=Paper=
{{Paper
|id=Vol-2835/paper11
|storemode=property
|title=Conceptualizing Social Relators and Economic Exchange Contracts for Reporting Purposes
|pdfUrl=https://ceur-ws.org/Vol-2835/paper11.pdf
|volume=Vol-2835
|authors=Ivars Blums,Hans Weigand
|dblpUrl=https://dblp.org/rec/conf/vmbo/BlumsW21
}}
==Conceptualizing Social Relators and Economic Exchange Contracts for Reporting Purposes==
https://ceur-ws.org/Vol-2835/paper11.pdf
Conceptualizing Social Relators and Economic Exchange
Contracts for Reporting Purposes
Ivars BLUMS 1[0000-0003-3405-0754] and Hans WEIGAND 2[0000-0002-6035-9045]
1 SIA ODO, Riga, Latvia
Ivars.Blums@odo.lv
2 University of Tilburg, Tilburg, The Netherlands
Abstract. In the last decade, several UFO-grounded economic exchange ontolo-
gies have been developed, notably COFRIS, OntoREA, REA2, and ATE. We
think it is time that a next step is made into the direction of the corporate reporting
standard setters, for which an ontological approach is of high potential value. In
this paper, we first define requirements for exchange conceptualization and pre-
sent the latest developments in COFRIS - a core ontology for financial reporting
information systems, focusing on contracts within the new versions of the UFO-
B theories and the OntoUML tool. Then we compare it with the conceptual
framework and standards for accounting and financial reporting and discuss
COFRIS against other UFO grounded exchange and contract ontologies.
Keywords: IFRS, UFO, COFRIS, Economic Exchange Contracts
1 Introduction
Concepts of Economic Exchanges and their governing contracts (hereinafter Contracts)
play a fundamental role in enterprise accounting and reporting. Table 1 shows that a
major part of local/international corporate reporting standards (hereinafter Standards)
are dedicated to different types of Contracts, or at least specify accounting and reporting
requirements for capturing exchanges of specific economic resource categories.
Table 1. The main Contract-related International Accounting and Reporting Standards.
International Standard [1] Key Exchangeable
IFRS 2 Share-based Payment Shares
IFRS 3 Business Combinations Business
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Non-current Resources
IFRS 6 Exploration for and Evaluation of Mineral Resources Mineral Resources
IFRS 9 Financial Instruments Financial Instruments
IFRS 13 Fair Value Measurement Resources and Obligations
IFRS 15 Revenue from Contracts with Customers Goods and Services
IFRS 16 Leases Rights of Use
IFRS 17 Insurance Contracts Insurance Policies
IAS 2 Inventories Inventories
IAS 7 Statement of Cash Flows Cash and Cash Equivalents
IAS 16 Property, Plant and Equipment PPE
IAS 19 Employee Benefits Employee Benefits
IAS 21 The Effects of Changes in Foreign Exchange Rates Foreign Currency
IAS 23 Borrowing Costs Loans
IAS 24 Related Party Disclosures Party Information
IAS 38 Intangible Assets Intangible Resources
IAS 40 Investment Property Investment Property
IAS 41 Agriculture Biological Resources
The conceptualization of the contracts is based on the generalization of contract law.
The rules relating to certain categories of exchange, such as consumer, employment,
insurance, and information-licensing contracts, have developed specialized content to
the point that they are often treated as distinct legal fields [4]. Nevertheless, exchanges
and contracts in standard setting have common core objects, relationships, and events
that are required to be reported. Particular contract types should be extensions of these
core objects. This principle is only partially implemented in existing Standards. The
Standards also suffer from internal inconsistency and semantic interoperability prob-
lems. Therefore, an ontological approach has great potential value, especially in the
situation when the volume of standards of corporate reporting constantly increases, and
their quality can be improved through digitalization and multilateral observation [10].
The concept of an Economic Exchange is broader than a Contract governed [4]. In
spot markets, such as public bazaars, involved parties manage reasonably well without
formal contracting. Contracting becomes worthwhile when there is a temporal element
to the exchange or at least one party is uncertain about the actions of the counterparty.
E.g., when the good to be exchanged needs to be produced or the service being rendered
takes time.
Conceptual modeling of Contracts has a long history, recently warmed-up by Smart
Contract technology (see, e.g., [5]). As mentioned, contracts govern the exchange of
economic resources (and obligations), including goods and services (resp, equities and
debts), between exchange parties.
Corporate Reporting, including Financial, ESG, and Tax Reporting, serves the needs
of uncertainty-adjusted evaluation of actual and potential benefits and sacrifices to the
donors from enterprise performance and position. It recognizes and measures the effects
of exchanges on enterprise situation (position) of economic resource control rights and
obligations, as well as enterprise activity events (performance) that have led to changes
in the situation within a period. The specifics of contracts are in the separation in time
of formation and fulfillment processes, and separation in time of parties’ role and trans-
action performance within those processes. Due to these separations, temporary rights
(obligations) and intermediate activities emerge that constitute the essence of the con-
tract capturing in a legal sense and thus are first-class entities for accounting in addition
to the exchange per se.
Requirements for such Contracts cover Contract and Property Law, Economics, IS,
Corporate Reporting and Accounting, thus, to facilitate standard setting, a Foundational
Ontology is needed, that at least contain building blocks in Law and Economics. Such
an ontology is Unified Foundational Ontology (UFO) [11], with its subontologies [e.g.,
13-17] and the ontology engineering tool OntoUML 2.0 [12]. The new version of the
tool incorporates an extension of OntoUML to address events and their relations [13]
and allows to verify and convert models to gUFO – a lightweight implementation of
the UFO suitable for Semantic Web OWL 2 DL applications [14].
