Reconciling, CM, DCA, REA, SBRM, XBRL, and a Few Other Odds-and-Ends

Just as I am reconciling three approaches to representing a conceptualization of a business report; I am also endeavoring to reconcile several other "inputs" related to accounting, reporting, auditing, and analysis.  Here is an inventory of these different inputs:

Why am I doing this? Well, all these things are tied together.  However, many of these things are being created in silos.  Much of the terminology is consistent, but there is work to be done to improve the consistency.  I am going to create a working proof of concept represented using the global open industry standard XBRL that ties all these things together.  It just makes a lot of sense.

Accounting information wants to be connected.  In fact, it is unnatural for accounting information to NOT be connected. Traceability is natural; not being able to trace, track, walk, drilldown, drill  up, drill across, is an indication that there is some sort of problem. One issue is a missing piece of metadata related to business event categories. That is a straight forward fix. Another issues relates to the individual silos people are creating. That is a straight forward fix also. One condition contributing to issues is the fixation of the notion of a document and creating documents in the wrong order. Again, easy fix. Then you have what people call the "integration hairball" or the "application jungle". That might be a little harder to fix; but doable.

The ultimate objective is to create the next version of this MINI 2025 Financial Reporting Framework working proof of concept that ties (links) everything together in both directions to demonstrate how things could work.

OK, so here are the core high level terms that I have come up with:
  • Perspective (a.k.a. lens, interpretation, viewpoint, hive): A way or regarding, interpreting, or understanding something.
    • General Endeavor Management (GEM): Operation Lifecycle (OL) and Knowledge Representation (KR) Method defines term "perception".
  • Situation: Occurrence in time wherein some economic event is perhaps spawned. (Meaning, not every situation spawns an economic event. Situations may spawn other types of evens, i.e. events which are not economic events.)
    • General Endeavor Management (GEM): Operation Lifecycle (OL) and Knowledge Representation (KR) Method defines term "situation".
  • Economic event (a.k.a. event, business event): Occurrence in time wherein ownership of an economic resource (3.28) is transferred from one Person (3.52) to another Person (3.52). Seems to me like the term "agent" is a better term to use than "person".  Every economic event is spawned from a situation.  Not every situation spawns an economic event.
    • ISO/IEC Accounting and Economic Ontology and REA
    • General Endeavor Management (GEM): Operation Lifecycle (OL) and Knowledge Representation (KR) Method:(defines term "event").
    • DCA defines term "business event"
    • ACTUS defines term "financial contract"
  • Economic resource (a.k.a. resource, business resource): Good, right, or service of value, under the control of a Person (3.52).
    • ISO/IEC Accounting and  Economic Ontology and REA
    • DCA defines term "resource"
  • Agent (a.k.a. person, legal person, economic entity, entity): Entity (3.32), i.e. a natural or legal person, recognized by law as having legal rights and duties, able to make commitment(s) (3.13), assume and fulfill resulting obligation(s), and able to be held accountable for its action(s)
    • ISO/IEC Accounting and  Economic Ontology and REA defines "person" as an "entity" or "legal person"
    • DCA defines the term "counterparty" and implies the term "party"
  • Financial transaction (a.k.a. business transaction, accounting transaction, economic transaction, general ledger transaction): predefined set of activities and/or processes of Persons (3.52) which is initiated by a Person (3.52) to accomplish an explicitly shared business goal and terminated upon recognition of one of the agreed conclusions by all the involved Persons (3.52), although some of the recognition may be implicit.
    • ISO/IEC Accounting and  Economic Ontology and REA defines "business transaction".
    • General Ledger Transaction (always two or more entries; sum of entry amounts must equal zero, i.e. entry must be balanced)
      • Financial transaction identifier or code
      • Financial transaction economic entity identifier or code (party)
      • Financial transaction entry date
      • Financial transaction chart of accounts concept
      • Financial transaction economic event identifier or code (i.e. derived from the sum of all facets)
      • Financial transaction entry amount
      • Financial transaction entry currency
      • Financial transaction entry description (optional)
  • Facets of a business event (a.k.a. core aspects of a business event): Party type, Counterparty type, Economic Resource, Event type, Obligation type, Entitlement type
    • DCA uses the notion "core events" but what they really seem mean are the "core facets" or "core aspects" or "core dimensions" of each business event (which is basically is a concatenation of all the facets).
      • Recording party type 3.32; 3.1
        • Self
      • Counterparty type 3.32; 3.1
        • Self
        • Third-party
          • Customer
          • Supplier
          • Vendor
          • Employee
          • Government
        • Owner
          • Controlling interest
          • Noncontrolling interest
      • Economic resource type 3.28
        • Money
        • Goods
        • Services
        • Rights
      • Obligation type
        • Commitment 3.22
        • Fulfillment 3.34
      • Entitlement type
        • Right 3.21 (economic claim?)
        • Obligation 3.59 (responsibility)
        • Both
  • Core workflows (a.k.a. workflows): DCA defines the following core workflow use cases:
    • Procure to pay
      • Purchase order
      • Ship notification
      • Receipt
      • Bill
      • Payment
    • Order to cash
      • Sales order
      • Shipment
      • Receipt acknowledgement
      • Invoice
      • Remittance
    • Make
      • Launch
      • Issue
      • Resource consumption
      • Milestone
      • Complete
      • Transfer
  • Data: representations of recorded information (3.56) that are being prepared or have been prepared in a form suitable for use in a computer system.
    • ISO/IEC Accounting and  Economic Ontology and REA defines "data".
  • Information (a.k.a. recorded information 3.56): recorded information any information that is recorded on or in a medium, irrespective of form, recording medium, or technology utilized, and in a manner allowing for storage and retrieval
    • ISO/IEC Accounting and  Economic Ontology and REA defines "recorded information".
  • Knowledge: (a.k.a. accumulated trusted information)
  • Thing (a.k.a. object, entity): object anything perceivable or conceivable
    • ISO/IEC Accounting and  Economic Ontology and REA defines "object".
  • Report (a.k.a. list of transactions, accounting working paper, audit working paper, financial statement, financial analysis model): Information which is reported; recorded information that is then reported.
    • Report pieces
    • Standard Business Report Model (SBRM) defines "report"
    • Open Information Model (OIM) defines "report"
These core terms provide a theoretical foundation for connecting the current disconnected, disjointed silos of thinking and systems. This high level theoretical blueprint for harmonizing the world of accounting ontologies.

