Betting On Technology: SEC's Reliance On Risk-Based Data Analytics To Detect Earnings Management

As the SECond Opinions Blog continues our review of FY 2021 U.S. Securities and Exchange Commission's (SEC) enforcement activity, we take a deeper dive into the agency's use of technology to generate enforcement leads. The SEC's Division of Enforcement has never been shy about using technology to investigate and prosecute what it sometimes calls "harder-to-detect" violations. Indeed, the SEC frequently relies on data analytics to further its mission to protect retail investors and maintain fair, orderly and efficient markets, as in its approach to investigating possible insider trading.¹ The Enforcement's EPS Initiative is a useful example of the staff leveraging data analytics to gather and assess large volumes of often complex information provided by thousands of publicly traded companies to more quickly and accurately identify earnings mismanagement. And although there have only been three reported enforcement actions since the EPS Initiative was first announced