• AIS Scope • Business Processes and
Value Chains• Commitments and Types• E-Commerce Collaboration
Standards• ebXML• REA’s Importance in a Wider
Accounting Context • Range of Accounting
Systems
Bringing Accounting into the E-Commerce Age with REA-Based Collaboration
Patterns and Monitored CommitmentsWilliam E. McCarthy – Michigan State University
electronic business XML
• Much of the content of these slides comes from co-authored papers and my own standards group work with the UN-CEFACT ebXML group and the ISO Open-edi groups, so the ideas are due to many people besides myself. These include Guido Geerts, Julie David, Bob Haugen, John Yunker, Jim Clark, Brian Hayes, Paul Levine, Jamie Clark, Dave Welsh, Karsten Riemer, Nita Sharma, Nenad Ivezic, Colin Clark, Katsuhiro Morita, Jake Knoppers, and many others too numerous to mention.
• These slides may be reproduced, but please do not change the contents or attributions.
Bringing Accounting into the E-Commerce Age with REA-Based Collaboration Patterns and
Monitored Commitments
Keynote address given on 1 July 2002 to The Accounting Information Systems Educators Association
Copper Mountain, Colorado
William E. McCarthy – Michigan State University
Extending the Scope of AIS
ACCOUNTING INFORMATION
SYSTEMS
MANAGEMENT INFORMATION
SYSTEMS
ACCOUNTING
Distinguishing Feature = Transaction Processing for Accountability Purposes (original REA)Extend with Commitments and Types for Planning & Policy Purposes
•Financial Reporting
•Managerial Decision Making
•Auditing & Control
•Taxation
•Management Science
•Behavioral & Organizational Science
•Supply Chain
•Computer Science
Source: JIS editorial, 1989
EXAMPLE BUSINESS PARTNERS
• Company C is “Cookie Monster” or an instance of Customer at the end of a supply chain in the e-marketplace for cookies
• Company E is “Elmo” or an instance of an Entrepreneur who acquires the factors of production (cookie dough, chocolate chips) in the e-marketplace, converts them internally to a final product of cookies, and then sells them in the e-marketplace
• Company K is “Kermit” or an instance of a Komponent Supplier who takes agricultural essentials like wheat or cocoa beans, converts them into the components of cookies like cookie dough or chocolate chips, and then supplies those components to cookie manufacturing entrepreneurs in the e-marketplace Source: Muppet site
cookie cashExchange or Transformation
BUSINESS PROCESS DEFINITION: A business process is a set of activities that takes one or more types of inputs and turns them into an output of greater value to the customer (Hammer)
delivered raw materials
delivered manufactured goods
$$$$
$$
$$manufactured goods
payment
sale
Cash payment
Cash payment
logistical operation
shipment
labor
payment
labor acquire
labor
labor
facilities, services & technology
payment
service acquire
manufacture job
material issue
manufacture operation
$$
$$
service contract
service operation product services
labor
raw materialspurchase
payment
$$
Example Value Chain (source, make,
deliver) ______ ______ _______ Source: ebXML BP Catalog
delivered raw materials
delivered manufactured goods
$$$$
$$
$$manufactured goods
cash recsale
Cash receipt
Cash paymnt
logistical operation
shipment
labor
payment
labor acquire
labor
labor
facilities, services & technology
payment
service acquire
manufacture job
material issue
manufacture operation
$$
$$
service contract
service operation product services
labor
raw materialspurchase
payment
$$
Example Value Chain (per Porter
and SCOR) Source: ebXML BP Catalog
EconomicEvent
EconomicAgent
EconomicResource
duality
Source: W. E. McCarthy “The REA Accounting Model: A Generalized Framework for Accounting Systems in a Shared Data Environment,” The Accounting Review, July 1982, pp 554-78.
