Speech by SEC Chairman:
Address to the 16th XBRL International Conference
Chairman Christopher Cox
U.S. Securities and Exchange Commission
Vancouver, British Columbia
December 3, 2007
Thank you, Peter [Wallison, Resident Fellow at the American Enterprise Institute]. I'm delighted to be back at this conference again, and to be here in one of my favorite places to formally open the 16th and largest-ever world meeting of the XBRL community. It's also a great deal of fun for me that my old friend Peter Wallison is here, not just to introduce me, but to lay out his own vision for using technology to improve financial reporting when he follows me on the program this morning.
And it's a pleasure to be here with Wikinomics author Don Tapscott, whose appeals for collaboration fit so perfectly with the theme of this conference. I'm also happy to mention that David Blaszkowsky, the SEC's new Director of Interactive Disclosure, will be on hand. For the SEC, transforming our entire approach to disclosure to make it interactive is such an important priority that we've established a permanent part of the agency to focus all of our Divisions and Offices around this organizing principle. And to address the full range of issues for the SEC, including remaking our entire EDGAR database into an interactive data platform, and all of the accounting issues surrounding the introduction of interactive data reporting, Jeff Naumann is here, along with Ted Uilinger, Linda Lee and Troy Beatty. As you can see, the SEC is here in force to lend our support to the work of this conference.
It's a special pleasure to see so many of the people here whom I first met at the 12th XBRL International Conference in Philadelphia in 2005. It's hard to believe that we've covered so much ground together in just a few short years since then. When I think of how many countries whose companies and financial professionals and securities regulators have become involved, it just amazes me that every one of you has shown such foresight and wisdom and leadership.
I'd like especially to recognize Bill Swirsky, who as you know is the Chairman of XBRL Canada. Thank you for the work you do every day, and for serving as one of our national hosts for this conference. I'd also like to recognize Michael Ohata of Microsoft, who serves as the Chairman of the XBRL International Steering Committee, and several of my counterpart regulators who are here from around the world, including Hirofumi Gomi, a former commissioner of the FSA in Japan who's long been an XBRL visionary; Usha Narayanan, Executive Director of the Securities Exchange Board of India; and David Wilson, Chairman of the Accounting Standards Board of Canada, and another one of our exceptionally generous national hosts for this conference.
Nor does it end there — the list of dignitaries here is considerable, but I'd be remiss not to personally welcome Jose-Maria Roldan, the Director General of the Bank of Spain; and from the Netherlands, Harm Jan van Burg, who is the project leader of the very impressive national XBRL taxonomy project there; and Paul Madden of the Australian Treasury, their program manager for Standard Business Reporting, who just hosted the wonderful conference in Brisbane.
Despite all of this government interest, this is of course a private sector effort. Some of our strongest leaders from the private sector effort are here as well, including Tim Bray, the Director of Web Technologies at Sun Microsystems, and Karen McMillan, the General Counsel of the Investment Company Institute, which has shown outstanding leadership in developing a taxonomy for XBRL reporting of mutual fund information. And of course none of this would be possible without the leadership of Tony Fragnito, the CEO of XBRL International, and Mark Bolgiano, the CEO of XBRL US.
The group we have assembled here in Vancouver this week has a clear vision of a better future for the entire planet. And because of the energy you're putting into implementing that vision, we can actually see the results, all around the world, materializing faster than any of us could ever have imagined.
It's especially appropriate that we're meeting in Vancouver, whose magnificent harbor and veritable armada of ocean-going vessels and seaplanes remind us that this is a hub of global commerce. I can't think of any place more fitting to plan the future of the universal language of business information. Since George Vancouver first came here in the 1790s, the dominant spoken language has been English. But it's fascinating that today more than half of Vancouver's population speaks something other than English as a first language, ranging from the many dialects of Chinese to Punjabi. It's as if the Silk Road continued across the Pacific and took up again right here in North America.
Of course, we couldn't be more international ourselves right here in this conference. We have representatives from Japan, Australia, Ireland, India, Spain, Poland, the United Kingdom, Korea, the Netherlands, Germany, Belgium, France, South Africa, and Sweden — and of course Canada and the United States. What we all have in common is a passion for helping our economies and our citizens to share a common way to exchange business information.
