A WEEK or so ago, the Financial Times seemed to jump to conclusions when it reported that the U.S. Securities and Exchange Commission (SEC) was working on a rule to make XBRL mandatory for all companies.
No other media with any credibility followed up on that story, and in my earlier piece I said I doubted the veracity of the story. But it did make me pay more attention to what SEC Chairman Christopher Cox is saying publicly about XBRL.
Last week, for instance, the commission posted the text of Chairman Cox’s address to the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition.
Here’s the most relevant section of that speech:
Interactive data is already used extensively elsewhere in the financial services industry. In particular, banks use it in their reports to the FDIC, to the Fed, and to the Comptroller of the Currency. As a matter of fact, the transition to interactive data has gone so smoothly in banking industry that many of you may not even realize you’re tech pioneers. That’s the result we always hope for with innovation.
Interactive data has proven to be a painless, productivity-enhancing improvement that helps people get their work done faster, cheaper, and better than before. For almost two years now, 8,200 U.S. financial institutions have been using XBRL — the computer language of interactive data — to submit their quarterly Call Reports to U.S. banking regulators. As a result, the investing and lending public have faster access to the financials of U.S. banks.
And there’s been another important dividend: The error rate has also dropped way down, to nearly zero. Before the introduction of interactive data, fully 30% of banks’ quarterly filings included basic math errors. Now those errors are gone. And now banks can even provide narrative in this interactive format, because that can be XBRL-tagged as well. As a result of this improvement, today only 5% of original reports need additional work. Before, as much as 34% of bank call reports were returned to banks for additional clarification. The old system even lacked the technology to submit notes.
Better, faster, more efficient sharing of data is the story of XBRL and interactive data when we look at bank Call Reports. At the SEC, we’re working now to see to it that every public company uses interactive data in reporting to our agency. Already, voluntary interactive data filers with the Commission represent more than a trillion dollars of market capital, spread across various industries — companies large and small, foreign and domestic. I think if you talk to these companies they’ll tell you it’s been surprisingly painless and inexpensive — a “non-event” is the phrase that keeps coming up. And companies are excited to be on the cutting edge of financial reporting.
If you’re a public company and you’re not already filing with SEC using interactive data, I urge you to consider doing so. You’ll find that the benefits extend well beyond easier SEC filing to such areas as receiving reports from your large customers.
Just as banking regulators are now enjoying clean, real-time, comprehensive data from their reporting banks in a readily digestible format, interactive data can be used to allow banks to enjoy the same advantages vis-à-vis their customers when they’re focused on assessing counter-party risks.
All of us at the SEC are doing our best to sharpen our market’s competitive edge in this increasingly global world of finance. As regulators, we know there are really only two fundamental ways for us to improve: reduce the cost of regulation, and improve the quality of the product. Interactive data lets us accomplish both.
And for that reason, it should come as no surprise that the SEC has decided to bring forward a new rule mandating the use of XBRL for all reporting issuers. He never said that, but it’s not a stretch to imagine him saying so in the very next breath.
Indeed, 52.5% of 381 senior finance executives interviewed for a recent Grant Thornton survey said they expect XBRL will become a mandatory format for SEC filings.
The stars are aligning…