Transaction Shared Semantics Session Notes
29 October 2012
Executive Summary
This week's discussions are recorded primarily on diagram notes. These are given
in this document along with the diagrams in their current state.
This week we looked at some recent changes in the "Conferred Things" hierarchy,
including possible new names for some of the terms in that area. There is
ongoing work based on feedback on the FIBO-BE SME reviews which impact on
this same area, primarily around legal capacities.
We also looked at the requirements for connecting the REA Transaction Event to
the General Ledger and to accounts ledger movements. We made some notes on
this on the previous calls (particularly 15 Oct), and the question for this week was
how to model this. There is a lot of detail, and not all of this need be modeled
semantically, so there is still some thought required to model this. The written
notes from this week and the 15 October diagram notes provide the information
required to carry out this modeling.
References
1. "Making the Social World - The Structure of Human Civilization", Searle,
John R., Oxford University Press, 2010. ISBN 978-0-19-539617-1
2. "Constructing Social Reality", Searle, John R., New York: Free Press, 1995.
3. Review by Open Financial Data Group - recording available at
www.edmcouncil.org [link to follow when it finally uploads]
4. "Theory of Justice", Rawls, John - via
www.wikipedia.org/A_Theory_of_Justice
5. Universal Agreement and Contracts Group - work by Anders Tell [no
reference]
6. IASB IFRS document [no ref]
Transaction Shared Semantics Session Notes 29 Oct 2012
CONTENTS
Executive Summary ..................................................................................... 1
References .............................................................................................. 1
Discussion Summary ................................................................................... 3
Changes and proposed new names for Conferred Things ............................... 3
Searle .................................................................................................. 3
Conferred Thing..................................................................................... 3
Right, Obligation.................................................................................... 3
Reflecting Transaction Events in GL ............................................................ 4
Basic Premise ........................................................................................ 4
Diagram Notes ............................................................................................ 5
Diagrams with Notes ................................................................................. 5
Verbatim Diagram Notes ........................................................................... 5
REA Working Diagram Fragment - Aspects ................................................ 5
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Transaction Shared Semantics Session Notes 29 Oct 2012
Discussion Summary


Discussed changes in the "Conferred Things" area
How to reflect transaction events on the GL
Changes and proposed new names for Conferred Things
Searle
Looking at Searle [1]. Have not yet completely digested this, but Searle
addresses many of the same issues we have considered both in business entities
and in the formal modeling of rights, obligations and commitments (relevant to
REA alignment). In particular (page nos in Ref 1):


Creating a Corporation - p97
Rights as deontic powers - p176-177 and adjacent
o On p177: "All Rights Imply Obligations"
Based on this work, we should be able to represent social constructs as real-world,
first order / independent things. This is very much in line with what we have been
trying to do, and would add a degree of rigor to these.
In the mean time, this gives us a degree of confidence in our "Conferred Thing"
taxonomy, though the labeling and taxonomic structure may change. Also our
rendering of rights and obligations as somehow mutual, is directly in line with
Searle, though we have yet to see if he would model these as first-order,
independent constructs with some mutuality between them, or as complementary
aspects of the same thing as we have done.
Conferred Thing
Changed the name to "Social Construct".
However, the thing we have defined here is something that is conferred by one of
law, contract or constitution, which is almost certainly narrower than social
constructs more generally, so most likely our term Conferred Thing is a sub-type
of this.
Review: Is there a better name for this and should it be a sub-type of Social
Construct?
No suggestions. Since the meeting, I've renamed this to "Deontic Construct" for
now.
Right, Obligation
The archetypes of all of these changed to "Perspectival" i.e. Aspect.
MB Tentatively renamed these to "Contingent Right", "Contingent Obligation" to
reflect that these are aspects of something.
Consensus: No. Change it back.
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Transaction Shared Semantics Session Notes 29 Oct 2012
Reflecting Transaction Events in GL
Basic Premise
As noted last time, at the point at which a Transaction Event ends, it hits the
General Ledger.
What is the nature of this connection and how best can it be modeled?
Discussion on this is captured in the on-screen diagram notes that are replicated
in the next section.
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Transaction Shared Semantics Session Notes 29 Oct 2012
Diagram Notes
Diagrams with Notes