INITIATING
RESPONDING
Economic Event
Economic Agent
Economic Agent
Economic Resource
Economic Event
Economic Agent
Economic Agent
Economic Resource
Source: G Geerts and W. McCarthy
Commitment & Type Extensions
cookie
shipment
commitment to ship
Economic
Contract
cash payment
executes
executes
commitment to pay
Source: G Geerts and W. McCarthy
labor
walnuts
cookie dough
cookies
Cash payment
shipmentCash payment
shipment
cocoa beans
to chocolate chips
cookies
Recipe step
Batch run
Cash payment
shipment
chocolate chips
Cookie Supply Chain
Source: R. Haugen and W. McCarthy
Types
Economic
Resource
Economic
Event
Economic
Agent
Resource
Type
Event
Type
Agent
Type
Source: G Geerts and W. McCarthy
Examples of Type Images (typification)
• Resources like cookies can be classified into different groups with varying shelf lives
• Events like sales can be grouped into types like retail or wholesale with different price
structures
• Agents like customers can be typed into groups like intermediaries or end users with
different certification requirements
Two Kinds of Business Modeling
• Descriptive: This illustrates what is actually occurring (OLD ACCOUNTING)
• Prescriptive: This illustrates what could be or should be occurring (NEW ACCOUNTING (some progress))
Some Proposed Collaboration Patterns
• Negotiation• Order-Fulfillment-Settlement
– E.G. 2/10 net 30, FOB source
• Long Term Contract with Periodic Releases
• Escalating Commitments • Supplier Cascade• Drop Shipment• International Payment and
Shipment
Source: ebXML BCP&MC
Negotiation
Identification
Planning
Post-Actualization
Actualization
typification
fulfillment
Types of Resources & Agents
Commitments for Types of Resources
Economic Events with Resources &
Agents
Extended BP model REA components
Source: ISO Open-edi
E-Commerce Collaboration Standards
• ebXML (electronic business XML) – United Nations CEFACT and Oasis
• eBTWG – UN CEFACT• UBL – OASIS (nee xCBL from CommerceOne)• ISO Open-edi• European Commission (ECIMF)• Others – BPML, RosettaNet etc.• Industry Specific (AIAG, Odette, etc.)
Electronic Collaboration – Old (bottom-up) and New (top-down)
• OLD technology is EDI (electronic data interchange)• EDI has standard documents or transaction sets @ to
X12 (American) or EDIFACT (everywhere else)• NEW technology is XML
– Bottom-up xCBL or UBL (don’t throw away EDI legacy)
– Top-down ebXML BCP&MC (let’s innovate with full support for business process semantics)
XML standards groups
• XML is always the foundation technology– Establishes the rules & syntax
• XML standards are essentially agreements among groups of people in a domain that define an XML tag set and a Schema for a particular purpose (a.k.a. “vocabularies”)– XBRL (eXtensible Business Reporting Language)– ebXML (electronic business XML)
• Ontologies & Taxonomies are implemented as specific interpretations or classes of XML standards (e.g., REA accounting ontology or the US commercial-industrial taxonomy for financial reporting)
• Instance documents are actual documents using a particular ontology or taxonomy
Ontology
• “A specification of a conceptualization” Gruber
• A listing of the categories or classes in a certain domain and the ways they relate to each other
Business Event Type
Business Event
Economic Contract
CommitmentEconomic Event
reciprocityduality
Claim
Economic Agent
Economic Resource Type
Economic Resource
typifies
association characterization
aggregate of
executes
terminatorinitiator
governs
formsstockflow
reserves
Agreement(contract or
schedule)
consists of
typifies
Business Process (exchange or conversion)
materializes
settles
initiator terminator
involves
accountability
aggregate of
aggregate of
Economic Agent Type
typifies
consumes scenario
follows scenario
participates scenario
linkage characterization participates
consumes
Agreement Type
(contract or schedule)
typifies
Business Process Type (exchange or
conversion)
typifies
follows
association
Source: ISO Open-edi
ebXML -- 101
Between company interoperability
Business Collaboratio
nBusiness
TransactionsBusiness Documents
Business Messages
BP
Source: ebXML BPSS
CCustomer
EProductSupplier
XLogisticsVendor
YBank
PORAAA
FreightOrderAA
AdvanceShipNoticeRA AdvanceShipNotice
AA
ShippingDocumentAdvanceShipNoticeRA
FundTransferAdviceAA
ReceivingAdviceRA
FundTransferAdviceAA
FundsTransferNoticeRA
FundsTransferNoticeRA
Business Process: MultiParty Collaboration Source: ebXML BPSS
ebXML vision• A global electronic market place where enterprises
of any size, anywhere can:– Find each other electronically– Conduct business through the exchange of XML based
messages• Using standard message structures • According to standard business process sequences• With clear business semantics• According to standard or mutually agreed trading partner
agreements• Using off the shelf purchased business applications
• TEAMS: BP, CC, TP, security, messaging services, architecture, QC, etc.
