When President Obama stated, "You don't want to mess with Mary Jo," he wasn't kidding.
Sworn into her new position just a few months ago, SEC Chairwoman Mary Jo White is leading the charge against fraudulent SEC filings with a new Accounting Quality Model dubbed "RoboCop", report Forbes. The completely automated analytical tool flags filings with high risk indicators and high risk inducers.
It's time to cozy up to the accounting department to make sure everyone is on the same page when it comes to compliance. Here's an abbreviated list of the factors Forbes suggested as ways to avoid an SEC audit:
Stay monogamous... when it comes to your auditors, that is. One of the red flags that RoboCop looks for is a change in auditors, or frequent changes in auditors.
Follow the pack. Usually, companies in the same industry follow similar accounting principles. This is one area where you want to go on your own path -- do what the other industry players do.
Dot your I's and cross your T's. This is not the time for sloppy work. Since RoboCop is looking for "oddities," it won't know the difference between a typo and a red flag.
Explain away. As Forbes states: "Any filer pushing the bounds of discretionary accruals should thoroughly explain their decisions in the filing, or they should expect to explain it to an SEC exam team shortly thereafter."
Keep it on the books. Notorious fraud schemes such as Enron "used massive amounts of off-balance sheet transactions to conceal their ballooning debt," according to Forbes. Instead, follow the pack (again) when it comes to how much off-balance sheet transactions are used for your industry.
Always be prepared. Since RoboCop is automated, it will potentially raise false-positive red flags. In order to quickly respond to an audit, always be ready to explain your company's accounting policies.
This is just a short cheat sheet of some of the potential red-flag indicators for RoboCop. Make the accounting department your new best friends and make sure everyone is on the same page as far as compliance goes. The last thing you want is an unnecessary SEC audit.