REA Working Diagram Fragment - Aspects
All our discussions were recorded on this diagram.
Also looked at Financial section diagrams, for the term for "Account". Added this,
and REA Transaction Event, to the diagram above.
Verbatim Diagram Notes
REA Working Diagram Fragment - Aspects
Transaction Event and Accounts Ledger Entry
Next modeling challenge: model the relationship between Transaction
Event and Accounts Ledger Entry
How do Right and Obligation relate to Liability and Asset?
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Transaction Shared Semantics Session Notes 29 Oct 2012
Liability and Asset in the accounts
v
Right and Obligation as views of Commitment
Capturing the change of state in the termination of the Transaction Event
Therefore:
change of state is for example changes in the entitlement to something e.g. in accrual - to meet matching principles, you record the thing as it
earned versus record when it is due (different classifications, represent the
various states that an asset can be in.
This means, we record the states of an asset, and the journal is moving
assets around the ledger.
In general: changes in the ledger are reflecting changes in the disposition
of the various assets, liabilities and (per Accounts Equation) Equity.
How to model change of state, effect on GL?
How to model this?
About equity: it's the liability of the organization you are measuring, to the
owner of the organization.
Rights and Obligations versus Assets and Liabilities
How do these compare?
Assets: not exclusively rights. Might record an asset directly OR one's
entitlement to that asset.
A liability is an obligation to deliver some asset to someone else.
SO: Liability is co-extensive with Obligation.
Commitment Parts
4 parts not 2 in Commitment:
Obligor has an obligation to deliver
Obligor has a right to deliver
Obligee has a right to receive
Obligee has an obligation to receive.
These are diagonally related - although half of these are unlikely but
logically possible / implied. This results in a symmetry.
Treat any single position (security, or cash) as having a balance sheet and
P&L of its own. If you move from e.g. cash to a position in e.g. IBM
Ordinary Shares: Initially, shareholder funds are the liability, but you can
take that down to the individual level. Account for how you treat the
various accrued components. Cost of txns etc. -so you move from Cash to
the position in IBM O shares - runs at a loss because of the txn costs - so
you have a liability (cost of investment) and the asset (the value
immediately upon txn), which is what you have. Then, over time the value
of the asset changes. The txn explicitly involved the transformation of one
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Transaction Shared Semantics Session Notes 29 Oct 2012
asset into another. A measure of Pf performance is "money weighted rate
of return" i.e. take what was the $ cost, and carry this through the life of
the asset, as effectively 'what the asset owed to fund it'.
Implications of this
Extends ledger to assets / allocation of assets.
Consider: what's the state of assets? Expectations versus what I am
entitled to. When it falls due - move from accrue to receivable. These are
the state transitions. Moving from one ledger to another (see last week's
note on heteronym for Transaction).
The actual external txn is a sub-set of the txns that might appear in the
ledger. It's also a different kind of thing.
See e.g. IFW: also makes the distinction. Has "Transaction Event" (the
real txn i.e. Economic Event) and a separate thing called "Entry Event"
which is the recording of the representation of that txn event.
Entry Event - continued from above note
Entry Event
- seems to be synonym for what we talked about last time.
Distinguishes between:
Post Entry
Maintenance Entry
(a) is simple credit and debit
(b) reflects a state change in a more complex data structure representing the txn as an arrangement.
This is the concept that corresponds to the heteronym term sometimes called
"Transaction" but being a ledger transaction not an economic transaction (and, as
previously agreed, not modeled under REA-derived constructs)
Transaction Event and Accounts Ledger Entry
Initial Recognition event is the relationship that goes between these two
classes.
Paper to follow (from Kieran) based on IFRS 39.
What happens between the Txn Event and the posting activities, is the
application of the relevant accounting rules.
Simple model: one event leads to multiple postings
The complex model is what those postings are and the rules that lead to
them.
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