Source: ebXML
Collaborative Process – Interactions
ebXML compliantsystem
Business ProfilesBusiness Scenarios
ebXMLRegistry
XML
Request Business Details
1
Build Local SystemImplementation
Register Implementation DetailsRegister COMPANY A Profile
3
2
5Agree on Business Arrangement4
Query about COMPANY A profile
DownloadScenarios and Profiles
DO BUSINESS TRANSACTIONS
6
COMPANY E
COMPANY C
ebXML compliantsystem
Business ProfilesBusiness Scenarios
ebXMLRegistry
XML
Request Business Details
1
Build Local SystemImplementation
Register Implementation DetailsRegister COMPANY A Profile
3
2
5Agree on Business Arrangement4
Query about COMPANY A profile
DownloadScenarios and Profiles
DO BUSINESS TRANSACTIONS
6
ebXML compliantsystem
Business ProfilesBusiness Scenarios
ebXMLRegistry
XML
Request Business Details
1
Build Local SystemImplementation
Register Implementation DetailsRegister COMPANY A Profile
3
2
5 Agree on Business Arrangement4
Query about COMPANY profile
DownloadScenarios and Profiles
DO BUSINESS TRANSACTIONS
6
Collaboration Protocol Profiles,
Business Process Models (BPSS)
Collaboration Protocol Profiles
Collaboration Protocol Profiles,
Business Process Models (BPSS)
Collaboration Protocol Agreement
1
3
4
5
Source: ebXML
Vision of ebXML Collaboration Process
ElectronicElectronicBusinessBusiness
CollaborationCollaboration
ElectronicElectronicBusinessBusiness
CollaborationCollaboration
ProcessDefinition
PartnerDiscovery
PartnerSign-Up
ElectronicPlug-in
ProcessExecution
ProcessManagement
ProcessEvolution
Business Process,Core Components
CollaborationProtocol Profile
CollaborationProtocol Agreement
Business ServiceInterface
Transport/Routing/ Packaging, Collaboration
Protocol AgreementBusiness Service Interface
BusinessProcess
Management
ProcessReengineering
Registry/Repository
Source: ebXML
Business Operations Map (BOM)
Business Requirements View (BRV)
Business Transaction View (BTV)
Business Service View (BSV)
ebXML Business Process & Information Meta-model (top-down controlled complexity)
Process Area Business Process
Business Transaction
Business Collaboration(binary or multiparty)
RequestingBusiness Activity
RespondingBusiness Activity
Business Messages Requesting Service Transaction
Responding ServiceTransaction
Agreement
Economic Event
Network Component
Authorizing Roles
Partner Type Economic Resources
Business Documents
Business Area
Source: ebXML TMWG
Monitored Commitment
<<pattern>>Business
CollaborationAnalysis Pattern
BusinessObject
implements
consume
EconomicResource
EconomicCommitment
BusinessCollaboration
Use Case
produce
BusinessCollaboration
<<pattern>>Business
CollaborationDesign Pattern
EconomicEvent
BRV
BTV implements
elaboration
realization
Agreement
elaboration
realization
Monitored Commitment is visibility of events associated with a commitment
Monitored Commitment is visibility of events associated with a commitment
e.g. Fowlere.g. Fowler
e.g. Gammae.g. GammaEconomicContract
Source: ebXML BCP&MC
goods
shipment
commitment to ship
Economic
Contract
cash payment
fulfills
duality
commitment to pay
reciprocal
fulfills
• E & C agree to a contract where ship on Tuesday, pay on Wednesday
• E ships on Tuesday (commitment to pay in force upon acceptable receipt, claim may be materialized). However, discount is taken, so commitment to pay is less than scheduled amount
• C pays discounted amount on Wednesday Source: ebXML BCP&MC
goods
shipment
commitment to ship
Economic
Contract
cash payment
fulfills
duality
commitment to pay
reciprocal
fulfills
• E & C agree to a contract where pay on Tuesday, ship on Wednesday
• C pays on Tuesday (claim may be materialized)
• E ships on Thursday thus invoking $20 penalty
• C notifies E that commitment to ship not fulfilled in full as unacceptable timing (materialized claim is reduced to $20)
• E now pays $20Source: ebXML BCP&MC
BusinessProcess
BusinessProcess
BusinessProcess