With this information, a useful model of an enterprise can be created. That model provides somewhat of a human readable map of the enterprise; a theory that is useable by stakeholders that subscribe to that model.  From that model a theory can be created, Theory of Business Events and Classic Transactions maybe. Using that theory, humans and machines can communicate effectively.

Additional Information:

Comments

Post a Comment

Popular posts from this blog

Professional Study Group for Digital Financial Reporting

Image
Digital financial reporting is a thing.  The IFRS Foundation explains digital financial reporting  in an article, Digital Financial Reporting - Facilitating digital comparability and analysis of financial reports . OFFICIAL VERSION : The IFRS Foundation publishes an XBRL taxonomy for IFRS for SMEs (2024).  You can find official information about that XBRL taxonomy here on this web page, IFRS for SMEs as Published by IFRS Foundation (2024) . (Also see this PDF, IFRS Taxonomy Illustrated .) Since that official XBRL taxonomy is effectively a "pick list" created from the perspective of standards setters (i.e. not very practical, easy to use, and intended for ease of use by reporting economic entities);  ENHANCED VERSION : I have created an enhanced version of that same XBRL taxonomy, see  IFRS for SMEs 2024) - ENHANCED (Work in Progress) . The enhancements make the IFRS for SMEs XBRL taxonomy more useful in many different ways.  The enhancements are driven...
Read more

Big Idea for 2025: Semantic Accounting and Audit Working Papers

Image
I began my career in accounting in 1982 as an auditor with Price Waterhouse when accounting and audit working papers and schedules were 100% paper.  But within three months, I was creating many of those same working papers and schedules first in VisiCalc and then Lotus 1-2-3.  I would create those schedules and working papers electronically, then print them out, and tape them into the bundle of paper that supported our audits. The Compaq luggable computer was invented and electronic spreadsheets where even more compelling. Today, accounting and audit working papers tend to be 100% electronic proxies for those paper documents created in Excel or some other electronic spreadsheet, Word or some other word processing document, PDF generated from some word processing document, and maybe HTML.  All of these are presentation oriented proxies for documents and none of them is truly understandable by a computer based process. The next step in the evolution of accounting and audi...
Read more

Rethinking Financial Reporting: the Model-driven Financial Statement

Image
It is time to rethink the design of financial statements. Clay tablets worked well and they had a good run which ended many years ago when the clay tablets were replaced by papyrus and then ultimately paper.  Paper had a good run also but paper financial statements were ultimately replaced by what amounted to an electronic version of that paper; PDF, HTML, and such. We can do better.  Today's demands call for more modern accounting tools . Idealized design  (a.k.a. greenfield project ) is the notion of designing a system without imposing constraints of prior work.  This technique may, or may not, work for rethinking the financial statement. Idealized design might be a harder path in the short term, but taking this approach has very positive long term ramifications. Here are a number of ideas that I would throw at the wall if I were in charge of rethinking the financial statement to make such tools modern: Digital first : The first thing that I would do is abandon the...
Read more