If finance is the language of business, then XBRL -- the eXtensible Business Reporting Language -- is the language of finance in XML XBRL has become XML`s language of international finance, used by companies, financial institutions, stock exchanges, and regulatory authorities worldwide.

You can get a sense of XBRL`s reach and an example of the way it works at MIXMarket.org, a service of the Microfinance Information eXchange (MIX). MIXMarket collects data from microfinance organizations -- financial institutions making small loans to farmers and entrepreneurs, usually in developing economies -- in 20 countries. The exchange lets potential donors and investors assess the relative strength and liquidity of nearly 2,000 microfinance lenders, with total loan portfolios exceeding $US65 billion, but with average loan balances barely exceeding $US500.

With XBRL, MIXMarket collects data about these institutions, such as their balance sheets, loan portfolios, interest and fees income, and expenses. The MIX group developed a standard subset of XBRL using XML for institutions to report and transmit these data in XML to MIXMarket. Thus, a donor can use MIXMarket to compare Mol Bulak Finance in Kyrgyzstan with MiBanco in Peru, using a common set of data.

XBRL calls these standard subsets taxonomies, which are hierarchical dictionaries reflecting different business reporting practices. Taxonomies provide common definitions of financial reporting concepts, as well as the relationships among these terms. XBRL taxonomies have been written, for example, for Generally Accepted Accounting Principles (GAAP) in the U.S., and Listed Company Information Disclosure Regulations in China. Taxonomies meeting XBRL specifications have also been written for variations of GAAP in Canada, Brazil, and India.

Keeping government agencies happy

Government regulatory agencies worldwide collect information about financial institutions and publicly traded companies, and XBRL provides a way of standardizing and simplifying the data collection. In the U.S., the three main bank regulatory agencies -- Federal Deposit Insurance Corporation, Federal Reserve System, and Office of the Comptroller of the Currency -- use XBRL to collect their quarterly call reports from federally chartered banks. Likewise, Spain`s central bank collects data on its 400 member institutions using XBRL, but with a taxonomy written for European financial reporting.

Publicly-traded companies in the U.S. are required to file quarterly and annual reports to database called EDGAR, short for Electronic Data Gathering, Analysis, and Retrieval, maintained by the U.S. Securities and Exchange Commission The Commission began accepting these reports in XBRL in 2005. Larger companies are now required to submit their reports in XBRL format, with smaller enterprises scheduled to report their data in June 2011.

Financial reports are useful tools within a company, as well as for outside organizations. For internal reporting, XBRL offers what it calls a Global Ledger (GL). This taxonomy captures and reports data from the company`s chart of accounts, along with recurring entries such as receivables, payables, and inventory. Because it is independent of accounting systems, GL provides a way of consolidating financial data collected from various input sources, such as point-of-sale terminals.

XBRL won`t make the task of financial reports any more fun, but it has encouraged software developers to write off-the-shelf tools to make the job manageable for even the smallest of companies. If the Orangi microcredit project in Karachi, Pakistan can file reports in XBRL to MIXMarket, what`s holding you back?

By Alan Kotok