XBRL isn't a passion for everyone here because it's cutting edge technology — or even because it has a sexy name. (By the way, what do you think you hear the name "XBRL"? It's sort of a Rorschach test. For me, it conjures the image of the latest Jaguar X-Series sports car. You know, they have the Jaguar XJ and so on — this would be the Jaguar XBRL. I'm sure the BRL would stand for "British Racing League" or something like that. It could even be British Racing Green.) But it isn't because of the possibilities we all might imagine for a cryptic name like XBRL that we're all here to collaborate on the global XBRL initiative. It's because of what it can do for people: for companies, for investors, for analysts, for financial journalists — for just about anyone who's a potential customer for comparative analysis of company financials.
Every single public company in the world has executives, directors, and financial staff who compare their company's results with its industry peer group. Right now, that's either a superficial comparison or a detailed, tedious chore. But with interactive data reporting by public companies, serious analysis would be a snap. In real time, income statement and balance sheet items could be compared for literally hundreds of companies at the touch of a button. There is extraordinary value in that for every company, for every investor, and for the marketplace as a whole.
Companies that have tried out XBRL through our pilot program are finding that it's relatively easy and cheap to tag your financials. And they're finding ways to get additional value internally from having done it. But the big payoff will come when other companies are all tagging their information, too. That's when the comparative analytics become possible.
To offer a sneak peek at what it would be like to live in a world where every listed company made their financial disclosures using interactive data, the SEC decided to tag the executive compensation data for 500 of the largest companies in the United States. As you know, there's brand new disclosure about executive pay this year, and for the first time it's all in one place: the perks, the retirement benefits, the options, the bonuses, the straight salary — all of it. This new disclosure is tailor made for broad comparative analysis. And so we'll go live on the SEC website with our executive compensation interactive data analysis tool next week. You can find it on the Internet at www.sec.gov, starting next Monday.
There is an extraordinary amount of work going on around the world to prepare for the use of XBRL for all public company reporting. I mentioned our pilot program, but the United States is hardly the only country that's doing this, as we learned anew when Australia just hosted the SBR/XBRL International Conference in Brisbane. Many of you flew all the way across the Pacific from there to here — and one of the big pieces of news from that conference is that Australia will be spending over $200 million in the next three years to implement Standard Business Reporting.
The Chairman of the Australian Securities and Investment Commission, Tony D'Aloisio, tells me he's very keen on XBRL financial reporting, and it shows in their schedule for adoption. Australia's implementation of interactive data for financial reporting is scheduled for mid-2010, with pilots and proof-of-concepts beginning in 2008.
In Belgium, the Banking, Finance and Insurance Commission requires all banks to file their periodic returns in XML and XBRL. These returns are similar to the "call reports" that U.S. banking supervisors currently require U.S.-registered banks to file in XBRL.
In China, which was the first country in the world to mandate XBRL reporting, they're already requiring interactive data filing for the full financial statements of all listed companies in quarterly, half-year and annual reports. XBRL filing is required under the rules of both the China Securities Regulatory Commission and the Shanghai Stock Exchange. China started with 50 companies that voluntarily reported using XBRL in 2003, and now their program has grown to include more than 800 companies. In addition to the XBRL taxonomy for listed companies, there is also a taxonomy for fund companies in China. Both the Shanghai and Shenzhen exchanges are planning to extend their existing taxonomies for listed companies, and they're also working on transferring previously-filed reports into XBRL to enable more efficient access to historical information.
In Israel, beginning with year end 2007 reports, public companies will prepare their financials using IFRS. And at the same time, the Israeli Securities Authority has updated their electronic filing system, called MAGNA, so that it will be able to automatically generate XBRL files for the accounting data that's prepared in accordance with IFRS.
In Japan, the FSA is making XBRL mandatory for all financial statement filings, beginning next April. Japan already has over 1,000 companies in its voluntary XBRL filing program, and they're right on schedule for everyone to report using XBRL in just four months. When I recently met in Tokyo with Japan's Minister of Financial Services,
Yoshimi Watanabe, and with the Commissioner of the Japan Financial Services Agency, Takafumi Sato, they told me that XBRL tagging will also be required for the full financial statements by the Tokyo Stock Exchange at the same time.