BusinessProcess
BusinessProcess
BusinessProcess
Independent view of Inter-enterprise events
Enterprise
Enterprise
Enterprise
BusinessProcess
BusinessProcess
BusinessProcess
Illustration of Perspective: Trading Partner vs. Independent
Trading Partner view of Inter-enterprise events (upstream vendors and downstream customers)
Blue arrows represent flow of goods, services, and cash between different companies; green arrows represent flows within companies
Source: ISO Open-edi
Business Objects and States (as embedded in COOL or the
Commitment Oriented Orchestration Layer)
• Business Objects are the “nouns” of business deals:• Examples: Products, Orders, Shipments, etc. (REAs)• Business States are named states of Business
Objects– which affect both trading partners– to which both partners must agree– which mean the whole business deal has changed
in an important way. • Examples: Order.accepted, Order.rejected,
Order.fulfilled, Order.cancelledSource: ebXML BCP&MC
BRV collaboration semantics of COOL are based on business
concepts and practices:
• Accounting “Events” per REA
• Commercial law• Contract negotiation and
execution• International Trade
Source: ebXML BCP&MC
Business State Alignment• Means both trading partners must agree on the
state of each Business Object at the end of each Business Transaction.
• For example, the Order is not accepted until both partners agree explicitly that it is accepted.
• The Business Transaction protocol must insure that both partners transition to the new Business State - or neither does.
• Think “electronic handshake”.
Source: ebXML BCP&MC
Business Operations Map (BOM)
Business Requirements View (BRV)
Business Transaction View (BTV)
Business Service View (BSV)
ebXML Business Process & Information Meta-model (top-down controlled complexity)
Process Area Business Process
Business Transaction
Business Collaboration(binary or multiparty)
RequestingBusiness Activity
RespondingBusiness Activity
Business Messages Requesting Service Transaction
Responding ServiceTransaction
Agreement
Economic Event
Network Component
Authorizing Roles
Partner Type Economic Resources
Business Documents
Business Area
Source: ebXML TMWG
Business Process: Binary Collaboration
Buyer Party Seller Party
CatalogReq
CatalogRsp
QuoteReq
QuoteRsp
Order
OrderRsp
ASN
Invoice
Payment
Public
Business Transaction
Business Transaction
Business Transaction
Business Transaction
Business Transaction
Business Transaction
Business Collaboration
Source: ebXML BPSS
Business Transaction
RequestingActivity
RespondingActivity
Request Document
Response Document
ReceiptAcknowledgment Signal
AcceptanceAcknowledgment Signal
Success Failure
Unit of Work
Non-Repudiation
Non-Repudiation
Time-Outs
Guards
Legally Binding
SignedReceipt
Source: ebXML BPSS
Business Transaction Execution Parameters
Business Transaction Execution Parameters
Business Transaction
Binary Collaboration
Request Document
Response Document
Multi Party CollaborationMulti Party Collaboration
Overview: ebXML SpecificationSchema
ChoreographyChoreographyTransitionTransition GuardGuard
Authorized Role
Authorized Role
Source: ebXML BPSS
ebXML Architecture
Registries/Repositories
Core/IndustryComponentsCore/IndustryComponents
BusinessDocumentsBusiness
Documents
CP AgreementCP AgreementDes
ign
Tim
e BusinessProcess
BusinessProcess
CollaborationProtocolProfile
CollaborationProtocolProfile
CollaborationProtocolProfile
CollaborationProtocolProfile
Transport
Message
BusinessService
Interface
BusinessServices/App’sR
un
tim
e
BusinessService
Interface
BusinessServices/App’s
Business Libraries, Trading Partner Directories, etc…
Source: ebXML
RepositoryOrder
pending
OrderGoods
OrderexpectingDelivery
DeliverGoods
BusinessProcessCatalog
BusinessEntity Type
Library
CONTEXT
BusinessInformation
Entities
Source: ebXML BCP&MC
Why are leveled and semantically-precise value chain & supply chain models important ?
