Integrating REA Accounting Domain Ontology with SUMO Upper Ontology

1. The Integration of an Accounting Domain Ontology (REA) within an Upper Ontology (SUMO)Bill McCarthy, Michigan State Universitymccarthy@bus.msu.eduhttp://wwww.msu.edu/user/mccarth4/

2. SOURCES: REA – The Ontological Foundations of REA Enterprise Information Systems, Guido Geerts and William McCarthy, March 2005 SUMO – Towards a Standard Upper Ontology, Ian Niles and Adam Pease, Towards a Standard Upper Ontology. In Proceedings of the 2nd International Conference on Formal Ontology in Information Systems (FOIS-2001), Chris Welty and Barry Smith, eds, Ogunquit, Maine, October 17-19, 2001.

3. Motivation ? • Why accounting ? • Why REA ? • Research – peer review • Teaching • Why Ontology ? • Interoperability & standard semantics • UN, ISO, ECIMF • Why SUMO ? • Serve as model above with connections to real world phenomena • Serve as model below with connections to real world phenomena • Availability & peer review • Tractability • Coming market presence

4. Cookie-Monster (the customer) and Elmo (the entrepreneur) meet in the (real or virtual) marketplace, thus setting the stage for an Economic Exchange

5. Economic Resource Economic Resource Economic Event Economic Agent Economic Agent Economic Agent Economic Agent stock-flow stock-flow inside participation outside participation outside participation duality Give Take Economic Event inside participation REA model of cookie sale from entrepreneur’s (ELMO) perspective

6. Economic Resource Economic Resource COOKIES ELMO Economic Agent Economic Agent Economic Agent Economic Agent Economic Event SALE stock-flow stock-flow outside participation inside participation outside participation cookie monster Give Take cookie monster Economic Event CASH RECEIPT inside participation ELMO CASH duality REA model of cookie sale from entrepreneur’s (ELMO) perspective

7. Economic Resource Economic Resource Cookies Salesperson Cashier Economic Agent Economic Agent Economic Agent Economic Agent Economic Event stock-flow stock-flow Sale outside participation outside participation inside participation Customer Customer Give Take Economic Event Cash Receipt inside participation duality Cash more general exchange model from the entrepreneur’s (ELMO’s) internal perspective

8. COOKIES COOKIES-stockflow-SALE SALE-duality-CASH_RECEIPT SALE Partial Database for Elmo’s Cookie Business Why is this invoice amount $14.75 ?? How is customer paying for this ???

9. ( the past & near present ) ( the future ) Commit ( the foreseeable present ) Event Rtype Etype Atype Etype Atype Rtype Resource Event Agent What actually occurred What could be or should be What is planned or scheduled REA model – the elevator pitch

10. stock-flow participation Economic Resource Economic Event Economic Agent duality What has occurred Figure 1 -- Normative Primitives of the REA Ontology

11. custody duality Economic Resource Economic Event Economic Agent materializes settles linkage {composition} association {responsibility, assignment, cooperation} Economic Claim Figure 2 -- Association, Linkage, Custody, and Claim Relationships

12. Revenue Customer Rental Agent Labor Rental Contract Car Maintained Car Exchange Cash Receipt Cash Cash Cashier Customer Figure 3 -- REA 3-level architecture

13. Labor Labor Cash Payroll Process Cash Maintained Car Revenue Process Labor Maintenance Process Labor Car Labor Labor Cash Cash Acquisition Process Car Revenue Customer Rental Agent Labor Rental Contract Car Maintained Car Exchange Cash Receipt Cash Cash Cashier Customer

14. Labor Labor Cash Payroll Process Cash Maintained Car Revenue Process Labor Maintenance Process Labor Car Labor Labor Cash Cash Acquisition Process Car Revenue Customer Rental Agent Labor Rental Contract Car Maintained Car Exchange Cash Receipt Cash Cash Cashier Customer Accept Customer Contact Find Car & Provide Keys Assess Customer Needs Check Out Car Check Car File & Choose Assess Insurance Options & Credit Return Car Fill in Contract Update Files Customer Pays

15. networked Business Event Business Process workflow task-composition aggregate Economic Event duality Value Chain Figure 4 – Three-Level Architecture Model

16. Tom Tom Dick Dick Ashley Ashley Salespeople Harry Harry Jane Jane Cashiers Group & Name Clusters Economic Agents Named Set of Objects Named Set of Objects with Labeled Clusters Figure 6 -- Typifying to Planning & Control Level

17. Named Set of Groups Economic Agent Type Cashiers Salespeople Planning & Control level Typifiy Grouping Operational Level Tom Tom Dick Dick Ashley Ashley Salespeople Harry Harry Jane Jane Cashiers Group & Name Clusters Economic Agents Named Set of Objects Named Set of Objects with Labeled Clusters Figure 6 -- Typifying to Planning & Control Level

18. Agent Type Event Type ResourceType Economic Resource EconomicEvent Economic Agent What could be or should be REA Typing Extensions

19. Economic Resource Type Economic Event Type Economic Agent Type policy/ standard policy/ standard typify typify typify Economic Resource EconomicEvent participation Economic Agent stock-flow Figure 7 – Type Connections for Control and Planning

20. Economic Resource Type composition structure typify Goods Transport-ation Services Funds Real Estate Regulatory Service Human Services Intellectual Product (IPR) Right of Way Materials Warranty Insurance Economic Resource Services Rights Figure 8 -- Subtypes (possible) for ECONOMIC RESOURCE

21. Regulator Guarantor Third Party Mediator Notary Escrow Economic Agent Type Economic Agent typify Partner Buyer Seller Figure 9 -- Subtypes of Economic Agent for an Exchange

22. Economic Agreement reciprocal commitment commitment fulfills fulfills economic event economic event duality What is planned or scheduled Fig. 5 – Agreement as a Bundle of Commitments

