System and method for identifying accounting anomalies to help investors better assess investment risks and opportunities

• US 8,234,200 B2
• Filed: 06/29/2006
• Issued: 07/31/2012
• Est. Priority Date: 06/29/2005
• Status: Active Grant

• Current Assignee: Credit Suisse Securities USA LLC (Credit Suisse)
• Original Assignee: Credit Suisse Securities USA LLC (Credit Suisse)
• Inventors: Litman, Joel, Grazlano, Ronald J
• Primary Examiner(s): TINKLER, MURIEL S
• Application Number:
  US11/479,771
• Publication Number:
  US 20070022025A1
• Time in Patent Office: 2,224 Days
• Field of Search: 705/35, 705/36.R, 705/37
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 40/12 Accounting

Abstract

A system and method of identifying accounting anomalies to assess investment risks and opportunities. The steps include receiving company data and criteria metrics, and evaluating the company data in view of the criteria metrics to produce a performance indicator. Information, such as an easily read visual flag is provided to a client identifying the performance indicator.

Claims

1. A computer-implemented method for evaluating investment risk due to accounting misstatements comprising:

receiving a selection of categories, subcategories corresponding to each category, and characteristics corresponding to each subcategory, the identity of a company within a portfolio of companies for evaluation, and financial accounting data, including accounting misstatement data, associated with portfolio components;

determining, iteratively, for each company in the portfolio, historical characteristic risk scores derived from the financial accounting data;

calculating, iteratively via the computer, for each subcategory, evaluated company subcategory risk ranks through application of (1) determined characteristic risk ranks indicative of the historical characteristic risk scores compared with portfolio components and (2) derived characteristic weights that reflect historical correlation of the characteristics with the accounting misstatement data to a characteristic weighted function;

calculating, iteratively via the computer, for each category, evaluated company category risk ranks through application of (1) calculated subcategory risk ranks and (2) derived subcategory weights that reflect historical correlation of the subcategories with the accounting misstatement data to a subcategory weighted function; and

generating a comparative categorical investment risk assessment indicator for the evaluated company derived from the calculated category risk ranks.

2. The method of claim 1, further comprising calculating an evaluated company risk rank through application of (1) calculated category risk ranks and (2) derived category weights that reflect historical correlation of the categories with the accounting misstatement data to a category weighted function.

3. The method of claim 1, further comprising iteratively calculating subcategory risk ranks for remaining portfolio components.

4. The method of claim 1, wherein the comparative categorical risk assessment indicator is configured to display the calculated category risk ranks.

5. The method of claim 1, wherein the comparative categorical risk assessment indicator is further configured to display at least one of:

risk profiles of companies within the portfolio of companies relative to each other, risk profile views in descending/ascending lists, risk profile views by individual categories, risk profile views by individual subcategories, and any combination thereof.

6. The method of claim 1, further comprising correlating the comparative categorical risk assessment indicator with a color coded level of accounting misstatement risk.

13. The method of claim 1, further comprising iteratively calculating category risk ranks for remaining portfolio components.

15. The method of claim 1, wherein the categories comprise revenue recognition, cost recognition, profit and loss to cash flow, balance sheet recognition, and valuation.

7. A computer-implemented system for evaluating investment risk due to accounting misstatements comprising:

a computer system, having a processor configured to implement an anomaly analytics engine configured to;

receive a selection of categories, subcategories corresponding to each category, and characteristics corresponding to each subcategory, the identity of a company within a portfolio of companies for evaluation, and financial accounting data, including accounting misstatement data, associated with portfolio components;

determine, iteratively, for each company in the portfolio, historical characteristic risk scores derived from the financial accounting data;

calculate, iteratively via the computer, for each subcategory, evaluated company subcategory risk ranks through application of (1) determined characteristic risk ranks indicative of the historical characteristic risk scores compared with portfolio components and (2) derived characteristic weights that reflect historical correlation of the characteristics with the accounting misstatement data to a characteristic weighted function;

calculate, iteratively via the computer, for each category, evaluated company category risk ranks through application of (1) calculated subcategory risk ranks and (2) derived subcategory weights that reflect historical correlation of the subcategories with the accounting misstatement data to a subcategory weighted function; and

generate a comparative categorical investment risk assessment indicator for the evaluated company derived from the calculated category risk ranks.

8. The system of claim 7, wherein the anomaly analytics engine is further configured to calculate an evaluated company risk rank through application of (1) calculated category risk ranks and (2) derived category weights that reflect historical correlation of the categories with the accounting misstatement data to a category weighted function.

9. The system of claim 7, wherein the anomaly analytics engine is further configured to iteratively calculate subcategory risk ranks for remaining portfolio components.

10. The system of claim 7, wherein the comparative categorical risk assessment indicator is configured to display the calculated category risk ranks.

11. The system of claim 7, further comprising correlating the comparative categorical risk assessment indicator with a color coded level of accounting misstatement risk.

12. The system of claim 7, wherein the comparative categorical risk assessment indicator is further configured to display at least one of:

risk profiles of companies within the portfolio of companies relative to each other, risk profile views in descending/ascending lists, risk profile views by individual categories, risk profile views by individual subcategories, and any combination thereof.

14. The system of claim 7, wherein the anomaly analytics engine is further configured to iteratively calculate category risk ranks for remaining portfolio components.

16. The system of claim 7, wherein the categories comprise revenue recognition, cost recognition, profit and loss to cash flow, balance sheet recognition, and valuation.