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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, 2007, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

Chairman Cox: An Eye On Technology
Location: BlogsAAO Weblog (Public)    
Posted by: Jack Ciesielski 11/14/2005 2:20 AM
On Friday, SEC Chairman Christopher Cox addressed an Securities Industry Association at Boca Raton. His remarks dealing with "enforcement as top priority" were snapped up by the press. Chairman Cox also made reference to the balancing act needed between regulation and cost.

Of course you'd expect him to address these things, and in the fashion that he did. Was there ever a chairman who addressed any audience and said that the Commission would back off on enforcement?

However, there were many more interesting comments in his speech. For instance, he declared that he wouldn't try to rewrite rules written before his tenure began 100 days ago:

"Another thing that won't change under my chairmanship is the Commission's recent rulemakings. The confirmation of a new Chairman ought not to be a signal to re-open and contest every prior Commission enactment. That's why the Commission is continuing to defend in court its rules concerning mutual fund director independence. While I didn't participate in this rulemaking, which preceded my Chairmanship, I will always defend the agency's regulatory prerogatives so long as I am Chairman.

The same is true of the Commission's rule requiring the registration of hedge fund advisors. This rule, too, antedates my Chairmanship. It's scheduled to go into effect in February 2006 — and it will. It is my conviction that consistency and clarity in rulemaking and enforcement are essential." [Emphasis added.]

The two rules he mentioned didn't exactly have wide acceptance among affected constituencies. No mention of stock option accounting rules, though, so hopefully he meant all recent rulemakings.

Much more of his speech dealt with the potential of XBRL reporting at the SEC. Chairman Cox painted a rosy picture of the future reporting system, while simultaneously reminding the audience that there's bound to be many bumps along the way. Some of the promise held by XBRL, according to the chairman:

"... The interactive data that XBRL data tagging makes possible can help everyone in this room achieve many of your different goals: keeping investors informed; minimizing your costs and improving your productivity as analysts; and managing your own companies better with real time management control information. Interactive data can make the SEC a far more effective regulator, by helping us focus on preventing fraud, not just reacting to it.

Once data in SEC-mandated reports is made interactive, the numbers in financial reports will jump off the page. They'll not only be instantly searchable and retrievable, but you'll also be able to immediately download them into spreadsheets and an unlimited number of software applications."

"Those RSS feeds you can now get on your desktop from almost every financial publication? No problem. Think SEC web feeds, direct to your desktop, with automatic robotic web searches all conducted in the background, in real time.

And why stop there? Your computer can use this real-time data to automatically assemble your favorite ratios and instantly pop them up on a toolbar."

"With interactive data, you can slice and dice the information like a chef at Benihana with a cube of Kobe beef. No more collating by the back-office staff. If you want to compare net income for 50 companies in one industry; or accounts receivable for 100 companies across three industries, or summon up financial ratios for all the companies on the S&P 500, you'll be able to do it instantly."

"... measurement of 404 compliance might be accomplished by examining the adequacy of data tags and the consistency of their use and application. A significant part of the 404 work could be automated."

"Interactive data may even end up solving the seemingly intractable dilemma of different global accounting standards."

"The SEC's own mission will be furthered by using interactive data to review and analyze financial reports more efficiently. By applying more of our scarce resources to our main job of maintaining integrity in markets, we can better achieve the ultimate aim of all of our rules, enforcement, and regulatory guidance."

Tremendous benefits await, for sure, and surely disappointments await as well. It's encouraging that the chairman supports the XBRL movement with such enthusiasm. Having constructed many reports using data out of the S&P 500's filings over the years, this analyst would welcome the analytical abilities Cox envisions. Getting an SEC chairman with Silicon Valley roots might not be such a bad thing after all.
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