IT Value

Cox Defends XBRL to Senators

The early adopters of the SEC's interactive data system will test the efficacy of the program when they file their 10-Qs next year, says the commis...
Sarah JohnsonJuly 31, 2007

The Securities and Exchange Commission’s push for the expanded use of technology that makes financial reports interactive will get a critical test at the end of next year’s first quarter. In fact, “2008 will be a no or go year” for the future use of extensible business reporting language, said SEC chairman Christopher Cox during a Senate hearing on Tuesday.

Asked by Sen. John Sununu (R-N.H.) why only 36 companies are currently using the program — which gives users of financial statements the ability to analyze and compare information between companies based on computer-tagged data — Cox explained it is still in the pilot phase. When the companies that are participating in the pilot program begin to use the finalized XBRL data tags, or so called taxonomies, in their first 10-Qs filed next year, the SEC will find out “whether they like it or not and whether it works,” Cox said. He expects the XBRL labels for information reported under generally accepted accounting principles to be ready for companies’ use by the end of this year’s third quarter.

A pet project of Cox’s, XBRL was one of many topics the chairman addressed during nearly three hours of testimony before the Senate Committee on Banking, Housing, and Urban Affairs. He was there to update the senators on the state of the securities market and the work the SEC has done over the past year, including its recent adoption of a new internal-control auditing standard, a solicitation for comment on possibly allowing U.S. companies to use international financial reporting standards, and the commissioners’ split vote on two proxy-access proposals.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Sununu was concerned that XBRL will allow companies to provide fewer disclosures in their financial statements. Cox assured him that the commission would require the same disclosures under the new program. XBRL would in fact give investors better access to the information because they could find it more easily, he added.

In addition, he claimed XBRL will benefit the preparers of financial statements. “The use of interactive data can make companies’ internal processes more efficient, saving investors’ dollars for the costs of registration and compliance reporting to the SEC,” Cox said.

Cox also noted his confidence in the project, considering that those companies that have been XBRL guinea pigs have stuck with the volunteer program. If they had thought the process was painful or expensive, they likely would have stopped using it, he suggested. However, the small number of participants could reflect a lack of enthusiasm on the part of public companies willing to give XBRL a try. More than a year ago, Cox was similarly promoting the use of interactive data before the Senate Banking Committee, backed by only 17 companies signed up to use it.

Cox acknowledged that more work needs to be done before XBRL is tested next year. In order to fully realize its benefits, companies need to incorporate the approximately 15,000 standardized data tags that will be ready later this year. Currently, the XBRL volunteers are using their own data tags. Microsoft, for example, has 600 customized labels, according to Cox.