(WHY are REA patterns important ?)
•They provide automatically the detailed economic semantics of the common order-deliver-settlement patterns of e-commerce to the collaboration management software (as explained above);
• They provide the basis for integrating the descriptive components of old accounting (expanded to commitments and multiple non-monetary dimensions) with the prescriptive components of new accounting; and
•They provide the basis for representing the “economic events” of an enterprise with no double-entry (A= L + OE classification) spin to both upstream parties (capital, labor, and raw material suppliers) and downstream parties (customers) on a continuous reporting basis (see next slide for architecture).
AccountsReceivable
Traditional Accounting System
Order Entry
Inventory
GeneralLedger
JobCosting
Payroll
SEC
Filing
EDGAR FILES
FSA
AccountingKnowledge
UsesPresentUse Path
Knowledge-BasedDecision
Support System
Object-ObjectConnection
Object Enterprise Model
Value-Added Processing
RealWorld
Systems Analysis& Design
{
{
Old Accounting
NewAccounting
Financial DecisionMakers
SOURCE: G. Geerts and W.E. McCarthy “An Accounting Object Infrastructure for Knowledge-Based Enterprise Models” IEEE Intelligent Systems, July/August
1999, p.92.
Uses
ebXML
&
XBRL
COMPANY E
Business Service Interface (BSI)
Business Service Interface (BSI)
COMPANY C
Reporting Taxonomy:
•Purchases – xx AccPay- xx
Reporting Taxonomy:
•AccRec – xx Saies -- xx
•COGS – zz FinGood– zz
Company-neutral (but strictly-typed with REA) view of a business collaboration. For example:
-Order -Fulfillment -Settlement
XBRL ebXML XBRL
Cash – xx AccRec -- xx
AccPay – xx Cash -- xx
REA contract/commitment (no account)REA initiator Economic
EventREA responding Economic Event
External Report
External Report
External Report
Source: J. David, G. Geerts & W. McCarthy
Evolutionary Tree – Enterprise Information Systems
EnterpriseSystems
No OrganizingRationale Outwardly
Organized
Single Entry
Transactions& Obligations
A = L + OEEnterprise
Value Chain
BookkeepingModular
Integration: ABC, MRP
ERP SupplyChain
Multi-dimensionalAccounting
Hybrid
Inwardly Oranized
Best ofBreed ERP
Integrator-Enabled
Standards-Enabled
SingleSourceERP
CustomerFocused
MS MoneyQuicken
PeachtreeQuickbooks
PlatinumSolomon
PeopleSoftSAP
OMGOAG Siebel
Goldmine
i2Ariba
Constellar HubVitria
BPCSGreat Plains Dynamics
TradingPartner Independent
ebXMLISO Open -EDI
Source: J. David, W. McCarthy & B. Sommer