and Exchange Commission to efficiently analyze large volumes of corporate disclosures to support the agency’s enforcement activities.
As we approach 2024, the list of corporate filings that must now be filed in the Inline XBRL format will continue to grow. Due to the proliferation of SEC rulemaking, many public companies may not appreciate or fully appreciate the seemingly simple data labeling provision contained in most recently finalized rules such as the SEC’s Cybersecurity Risk Management Rule or the proposed Climate Change Act. Change the description rule.
But this format for identifying data on corporate filings increases the SEC’s ability to initiate enforcement actions against public companies—which have begun to increase in frequency since the revised inline XBRL format was fully implemented.
Inline XBRL explained.
Formally known as Inline eXtensible Business Reporting Language, Inline XBRL is a structured data language in the SEC EDGAR system that allows companies to file Form 10-Q, Form 10-K and Form 8-K cover page simultaneously. Human readable and machine readable document.
The inline XBRL format differs from standard corporate filings because the XBRL file includes specific taxonomy codes for classifying financial information. All companies had to file using this format by the end of 2021.
Inline XBRL will aid SEC investigative efforts by 2024. The SEC’s Division of Corporate Finance is required by the Sarbanes-Oxley (SOX) Act to review each public company’s annual statements at least once every three years. The data tagging technology allows for quick and thorough evaluation.
In its semiannual report to Congress on XBRL data, the SEC said that 75% of the data required from public companies contains machine-readable data. Without this XBRL information, reported disclosure violations “would have been very difficult to detect and track in a cost-effective or timely manner,” the report said.
The SEC used machine-readable data to conduct preliminary assessments for compliance with the recently enacted Pay Versus Performance rule, the report said.
Starting in 2021, SEC filing violations increased.
According to Bloomberg data, enforcement actions have increased since the inline XBRL standard was introduced.
From January 1, 2021 to October 31, 2023, Bloomberg’s list of 217 SEC enforcement actions for violations of the SEC’s Administrative Enforcement Analysis Tool shows significant increases from 2021 to 2022, with 2023 passing in some areas to arrest or detain.
The actions are subject to the following provisions of the Securities Exchange Act (SEC Act) and its regulations:
Enforcement actions for violations of Section 13(b)2(a) — which rely more on financial information and disclosures than other sections — increased more than eightfold in 2021 to 19 in 2022. 18 such actions have been taken this year, with a handful likely before the end of the year.
Online XBRL data tagging is also available in public company quarterly reports, Form 10-Q and Form 8-K cover letters.
The SEC’s enforcement actions for these documents relate to the following rules of the SEC Act:
SEC actions related to Form 10-Q and Form 8-K filings have increased over the past two years, indicating that SEC staff may use XBRL data in their corporate investigations, even if the agency does not publicly disclose this fact. The 2023 Form 8-K and 10-Q related actions may exceed the 2022 total.
SEC Reporting: Insights for 2024
Lawyers say SEC staff will use information on what types of disclosures to prioritize for the 2024 investigation from the agency’s list of formal tax names for operating companies, which is publicly available and updated annually.
Based on the final 2023 XBRL taxonomies and the 2024 XBRL tax releases, the SEC has created new taxonomy codes for data labeling for the following rules.
In the year In 2024, the SEC will continue to use data identification technology to rapidly target insider trading and to more effectively identify and prosecute enforcement cases. Companies need to keep up with the evolution of information technology for the SEC and examine their corporate disclosures to incorporate it.
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