Disclosure from the User’s Perspective

Abstract

hank you, Richard,1 for that kind introduction and for inviting me to join you this morning. It is an honor to be hosted by CFA Institute and to have this opportunity to discuss the important disclosure challenges and opportunities facing investors in the early 21st century. You have an outstanding agenda for this conference, and both Roger Erwin and Michael Mauboussin have gotten you off to a great start. It seems appropriate that after focusing on the appropriate use of benchmarks, and the way market structure influences asset pricing, we change our point of view from the macro to the micro, from the marketwide perspective to the investor’s perspective. In many ways, this organization—and each of you as investment professionals—is perfectly situated to assess what is truly in the best interests of investors. As men and women who manage investments and provide advice to investors about whether to buy, sell, or hold, you are intimately familiar with investors’ needs for information about companies of all sizes and across every industry sector. I particularly want to commend you for the work of the CFA Institute Centre for Financial Market Integrity, which so ably represents your views to the SEC and other regulatory authorities, standard setters, and legislative bodies around the world. In fact, because CFA Institute is a truly global organization that includes more than 81,000 investment professionals in more than 126 countries, your views from the investor perspective on issues such as IFRS (International Financial Reporting Standards) and XBRL (eXtensible Business Reporting Language) have been especially valuable. As you well know, these issues go to the heart of the quality of financial reporting and the disclosures provided to investors. When the SEC decided to tackle the problem of the growing complexity in financial reporting, it was natural for us to look to CFA Institute. Your president and CEO, Jeff Diermeier, who is a member of the SEC’s Advisory Committee on Improvements to Financial Reporting, and the CFA Institute Centre have provided exceptionally helpful technical support in the form of official commentary. The Advisory Committee, better known by its acronym, CIFiR, recently recommended that the SEC mandate the use of XBRL by public companies to data-tag their financial documents and suggested that we do this on a phased-in schedule based on company size. Jeff and CFA Institute were an important part of this recommendation because you have been in the vanguard of promoting XBRL on a global basis for some time. It only stands to reason that this should be the position of CFA Institute because without truly interactive financial information, analyzing and comparing financial statement data is today a needlessly time-consuming chore. To call it cumbersome is all too polite. Today, if you want to do something as simple as comparing two mutual funds, consider the steps you have to go through to use the SEC data on our EDGAR system. Let us say you are interested in the expenses of the ABC Growth Fund and the XYZ Growth Fund. First, you will have to decide what is important to you—sales fees, 12b-1 fees, management fees, and so on. Using the SEC’s EDGAR database, you would start by searching for the ABC Fund family. If you have ever done this, and I know many of you have, you will know this means wading through a variety of complex EDGAR screens Christopher Cox discusses issues related to interactive data and the regulatory agenda.