In South Korea, they're also taking big steps toward adopting XBRL. The Chairman of Korea's Financial Supervisory Commission, who is also the Financial Supervisory Service Governor, Kim Yong-Duk, recently told me that what started as a voluntary XBRL filing program in 2006 has already developed into a full fledged mandatory filing program beginning last month. Today, all publicly held companies in Korea are required to file financial statements using XBRL on the FSS electronic filing system. And not only will this permit investors to easily analyze the XBRL data of these companies but if you don't speak Korean, the system will let you view and analyze a company's financial statements in English.
In the Netherlands, beginning in January of this year, Dutch companies and financial institutions can now report their financial data to dozens of Dutch government authorities using the same XBRL-tagged data. This XBRL project is expected to save reporting companies 25% of their compliance costs. And it's already succeeded in cutting the number of reporting elements that companies have to keep track of from 200,000 to 4,500.
In New Zealand, in August of this year, the government directed the development of a detailed Business Case and Implementation Plan for Standard Business Reporting, to be completed in early 2008. This should create significant momentum for using XBRL there.
In Singapore, there's now mandatory XBRL tagging for the financial statements of both listed and unlisted domestic companies, under new rules from the Accounting and Corporate Regulatory Authority.
In Spain, XBRL adoption was led by the Bank of Spain and by the Spanish Securities Commission. The CNMV began a voluntary program in 2005 that currently allows XBRL reporting by any listed company there.
In the United Kingdom, beginning last year, Her Majesty's Revenue and Customs began to accept corporate tax submissions using XBRL. That follows the official action by the United Kingdom Companies House to accept company filings using XBRL.
And right here in Canada, the securities regulators have launched their own voluntary XBRL filing program. David Wilson and I recently met at the IOSCO conference in Japan and talked about the launch of that program by the Canadian securities administrators, which took place earlier this year. So to all of our Canadian friends here today, congratulations on that.
In the United States, this is truly a big week for interactive data. On Wednesday, XBRL US will release to the public its completed taxonomies for financial statements and footnotes using U.S. GAAP. Every U.S. reporting company can begin to use it. It's already vetted by the top accounting and technology firms, and now it's the public's turn. This is truly a landmark.
Interactive data is now real, and not only can we expect companies to begin to use it in growing numbers, but now financial software companies can complete the applications they've already been working on that will more fully exploit the potential of interactive data.
So as we survey all that's going on around the planet, it's really stunning how much there is to report. Getting this message out to key stakeholders in an understandable way is one of the big communications challenges that this conference is going to address. But there's one communications initiative that's already underway that deserves our attention and our praise. And that's the decision by XBRL US to launch a Communications Steering Committee with a stellar cast. The leaders that have stepped forward to take up this challenge are Amy Pawlicki of AICPA; Greg Zegarowski, President of the Financial Leadership Corporation; Joseph Kull of PWC; Leanne Travers of Allocation Solutions; and Michael Becker of Business Wire.
Congratulations and thank you to each one of you. We can already see that the message is spreading, and that XBRL is going mainstream.
Probably the surest sign that XBRL has arrived is that it now has its own "Dummies" book. XBRL for Dummies is only 84 pages long, because what companies, preparers, and investors need to know is really quite simple. I highly recommend it, especially if you're an XBRL maven who's deep into the details of taxonomies and linkbases and instance documents. The reason you experts need XBRL for Dummies is so you can explain it in plain English — or plain Japanese, or the plain vernacular wherever you live. That way, you can help the men and women who really need to know the main point of all this, so they can decide whether to use XBRL in their companies.
If you've ever read a Dummies book, you know at the very end they have "The Part of Tens." XBRL for Dummies is no exception. So let me share with you the Top 10 Metaphors for Understanding XBRL, courtesy of this fledgling best seller:
Reason #10: It's Information Reverse-Engineering. You can start with a big number like revenues, and take it apart to find out what it's made of.
Reason #9: It's an Information Recycling Method. Just like your plastic bottles and newspapers, you can recycle XBRL information as well. The same number can be put to many different uses, over and over again.
Reason #8: It's Bar-Coding for Information. In the same way that barcodes let manufactures and supermarkets and FedEx track products, packages and inventory all through the supply chain, XBRL lets preparers and users of financial information move numbers from place to place and track them wherever they go.
Reason #7: It's Agnostic Information. It doesn't care about what software you use to prepare your financial statements. Just like XML, which is its parent language, it's happy to work with any platform or proprietary format.
