William E. McCarthy

An ontological analysis of the economic primitives of the extended-REA enterprise information architecture

Abstract The resource–event–agent (REA) model for enterprise economic phenomena was first published in The Accounting Review in 1982. Since that time, its concepts and use have been extended far beyond its original accountability infrastructure to a framework for enterprise information architectures. The granularity of the model has been extended both up (to enterprise value chains) and down (to workflow or task specification) in the aggregation plane, and additional conceptual type-images and commitment-images have been proposed as well. The REA model actually fits the notion of domain ontology well, a notion that is becoming increasingly important in the era of E-commerce and virtual companies. However, its present and future components have never been analyzed formally from an ontological perspective. This paper intends to do just that, relying primarily on the conceptual terminology of John Sowa. The economic primitives of the original REA model (economic resources, economic events, economic agents, duality relationships, stock–flow relationships, control relationships, and responsibility relationships) plus some newer components (commitments, types, custody, reciprocal, etc.) will be analyzed individually and collectively as a specific domain ontology. Such a review can be used to guide further conceptual development of REA extensions.

Expert opinion [accounting]

The infrastructure of a corporate enterprise information system is concerned with acquiring, transferring, converting, and selling economic resources such as cash, inventory, and supplies. Accounting systems with individual computerized modules, such as: payroll, accounts payable and receivable, job costing, order entry, and general ledgers, have traditionally tracked such data, and accounting system designers usually have had a preemptive call on the basic schemes used to type economic data. This is because of a need to meet either statutory reporting requirements for governmental agencies, or private reporting requirements for creditors and shareholders. If accountants use these preemptive privileges to force traditional account coding onto the organization database as its fundamental classification architecture (that is, to require early bookkeeper filtering of transaction data), then many dysfunctional effects arise. Our remedy for these deficiencies is to apply the REA (economic resources, events, and agents) conceptual model when analyzing, designing, implementing, and operating an enterprise information system. REA specifically incorporates the semantics of economic objects into a firms information architecture. Such embedding facilitates an information systems initial design, as well as couples its production use with knowledge based decision support systems.

Policy‐Level Specifications in REA Enterprise Information Systems

The Resource‐Event‐Agent (REA) enterprise model is a widely accepted framework for the design of the accountability infrastructure of enterprise information systems. Policy‐level specifications define constraints and guidelines under which an enterprise operates, and they are an extension to the REA enterprise model, adding the “what should, could, or must be” to the “what is.” This paper aims both at comprehensive understanding of policy‐level definitions as part of REA enterprise systems and at understanding of the semantic constructs that enable such definitions. We first explore two distinctive semantic abstractions essential to policy‐level specifications: typification and grouping. The typification abstraction links instances of an object class to concepts for which they are concrete realizations, while the grouping abstraction aggregates objects into collections. We next present a number of patterns for the semantic modeling of policies. Following, we look at policy‐level applications for REA enter...

Augmented Intensional Reasoning in Knowledge‐Based Accounting Systems

A limitation of existing accounting systems is their lack of knowledge sharing and knowledge reuse, which makes the design and implementation of new accounting systems time‐consuming and expensive. An important requirement for knowledge sharing and reuse is the existence of a common semantic infrastructure. In this article we use McCarthys (1982) Resource‐Event‐Agent (REA) model as a common semantic infrastructure in an accounting context. The objective is to make knowledge‐intensive use of REA to share accounting concepts across functional boundaries and to reuse these concepts in different applications and different systems, an approach we call augmented intensional reasoning. Intensional reasoning is the active use of conceptual structures in information systems operations such as design and information retrieval. For augmented intensional reasoning, the conceptual structures are extended with domain‐specific REA knowledge. Sections II and III describe different dimensions of augmented intensional rea...

Agility---: the key to survival of the fittest in the software market

The ideas of Darwinian evolution can illuminate the niches in which systems can flourish in todays tumultuous IT environment---and help identify the inevitable evolutionary changes.

Modeling Business Enterprises as Value-Added Process Hierarchies with Resource-Event-Agent Object Templates

Applying object orientation to the task of modeling the value-added processes of a business enterprise is a task that should be examined both conceptually and practically. This paper does both, but its main theme is a conceptual reliance on a standardized object template — the REA (resource-event-agent) model — at various levels of abstraction as that template is used to model the economic activities of an enterprise. Deployment of REA concepts in business object design and implementation is a semantic strategy for increasing reusability and interoperability. We explain the components and use of REA models in the context of a simple example, and we discuss also its predictable patterns of implementation compromise. The paper finishes with a discussion of the adaptation of various object-oriented analysis and design techniques to the task of REA modeling of enterprises.

The Research Pyramid: A Framework for Accounting Information Systems Research

This paper extends Sowas (1997) Meaning Triangle to develop a framework for accounting information systems (AIS) research—the Research Pyramid. This framework identifies relationships between objects in economic reality, peoples concepts of economic reality, symbols used to record and represent economic reality, and the resultant accounting information systems that capture and present data about economic reality. The Research Pyramid has two major uses. First, the paper illustrates how the Research Pyramid can be used to identify new research questions to extend existing research streams. To be used in this manner, existing AIS research is classified along each of the edges of the Research Pyramid. Once an area of the literature has been analyzed, the edges that have not been studied extensively reveal potential primitive mappings for future exploration. Second, each primitive mapping is evaluated to identify which of four research methodologies (design science, field studies, survey research, and labor...

REACH: automated database design integrating first-order theories, reconstructive expertise, and implementation heuristics for accounting information systems

This paper describes the integrated use of different knowledge types in an automated software engineering tool called REACH. These types include: (1) a first-order domain theory called the REA accounting model, (2) reconstructive expertise gleaned from textbooks on accounting system design in a bookkeeping environment, and (3) implementation compromise heuristics derived from the design experience of database designers. This tool aids an enterprise database analyst in the conceptual design stages of view modeling and view integration. Copyright

An events accounting foundation for DSS implementation

This paper describes an implementation of an events accounting system which was specifically designed to facilitate the use of its disaggregated data in support of various intelligence, design, and choice decisions in a manufacturing environment. The system also models the processing of normal accounting data and reports, but it does so by materializing chart of account classifications exclusively with procedures (as opposed to conventional general ledger systems which rely primarily on declarative features). The particular implementation described herein uses a relational data base foundation, and its decision support is effected with a variety of microcomputer facilities, such as spreadsheets and graphics. The paper concentrates first on describing the derivation of data-modelled relations in accordance with an REA accounting framework. It then proceeds with a description of the DSS framework used and the correspondence of various components of this implementation with elements of that framework. The paper concludes with an assessment of problems encountered and an enumeration of future plans for more complete integration of accounting systems with marketing, materials, and logistics planning systems.

Semantic Modeling in Accounting Education, Practice, and Research: Some Progress and Impediments

In late 1979, the first Entity-Relationship (E-R) Conference was held at UCLA in December, and the first semantic modeling paper in the financial systems domain was published in The Accounting Review in October. Those two papers by McCarthy (1979; 1980) were actually based on his doctoral dissertation work completed in 1977 at the University of Massachusetts where a computer science professor -- David Stemple -- had introduced him to the groundbreaking E-R paper of Peter Chen (1976) that was published the prior year in the initial issue of ACM Transactions on Database Systems. An important additional component of that same thesis work was the development of a normative accounting data modeling framework, something which needed more theoretical development at the time of the first E-R Conference. By 1982 however, McCarthy had completed that additional work, and he followed the first E-R paper and conference presentation with a more general semantic theory of economic phenomena in business organizations — the REA accounting model (McCarthy, 1982).