Transaction Shared Semantics Session Notes

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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 S
hared Semantics Session Notes 29

Oct 2012

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7



CONTENTS


Executive Summary

................................
................................
..................
1

References

................................
................................
...........................
1

Disc
ussion 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


Transaction S
hared Semantics Session Notes 29

Oct 2012

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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 thi
s 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 fir
st
-
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 confer
red 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 S
ocial
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", "Contingen
t Obligation" to
reflect that these are aspects of something.


Consensus:
No. Change it back.


Transaction S
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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.

Transaction S
hared Semantics Session Notes 29

Oct 2012

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Diagram Notes

Diagrams with Notes




REA Working Diagram Fragment
-

Aspects


All our discuss
ions 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 an
d 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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Liability and Asset in the accounts



v


Right and Obligation as v
iews of Commit ment

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
earn
ed 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 re
flecting 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
owne
r 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 Commit ment:


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 a
re 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 s
hares
-

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 transform
ation of one
Transaction S
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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 ledge
r 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
n
ote 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 Even
t) 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 Ent
ry

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 t
o 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 ar
e and the rules that lead to
them.