Speech by SEC Commissioner:
Remarks at the 15th International XBRL Conference
Commissioner Kathleen L. Casey
U.S. Securities and Exchange Commission
June 4, 2007
Global Interactive Data
Good morning and thank you, Mark Bolgiano, for that wonderful introduction. Thank you for inviting me to speak. On behalf of Chairman Cox and the U.S. Securities and Exchange Commission, I am very happy to be here this morning to underscore the SEC's continuing commitment to the XBRL initiative. XBRL International, under the leadership of Michael Ohata, and XBRL US, under the leadership of Mark Bolgiano, have been at the forefront of efforts to transform the use of business and financial information through interactive data. We are supportive of your efforts, and we commend you for your dedication and hard work.
Before I begin, I would like to recognize Ms. Linda Lee from our Office of Information Technology, who is assisting me in this morning's presentation. I would also like to note that there are several other key SEC representatives here for the conference, and I am certain that the Commission will benefit greatly from their participation here as well.
As you know, spreading the word about the benefits of XBRL has been one of Chairman Cox' highest priorities at the SEC. The Commission views XBRL as a key to increasing access to information in the financial marketplace. Our aim is to transform the manner in which individual investors, financial intermediaries, analysts, the financial media, and others access, use, and ultimately understand the wealth of available data. By providing a fast and easy way to extract, analyze, and compare financial information, XBRL has the potential to create a more informed investor base. Whether they are interested in comparing the costs of different mutual funds or drilling down into the financial characteristics of public companies, including information about executive compensation, investors will have easy access to a wealth of financial information through tagged data to a degree that is simply not possible today. Analysts and the financial media will benefit from XBRL through more efficient search, and more enhanced comparison, capabilities. Companies preparing financial reports in XBRL will benefit from being able to communicate their financial results more effectively, and at a reduced cost. Of course, regulators will benefit too from the ability to process information far more comprehensively and efficiently.
SEC and U.S. Interactive Data Initiatives
There are countless ways in which XBRL will transform our lives in the future — we just need the energy and determination to make them happen. There is clearly no shortage of either enthusiasm or dedication in the XBRL community, so our hopes for the future use of XBRL are very high. To show you the kind of improvements we envision for investors, I will present three modest demonstrations.
1. Interactive Financial Report Viewer
The first demo highlights some of the XBRL capabilities under the Commission's XBRL Voluntary Financial Reporting Program. To stimulate software development for the viewing and analysis of tagged data, the SEC released a prototype of an XBRL tool last December. The tool is available for free on the SEC's website. It allows investors not only to view XBRL data, but offers graphics and cross-issuer comparisons. Let me show you how it works.
Clicking on the Interactive Data button on the first page of the SEC's website will take you to the viewer application. ["Test Drive Interactive Data" page is displayed] On the left hand side of the page, you'll see a list of the companies participating in the XBRL Voluntary Financial Reporting Program.
Let's look at General Electric's annual financial statements for 2006. All we have to do is click on the company name and annual report and you will see the income statement information for the last three years. What's new and exciting about this tool is that, in addition to the standard definitions in the XBRL taxonomies or dictionaries, it shows the unique taxonomy extensions, or details, that GE wants to present. For example, the line item "GECS revenues from services" is a presentation that you will only see for GE, yet this tool allows investors to see it.
To make a chart, let's look at the past three years' total revenues, click "Chart" and we can generate a chart in seconds. [Chart is displayed]
Finally, let's compare revenues of Pfizer with those of Bristol Myers, both in the pharmaceutical industry. By clicking "Chart," we can compare the revenues or net sales of both companies in seconds. [Chart is displayed]
The SEC is also working on a second, different, prototype that we plan to release later this summer that features graphics and easy-to-use searches for the individual investor. The source code for both of these prototypes will be freely available on our website. The SEC does not intend to tell the financial marketplace how to analyze or aggregate data, but offers the technology for others to use to develop better, faster tools for analysts and investors. We encourage the market to expand upon these initial offerings and create additional software with more extensive features. These web applications are just the beginning of an exciting new world of cutting edge technology.
2. Risk/Return Mutual Fund Data in XBRL Format
We are also very excited about the potential of interactive data to enhance investors' ability to compare their many mutual fund choices. In the United States, almost 100 million individual investors count on mutual funds to meet their basic financial needs. Comparing the more than 8,000 available mutual funds is virtually impossible using paper-based prospectuses. Tagging this information would empower investors to extract and compare from the wealth of available data about mutual funds exactly that information they want using automated software tools.
Later this month, the Commission expects to consider adoption of rule amendments to permit mutual funds to voluntarily submit key prospectus information about investment objectives, costs, risks, and historical performance, using interactive data.