23. Resource Type specifies specifies Event Type specifies Agent Type What is planned or scheduled Commitment Fig. 10 – Abstract Specification of Commitments

24. Planning: In the Planning Phase, both the buyer and seller are engaged in activities to decide what action to take for acquiring or selling a good, service, and/or right. • Identification: The Identification Phase pertains to all those actions or events whereby data is interchanged among potential buyers and sellers in order to establish a one-to-one linkage. • Negotiation: The Negotiation Phase pertains to all those actions and events involving the exchange of information following the Identification Phase where a potential buyer and seller have (1) identified the nature of good(s) and/or service(s) to be provided; and, (2) identified each other at a level of certainty. The process of negotiation is directed at achieving an explicit, mutually understood, and agreed upon goal of a business collaboration and associated terms and conditions. This may include such things as the detailed specification of the good, service, and/or right, quantity, pricing, after sales servicing, delivery requirements, financing, use of agents and/or third parties, etc. • Actualization: The Actualization Phase pertains to all activities or events necessary for the execution of the results of the negotiation for an actual business transaction. Normally the seller produces or assembles the goods, starts providing the services, prepares and completes the delivery of good, service, and/or right, etc., to the buyer as agreed according to the terms and conditions agreed upon at the termination of the Negotiation Phase. Likewise, the buyer begins the transfer of acceptable equivalent value, usually in money, to the seller providing the good, service, and/or right. • Post-Actualization: The Post-Actualization Phase includes all of the activities or events and associated exchanges of information that occur between the buyer and the seller after the agreed upon good, service, and/or right is deemed to have been delivered. These can be activities pertaining to warranty coverage, service after sales, post-sales financing such as monthly payments or other financial arrangements, consumer complaint handling and redress or some general post-actualization relationships between buyer and seller. • SOURCE: ISO FDIS 15944-1 – Operational Aspects of Open-edi for implementation Figure 11 -- ISO Open-edi Phases of a Business Process

25. Ontological Components Business Process Phases Planning Business Events with Types of Resources & Agents Identification typify Business Events with Commitments for Types of Resources, Events, and Agents Negotiation fulfillment Actualization Business & Economic Events with Resources & Agents Post-Actualization BP Phases with Components

26. An Example Business Transaction with Business Events Grouped in Phases

27. Business Process Economic Contract reciprocal Regulator Third Party Business Event Economic Resource Type governs Agreement typifies establish specifies specifies Economic Agent Type involves Economic Commitment Economic Event Type specifies qualifies fulfills reserves typifies Economic Resource Economic Event stockflow Economic Agent from to constrains duality Partner requires Bilateral Collaboration Mediated Collaboration participates ISO Collaboration Ontology

28. workflow Business Process Phases Business Event Economic Resource Type Economic Agreement Business Process governs establish typify specifies specifies Economic Agent Type Economic Commitment specifies reciprocal Economic Event Type typify fulfills typify Economic Resource stock-flow inside Economic Agent Economic Event outside duality materializes settles Economic Claim Figure 12 -- The REA Ontology with BP Phases

29. Business Object Business Object Lifecycle Business Object State Business Event transitionedBy Figure 13 – Business Objects, Lifecycles, and States

30. Figure 14 – Sample States for Business Objects

31. Candidate Planned Identified Proposed Substituted Specified EconomicResourceType <<BusinessEvent>> publishCatalog <<BusinessEvent>> sendCatalogRequest <<BusinessEvent>> acceptAvailabilityAndPriceRequest <<BusinessEvent>> sendOffer <<BusinessEvent>> acceptOffer <<BusinessEvent>> shipAcceptableSubstitute Figure 15 – State Machine Diagram for Economic Resource Type

32. Business Process Business Process Business Process Business Process Business Process Business Process Business Process Business Process Business Process Collaboration Perspective: Trading Partner vs. Independent Enterprise #1 Independent view of Inter-enterprise events Enterprise #1 Enterprise #2 Trading Partner view of Inter-enterprise events (upstream vendors and downstream customers) Dotted arrows represent flow of goods, services, and cash between different companies; solid arrows represent flows within companies Different Views of Business Collaboration

33. PORTFOLIO of ATTRIBUTES: • ingredients • baked • advertised • delivered • guaranteed fresh ??

34. To do ? • REA & this paper • Independent view • State machine mechanics (exhaustive ?) • Economics – more formal (bundle, “2”, etc.) • Standards & open source • Accounting • Theory -- claim, temporal & sectional (ABC), various expensing, internal control specification, materialization • Outreach – XBRL & financial reporting • Philosophy – more formal (KIF), upper integration (SUMO), resolution of Bunge & events • Computer Science – OO, patterns, contract languages • MIS • Events & behavioral – leave to others

35. SUMO questions ??

36. Reality Token Category Type Image Carol Dick Harry Customer Customer Type Alice  classification typification  <-- SetClass --><--- Proposition---> red = SUMO abstraction differences to be adjusted

37. SOWA analysis of REA (2002) Physical Categories Abstract Categories ? ? -------------------- proposition only ? XXXXXXX red = SUMO differences to be adjusted

38. REA & SUMO terms

39. SUMO questions General: REA is primarily schematic; SUMO is primarily taxonomic. How to integrate ? How far to decompose ? Must MILO and other domain ontologies (financial) be aligned ? 3D vs. 4D positions (endurantists vs. perdurantists) How to deal with process decomposition and duration? Value (Supply) Chain – Business Process – BP phases – Economic Events – Business Events -- Smaller Business Events Nature of abstract specification (typification) Specifics: Economic Resources like services and rights – Objects ? human & organizational agents ? CaseRole ? ChangeOfPossession ? More general predicates with attached reasoning