Speech by SEC Chairman:
Remarks at the 12th XBRL International Conference
Chairman Christopher Cox
U.S. Securities and Exchange Commission
November 7, 2005
Good afternoon. This is an exciting conference about some exciting opportunities. We really are on the threshold of a "Revolution in Corporate Reporting," which is, appropriately, the title of this program.
In my tenure as Chairman of the Securities and Exchange Commission, I intend to bring our system of corporate disclosure and financial reporting into the 21st century. And while I must tell you that the views I express here are my own, and do not necessarily represent those of the Commission or its staff, you should know that every appointment I make as Chairman will be consistent with this vision of tapping the possibilities of interactive data.
Interactive data promises more than simply a revolution in corporate reporting. For the SEC as well as for financial regulatory agencies around the world, corporate reporting is not an end in itself, but a means to achieving our missions. Those missions include protecting investors, encouraging capital formation, and promoting healthy markets.
Every one of those missions will be better achieved with the widespread adoption and use of interactive data. Interactive data will also make disclosures more useful to investors, and to every market participant. The information contained in SEC reports could be made instantly searchable by analysts and investors alike. Because not just the disclosure documents, but the data within them will be searchable and retrievable, interactive data will dramatically improve the usefulness of the entire disclosure exercise.
In our capital markets, better information usually makes for better choices. It can also help to promote honesty and integrity. As Justice Brandeis opined many years ago, "sunlight is the best disinfectant." He made that statement in an influential book credited for inspiring the creation of the Securities and Exchange Commission.
Interactive data could make it possible for issuers to reduce the cost of substantiating the numbers that appear in their financial statements. It would assist regulators in maintaining the integrity of the markets. In the academic realm of economics, scholars often assume the ideal of "perfect information" in an effort to explain the workings of a well-functioning market. Interactive data will help us take a giant step toward realizing that ideal. Interactive data promises yet another revolution in the field of international accounting standards.
The global debates over the "right" way to do accounting might never be settled. We may never have a global accounting Esperanto. But if the development of taxonomies for data tagging progresses sufficiently, some day in the future it may well be possible for the users of financial information to render it according to any accounting regime they choose: US GAAP, IFRS, or any other system.
Instead of being forced to resolve genuinely difficult financial issues on a Procrustean bed of arbitrary rules which don't suit the user's analytical purpose, accountants, analysts and investors around the world could all view that information from multiple perspectives.
At the SEC, our assessment of interactive data began in July of last year. But the Commission's interest in using technology in our disclosure program has a much longer history. The EDGAR system, our core technology, was originally designed in the late 80s. Over time, the EDGAR system has become out of date. It's essentially the same now as it was a decade ago.
It goes without saying that there have been tremendous advances in computer technology and electronic communications since EDGAR was born. During the time that EDGAR has stood still, a single 3 minute recording of music that used to require a cassette or a compact discs has been shrunk to near invisibility, so that today literally thousands of songs can fit on a device the size of a credit card.
When EDGAR was born, the way most people searched the news was to manually go through huge stacks of newspapers and magazines. Today, almost anyone at home or in any public library can not only search the entire planet for news that is seconds old, but also have the news robotically sorted for them in real time via the Internet, based on their specific interests.
In the EDGAR era, business correspondence was delivered by mail which took days to arrive -- or, if it was truly important, it came by overnight express. That same urgent correspondence today can be transmitted instantly to any country on earth, at virtually zero marginal cost, from a handheld device.
Technology is fueling a radical change in the way that business and individuals receive, process, and interact with data. It's high time that the SEC's financial reporting caught up with the information revolution. Indeed, my hope is that together we can all help lead a new revolution. In the global business environment of the 21st century, people and firms need to communicate 24/7. They need to find seamless ways to accommodate different reporting systems, different languages, and different regulatory environments. Not just businesses and regulators, but investors, too, want faster access to more and better information than ever before.
At the SEC, our XBRL Voluntary Program was launched earlier this year as a tentative first step. The program was designed to encourage all of the participants to help us assess the potential for using interactive data both within and outside the Commission.
For our registrants, it's an opportunity to explore the costs and benefits of using interactive data. They're helping us understand the impact of using XBRL on their financial reporting systems, and on their internal financial controls and processes. We're also learning how XBRL can help companies communicate with their shareholders and the markets generally.
In the months ahead, I expect that investors and analysts will continue to pilot the use of interactive data applications. That will help us assess how this new flexible format might help them to improve their own analyses and decisions.
For software providers and other technology providers, this is an opportunity to showcase the capabilities of XBRL and interactive data and tangibly demonstrate the impact to the aforementioned parties. For the SEC, this is our opportunity to assess how the use of interactive data can help us improve our internal review of information, and how it can help us make it available in more useful form to the public.
It's fitting that this 12th XBRL International Conference is taking place in Japan. After all, XBRL has already received significant support from the Japanese government. In fact, as many of you know, the Bank of Japan plans to implement a voluntary XBRL filing program for over 500 regulated entities, possibly as early as next January. In addition, the counterpart of the SEC in Japan -- the Financial Services Agency -- has already formed a committee to accelerate the use of XBRL in financial disclosure. The FSA anticipates introducing an XBRL-based filing system for financial statements in the near future. The SEC and the FSA have a bilateral Memorandum of Understanding that permits us to partner on issues such as this, and so I expect that Japan's experiences using XBRL will form an important part of our dialogue in the months ahead.
As we progress with the SEC's own assessment of interactive data, we will continue to work closely with all of you. Because of the leadership that you've shown over the past 5 years, we now stand on the threshold of some truly breathtaking changes in our global financial markets.
I'd especially like to thank those of you who have provided feedback to the Commission during our Voluntary Program. We need your continued support. Going forward, the single most significant way you can help is to participate in the XBRL filing program at the SEC. Keep in mind that the program isn't limited to registrants that file reports with the SEC. We are anxious to receive XBRL documents of any kind, both for our own internal assessment, and for publication to the market at large via our website. And keep providing us with feedback on your experiences. The comments we receive will be instrumental in determining the next steps in our implementation of XBRL disclosure.
So let us know what's working for you, and where change is required. If you haven't seen it, the latest opportunity for your feedback is in the form of a Request for Information that the SEC issued last month. We're looking for specific information on XBRL-enabled software, and we'd very much appreciate your views.
Above all, continue with your enthusiastic contributions to the global development of the XBRL standard. Have no doubt -- you are changing the world ... for the better.