On our website, the SEC offers a calculator to assist investors in understanding and comparing the costs of different mutual funds. To use this calculator, you must first find the fund's prospectus, search out the fee information in the prospectus, and then enter the fee information into the calculator. This is a useful tool — but cumbersome to use and subject to error if an investor either doesn't know that prospectuses are called "Form N-1A" on our website, finds the wrong Form N-1A, doesn't understand the Form N-1A fee table, or makes a simple error in entering the fee data into the calculator.
What makes interactive data so revolutionary is that it will enable cost calculators and other tools — whether created by the SEC or private parties — to run directly off of our EDGAR filing system without the intermediate step of manually searching and reentering the data that is stored on EDGAR.
To give you a small taste of the power of interactive data, I have brought along a demonstration showing what a mutual fund analysis tool on the Commission's Web site could look like in the future. These slides are illustrative only and do not represent an actual existing software program.
On the screen, you see a software interface that allows a user to select from headings for fund families and share classes the particular funds that he or she would like to compare. [List of fund families and share classes is displayed] In the example on the screen, the user has decided to compare Class A shares of growth funds offered by two different fund families. As you see, the user has first highlighted and selected Class A shares of the ABC Growth Fund and then has highlighted and selected Class A shares of the XYZ Growth Fund.
By a simple click, we move to a screen that permits the user to select the particular information that he or she wants to compare. [Screen showing a list of "Topics for Comparison" is displayed] The buttons you see would allow the user, among other things, to compare investment objectives, risks, costs, and performance for the two selected funds.
In our demonstration, the user is interested in expenses, so he or she would click on the Expenses button. To generate a cost comparison, the user would simply enter his or her expected contributions and an assumed rate of return — no need to locate any prospectuses, pore over the fee data, or manually reenter the cost information.
Another simple click on "Chart" generates a chart showing the annual expenses of the two funds, side-by-side. [Cost comparison chart is displayed] This would help the user evaluate the costs of the two funds relative to each other over one-, three-, five-, and ten-year horizons.
This is but a small glimpse into the potential of interactive data in the mutual fund world where we see the possibilities for harnessing this information for the benefit of millions and millions of investors as boundless.
3. New Executive Compensation Viewer
Our third demo is of the SEC's new executive compensation viewer. In the very near future, the Commission will launch an exciting new website highlighting how XBRL can make it easier for investors to get information on compensation paid to executives at public companies.
The Executive Compensation Disclosure Viewer will be accessed through a link on the SEC homepage. [Prototype of SEC executive search page is displayed] At the time this demonstration was prepared, the EC Viewer contained information for 225 of the S&P 500 companies that have filed proxy statements with the Commission this year. [Company listing page is displayed] As more companies file their proxy statements, the list will expand.
We are still in the process of making our prototype viewer as user-friendly as possible, but the current list of companies in our database is already rather sizable. As you can see, in this beta version, we have provided a series of filters that will allow the user to pare down the list of companies to a manageable size. Simply by clicking on SIC or industry code, public float and revenue, we've pared the list of companies.
From here, we can compare compensation data by checking the boxes for the principal executive officers of Intel and United Technologies, for example. Here as well we can further narrow the list by checking the box for the principal or chief executive officer only. And, of course, by selecting "Table" or "Graph," this information can be displayed in tabular format or in graphical format. [Table and graph are displayed]
A unique feature of this application also allows the user to easily replace the amounts included in the Stock Awards and Option Awards columns of the Summary Compensation Table with the Grant Date Fair Value amount from the Grants of Plan Based Awards table and observe differences in total compensation.
Compensation data for each company listed in this application — in this case, Intel — is formatted in an XBRL instance document that can be downloaded so that other financial websites and software vendors can make use of these data in their offerings and further demonstrate the myriad ways that interactive data can be put to use.
A direct link to the full official proxy statement is also provided. [PDF version of proxy statement is displayed] As you can see, the effort to get to the same compensation information today for Intel requires the user to search for key words in the document hoping that the results would provide the desired information. [PDF version of Summary Compensation Table in proxy statement is displayed]
These three brief demonstrations show just some of the power and promise of XBRL. But we still have much hard work to do if we are to realize fully XBRL's potential.
Progress on Taxonomies
Before we can develop the websites and tools I've just demonstrated, and promote more widespread use of XBRL, we need to complete work on the appropriate taxonomies. Last year, the SEC pledged major funding to complete the XBRL taxonomies for U.S. GAAP quickly. Taxonomies are already complete for many industries, and the rest are scheduled for completion this fall. These taxonomies will permit companies registered with the SEC to prepare their financial statements, including the notes to the financial statements, in XBRL format. The taxonomies will be accompanied by a robust set of documentation and user guidance to ensure their consistent application.
