ais scope business processes and value chains commitments and types

• 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

cookieshipment

commitment to ship

Economic

Contract

cash payment

executes

executes

commitment to pay


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


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

ShipmentSource: 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)

typifiesBusiness Process Type (exchange or

conversion)

typifies

follows

association


ebXML -- 101

Between company interoperability

Business Collaboratio

nBusiness Transactions

Business DocumentsBusiness 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



ebXMLRegistry

XML


1



3

2

5Agree on Business Arrangement4

Query about COMPANY A profile



6



ebXMLRegistry

XML


1



3

2

5 Agree on Business Arrangement4

Query about COMPANY profile



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

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

e.g. Fowler

e.g. GammaEconomicContract

Source: ebXML BCP&MC

goodsshipment

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

goodsshipment

commitment to ship

Economic

Contract

cash payment

fulfillsduality

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 $20 Source: 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


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


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”.


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 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 PartyCatalogReq

CatalogRsp

QuoteReq

QuoteRsp

Order

OrderRsp

ASN

Invoice

Payment

Public







Business Collaboration

Source: ebXML BPSS

Business TransactionRequesting

ActivityResponding

ActivityRequest 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


Binary Collaboration

Request Document

Response Document

Multi Party Collaboration

Overview: ebXML SpecificationSchema

ChoreographyTransition Guard

Authorized Role

Source: ebXML BPSS

ebXML Architecture

Registries/Repositories

Core/IndustryComponents

BusinessDocuments

CP AgreementDes

ign

Tim

e BusinessProcess

CollaborationProtocolProfile

CollaborationProtocolProfile

Transport

Message

BusinessService

Interface

BusinessServices/App’sR

untim

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


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 + OE EnterpriseValue 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

ais scope business processes and value chains commitments and types

Documents

accounting review

emarketplace source

rea accounting model

example value chain

g geerts

different groups

scor source

cookiescompany e