SEC takes note of labelling inconsistencies

Posted on November 11, 2023 by Editor

The US Securities and Exchange’s (SEC) Division of Economic and Risk Analysis recently conducted an analysis into how filers are tagging reported items on the income statement over multiple reporting periods.

The results show that some filers have been using different labels for the same element when tagging identical reported items on the income statement across different periods. These changes in labelling persist even when the description of the reported item remains consistent. In some instances, you’ll find one label used in a particular form, let’s say Form 10-Q, while a completely different label adorns the same element when it’s in Form 10-K.

We agree. Inconsistencies in element labelling can cause some friction when comparing financial data across different reporting periods, especially in situations where consuming software — like those using certain types of AI —  takes note of the label as well as the element name (and official label).

So, in line with encouraging consistency and comparability, the message from the SEC is clear: when filers label elements, especially when those labels deviate from the standard ones in the US Generally Accepted Accounting Principles (GAAP) taxonomy, it’s essential to do so thoughtfully. This way, the need for label changes can be minimised.

Read more here.

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