The U.S. GAAP taxonomy project is being led by XBRL US, which is working closely with a wide array of industry groups and the SEC to ensure that the finished taxonomies meet the needs of all constituencies. Needless to say, the development of high-quality taxonomies is an enormous undertaking, and the SEC has relied on the assistance of many groups to complete the project. We have benefited enormously from our collaborative efforts with accounting firms, the Financial Accounting Foundation, the Financial Accounting Standards Board ("FASB") as well as input from industry stakeholders, including the CFA Institute, Financial Executives International and companies participating in the Voluntary Financial Reporting Program. The feedback from these groups regarding general and industry-specific taxonomy information has been of tremendous value to the SEC in developing a set of high-quality taxonomies.
Of course, there is no reason for companies to wait until later this year to get started with XBRL. Already, over 40 pioneers in the use of interactive data, including Microsoft, General Electric, 3M Corporation and United Technologies, are using currently available taxonomies to report their company's data in XBRL format, in addition to the financial reports they file with us through EDGAR. As the message of the benefits of interactive data continues to spread, new companies are being added to our test group of voluntary filers. At a Commission roundtable on interactive data held in March of this year, representatives of some of our voluntary filers described their first-time efforts to tag their financial data and unanimously reported that the process was much less difficult than expected. In fact, these filers stated that their start-up costs for using XBRL were relatively modest, with a few hundred hours of staff time, and that both of these levels dropped drastically for subsequent filings. As the use of XBRL expands to tagging the notes to the financial statements and other areas, we recognize issuers will face challenges. We believe, however, that these challenges will become opportunities for companies to benefit from their internal tagging efforts.
Official Filing in XBRL
Since the creation of the XBRL Voluntary Financial Reporting Program in March 2005, the Commission has indicated the possibility that XBRL could be used for official filings, and possibly on a mandatory basis. The question of when the SEC will mandate the use of XBRL is one of our most frequently asked questions. Not surprisingly, I do not have an answer to this question for you this morning, but much work has already been done to create the infrastructure necessary to support the official use of XBRL.
It is appropriate here to emphasize the hugely important role that the private sector has to play in the development of XBRL. In the United States, for example, the Investment Company Institute took the lead in writing XBRL taxonomies for mutual funds. As we have seen many times in the past, the private sector has the capacity to rally around an innovative technology idea and make it a reality for the masses. While we cannot predict when such a technology revolution will occur for XBRL, it is clear that companies that embrace the XBRL technology stand to benefit tremendously, while those that lag behind run the risk of being left behind.
At the Commission, we want to be sure that we are not a roadblock to innovation. We have tried to predict obstacles and provide solutions, keeping in mind that our paramount goal is to foster and support innovation in the area of XBRL for the benefit of investors. However, we will continue to look to the experience and the expertise of the public and private sectors to keep moving forward.
International Collaboration on Accounting Standards Convergence
As IFRS continues to be adopted internationally, the need to develop a robust, comprehensive XBRL taxonomy for IFRS has taken on increased importance. The Commission has indicated its commitment, in accordance with the 2005 roadmap, to eliminating the reconciliation requirement to U.S. GAAP by no later than 2009 for foreign private issuers whose financial statements are prepared in accordance with IFRS as issued by the IASB. This summer, the Commission plans to propose changes to SEC rules that would allow foreign private issuers registered with the SEC to prepare financial statements using IFRS. The SEC also plans to issue a concept release this summer to solicit comment on whether U.S. issuers should be permitted the choice of filing under U.S. GAAP or IFRS as well.
These developments demonstrate the urgency of completing the taxonomies for IFRS. The team developing the taxonomies for U.S. GAAP, led by XBRL US, is working closely with the team developing the taxonomy for IFRS. So far, I understand that their discussions have focused primarily on the consistent use of technology between the projects. The technology may also prove useful to the accounting standards convergence project undertaken by the FASB and the International Accounting Standards Board ("IASB") by highlighting areas in which standards are converged and those in which they are not. However, as financial statements prepared in IFRS become increasingly accepted in the United States and elsewhere, the need to complete the IFRS taxonomy on a timely basis is critical.
The International Accounting Standards Committee ("IASC") Foundation has been a leader in encouraging the use of interactive data, and has committed significant resources to creating XBRL taxonomies and other tools to make financial information easier to use. Just last month, the IASC Foundation XBRL Team released the French translation of the complete label linkbase for the IFRS General Purpose Taxonomy, following the release of the Spanish version in April. And I understand that the German-language release of an XBRL taxonomy will be announced at the conference. Even after a base IFRS general purpose taxonomy is developed, however, other issues arise as a result of its use internationally, including the need to translate the linkbase into workable language.