Reason #6: It's Frictionless Information. Friction, sometimes accompanied by sparks, is what you often get when you try to move information from one software application or platform to another. XBRL is frictionless because it lets you pass information back and forth without any loss of accuracy or context.
Reason #5: It's Standardized Business Information. Just like railroads need standard gauge track, so you don't have to unload and reload cargo when you travel on tracks owned by a different rail line, financial information needs a standard to make its way around the world. Today, you have to unload and reload financial information from different sets of financial statements, different accounting systems, and different computer systems. XBRL makes all that unnecessary.
Reason #4: It's the Universal Language of Business Information. We may have as many different spoken languages at this global conference as we do nations represented, but XBRL speaks in the same language to all of us. It's always understood.
Reason #3: It's an Information Medium. In the same way that the money in your pocket is a medium of exchange that lets you get what you want, because everyone understands what it is and what it's worth, XBRL is a medium of information exchange. Like MasterCard or Visa, it's recognized everywhere, and it makes it just as easy to get information from someone else's computer into yours as getting that great new holiday gift from Macy's.
Reason #2: It's the Democratization of Information. XBRL puts business information in the hands of individual investors. Now anyone with an Internet connection can have instant access to accurate information and comparative analyses that previously only sophisticated research specialists could have.
Reason #1: It's the Napster of Investing. Napster made it possible to download just about any song you could think of, in a format that would play on your computer or your iPod, instantly and cheaply. (A little bit too cheaply, as it turned out.) XBRL will make it just as easy for anyone to download information about public companies in a form they can immediately use.
So there you have it, the Top 10 Metaphors for XBRL.
Now truth be told, the authors of this book — Peter Weverka and Wilson So — actually sneaked in an 11th way to think of XBRL. It is, of course, Interactive Data — my favorite way to think about all of the things that you can make the numbers in a financial statement do once they're invisibly cloaked with XBRL codes.
This conference is all about convergence: the convergence of technical and financial reporting, and the convergence of U.S. GAAP and IFRS. The SEC is deeply involved in both of these developments, because we have so much at stake in their success. Promoting healthy markets and capital formation, which is our mission, means taking full advantage of these opportunities for greater comparability.
And our investor protection mission drives us to seek yet another kind of convergence: the convergence of what the SEC requires public companies to disclose, on the one hand, and what investors actually read and use, on the other. Interactive data will make the financial disclosures that the SEC has long mandated far more useful to investors than ever before.
Recently, we proposed a rule authorizing a simplified mutual fund prospectus that would give retail investors the most important information they're looking for in one short, easy to read document.
The summary prospectus would include the risk-return information that investors all want to see, and that can now all be tagged using XBRL — so that investors can get the full benefit of its power for comparative analytics. In the near future, when most mutual funds report their risk-return summary data using XBRL, it's easy to imagine popular financial websites like Yahoo! and Google and Morningstar including ways for investors to use this information for comparison shopping. This is what the Internet is good at, and it's a benefit that individual investors have needed for a long time.
This meeting is a celebration, as well as an extended workshop, for a group that began as a few innovators and now has become a global movement with rapidly gathering momentum. Business information, accounting, and technology are converging into something new and different from anything we've had before. Thanks to XBRL, as well as other critical initiatives such as IFRS, global financial reporting is becoming more standardized, reliable, routine, and just plain easier to use.
XBRL International, and all of you who are here as individuals and organizations working to support it worldwide, are literally transforming financial and business reporting. You're uniting the world just as surely as George Vancouver did more than 200 years ago. You can be proud to be one of these great pioneers. By helping users and preparers of business information to make better, faster, cheaper, and more informed decisions, you're establishing the basis for a more peaceful and productive world.
The most important reason for me to come here from Washington is to thank you personally for all that you've done over the last few busy, hectic years — and for all that you do every day.
Regulations have a role to play, but the most basic characteristic of XBRL is that it's a private sector collaboration, driven by individual initiative and a remarkably high level of private ordering. It is open source, global, and as flexible and adaptable as your creative genius can make it. You deserve all the praise and gratitude that investors and our markets can heap onto you.
So keep innovating, keep dreaming, keep working as hard as you always have — and don't be surprised if, before you know it, the entire planet is transformed by your efforts.