International Collaboration on XBRL Technology
As IFRS continues to be customized for use in a growing number of countries, it is critical that IFRS be interpreted and applied consistently across borders. The same need for consistency and faithfulness exists with respect to XBRL technology. Consumers of financial data in the interactive data age should not have to worry about whether a company's data is based on the Dutch customization of the base IFRS taxonomy, for example, or the Spanish version. Similarly, consumers of financial data may benefit from being able to access information derived from applying one set of global financial reporting standards. While the IASB, FASB and other standard setters are working to converge international accounting standards, the U.S. GAAP and IFRS taxonomy teams are working to ensure that their taxonomies are aligned.
Why is alignment of both technology and content so critically important? Fast forward five years. Imagine a future in which companies are filing financial reports with the SEC using XBRL and are free to prepare financial statements under either U.S. GAAP or IFRS. The SEC and other preparers and users of financial data should not need to build separate technologies customized to handle filings based on divergent U.S. GAAP and IFRS taxonomies. If left unchecked, these differences could exist. Similarly, preparers and users of the taxonomies ought to be able to expect the same levels and depth of content and supporting data with their taxonomy, regardless of the accounting standards it represents. If one taxonomy is more comprehensive than another, for example, more extensions will be needed and the resulting data will not be so readily comparable. The SEC is fully supportive of these alignment efforts and is cooperating closely with both taxonomy teams to help achieve this goal. The SEC is committed to doing everything we can to ensure that XBRL remains a truly international, stateless, open source standard. All of the XBRL software development that we do, and that we support, will be open source.
International Collaboration Among Regulators
The SEC's mandate for investor protection in an era of global markets requires increasingly close cooperation with our regulatory counterparts around the world. We recently entered into agreements with the BaFin in Germany, the Financial Services Authority and the Financial Reporting Council in the United Kingdom, and we have a continuing dialogue with Committee of European Securities Regulators. By sharing information and granting one another access to regulatory and enforcement data, we can all do a better job of supervising global securities firms and overseeing what are now truly global markets.
Just as close cooperation among international securities regulators, it is important that we share our experiences in the development of XBRL technology. Public and private sector groups involved in this effort would certainly benefit from dialogue and information-sharing. Recent announcements from around the world by those developing XBRL systems illustrate the need for coordination. The Tokyo Stock Exchange, for example, has launched a pilot program to allow listed companies to file their financial statements using XBRL as a step towards the introduction of full XBRL reporting by all companies in 2008. In the United Kingdom, Parliament has mandated XBRL's future use for all company tax filings with the Customs and Revenue department, and in Singapore, beginning November 1, 2007, the Accounting and Corporate Regulatory Authority has announced that it will have processes in place to accept financial statement filings by listed companies in XBRL, with the ultimate goal of permitting companies to file one set of financial statements that may be used by different government agencies within Singapore, including the Inland Revenue Authority, the Monetary Authority, and the Singapore Exchange. These developments simply serve to illustrate that as governmental authorities all over the world — whether tax, securities, banking, or corporations commissions — develop XBRL programs, the need for coordination on a global basis, as I mentioned before, will be extremely important.
We have all experienced the power of the Internet to change the way we live. Now we are on the verge of harnessing the power of the Internet to transform the way we access and understand financial data. This will be a profound and positive change. With millions of investors worldwide depending on their investments to provide for their retirement and a strong future for their children, the importance of making appropriate investment choices has never been more important. XBRL will make it easier for individual investors to access and analyze the information they want about the public companies and mutual funds they are considering for investment. Investment professionals and the financial media will benefit as well. The key, therefore, is encouraging public companies to tag their financial data.
XBRL will also have additional benefits beyond making more financial information available in a user-friendly format. Through its ability to improve the quality and accuracy of information, XBRL has the potential to improve the accuracy of financial statements, improve audit quality and drive down issuer costs. XBRL also addresses increasing concern about growing accounting complexity through its potential to accelerate the development of a set of global accounting standards. These are just a few examples of the possibilities of XBRL. Right now, our key priorities should be to encourage more issuers to begin using XBRL, encourage the private sector to develop the software tools to make use of tagged data, and encourage cooperation and coordination among the public and private sectors. Finally, investor education will also certainly play an important role in showing individual investors just how useful tagged data will be.
Thank you for inviting me to speak to you this morning. On behalf of Chairman Cox and the Securities and Exchange Commission, we commend you for your innovative thinking, your dedication and all your hard work. The SEC will continue to be a strong advocate for XBRL and we are proud to be a part of this important endeavor.