In this paper, we build forth on COFRIS – a core ontology for financial reporting
information systems [7, 9, 10]. The methodology of our ontology research is dialectical.
We start with the contract law and accounting theories and list requirements for Con-
tracts (Section 2). Grounding on Foundational Ontology we present the extended social
relator and contract ontology in more detail within the new version of the UFO theories
and the new tool (Section 3). We compare our ontology with the conceptual framework
and several standards (Section 4) and discuss it against other UFO grounded exchange
and contract ontologies (Section 5). Section 6 concludes and outlines future work.
2 Accounting Requirements for Specification of Contracts
The recognition, categorization, and measurement of activities and resources involved
in a contract are captured for accounting and disclosure purposes based on the Common
Standards and the Policies of an Enterprise. Several aspects of such capturing are based
on information that is not specified, nor governed by default rules, in a Legal Contract.
For example, the IAS Standard 24 Related Party Disclosures [1] requires exchange
parties to disclose their relatedness and to follow specific rules in measurement.
Information about an exchange has a correlative part and a subjective part. The Cor-
relative part refers to shared propositional content, such as performance obligations,
rights to be transferred, prices for services or goods, and needs to be consensual be-
tween exchange parties, and/or is observed independently by the third party. The Sub-
jective part of each party, such as internal valuation, uncertainty, and function of the
resources (obligations) received or transferred [10].
The involved resources’ source, target, provenance, and even measurement infor-
mation are also important for sharing among parties. Including reporting aspects may
increase the legal quality of the contracts. For instance, it is essential for both parties
that a contract is concluded in compliance with IFRS 17 [1], and the going concern
state of each party is assessed and uncertainties disclosed per IAS 1 [1]. The addition
of the required information in the Contracts becomes easier and more faithful when
performed within Smart Contracts whereby parties add correlative and own parts via
the Contract posting application [9].
Financial Statements require the presentation of aggregated effect information, but
Statement Notes often disclose transactional data. The data disclosed for Offerings,
Contracts, Fulfillments, Taxation, Registers that protect ownership, or reduce health
and safety risks through traceability, Customs, Markets, and Other Parties are on the
transaction level. Advances in Multilateral IS [10] and especially Big Data [26] make
such transaction-level data more easily accessible and reconcilable.
Offering and Contract information assessment and disclosure become increasingly
important as a market forming mechanism, stewardship evaluation, and timely avoid-
ance of non-compliance.
Concerning the main functions of Accounting Information Systems (AIS), we dis-
tinguish between capturing and its extension – recognition. In short, capturing and in-
volves any processing of transfer or receipt of economic resources (obligations), in-
cluding offerings, executory contracts, and other off-balance items, while recognition
includes only including those that are categorized per Standards as Assets (Liabilities)
for Balance Sheet. In essence, recognition and measurement involve future aspects.
As described above the most elaborate exchange form involves contracting. Contract
formation (Offer and Acceptance) and fulfillment lifecycle information include:
1. Exchange Parties, their types, or markets, legal and reporting state and their general
relationship (relatedness) during the lifecycle.
2. Exchange Party Roles and Third parties involved in Contract formation and fulfill-
ment.
3. Contract type, legislation, currency, time, duration, completion phase through the
lifecycle.
4. Reciprocal Performance Obligations, their conditions, timing, valuation, and phases
during the lifecycle.
5. Transfer Obligations of Economic Resources (Obligations) and their phases (e.g.,
the nature of the goods or services that the enterprise has promised to transfer).
6. Valuation of the Consideration in return for the transfer.
7. All Economic Events of Contract formation, modification, and fulfillment.
8. Assessment and Posting of Contract formation and fulfillment. Affected Asset (Lia-
bility) and corresponding Equity, Income, and Expenses Accounts of each Party.
9. Transaction or Aggregate Level of Information Disclosure. Open, Anonymized, or
Sensitive Information. Immediate, Periodic, or Postponed Disclosure. Public and
Partial Disclosure. (Disclosure is not further regarded in this paper)
In addition to Contract Law theories, we should consider the Accounting theories and
particularly Ijiri’s Theory of accounting measurement [6], which introduced fundamen-
tal axioms of control, quantity, and exchanges. Ijiri defined Economic Resources as
having utility and scarcity for enterprises, Assets as resources presently or resources [of
a specified type] expected to be placed under the control of an enterprise, and Liabilities
as resources [of a specified type] that are expected to be released from the control of an
enterprise. He argued for recognition criteria widening to include contracts and com-
mitments. Ijiri regarded contract fulfillment lifecycle - Executory, Partially Executed,
Half-Executed, and Executed Contracts [6, p.134]. Ijiri’s theory suggests that all meas-
urement can be based on so called historical cost and inferred from exchanges (subject
to several requirements).
The existing practice includes also present value measurement that involves observ-
able economic exchanges in the market and uncertainty estimation.
International Standards [1, 2] assume the economic exchange concept as something
given; the following local definition approximates international exchange interpretation
well enough: “a reciprocal transfer between two entities, resulting in one entity acquir-
ing Assets or Services or satisfying Liabilities by surrendering other Assets or Services
or incurring other Obligations” [3, ASC 845-10-20].
In order to accomplish faithful and relevant reporting, we agree with Guarino [18,
26], that “referring to the relationships [i.e., Assets, Liabilities, and Equity of an Enter-
prise] is unavoidable when we need to describe what changes in time, while referring
to the event [e.g., Transfer of Economic Resources] is unavoidable when we need to
describe contextual aspects that go beyond the relationships themselves”.
Explicit event modeling allows the enterprise to benefit from capturing of event’s
local, cumulative, contextual, and modal aspects, but also analyze each exchange event
as an agent’s service for the principal – an issue of importance for standard setting and
online platform policies. Contextual aspects of an exchange event primarily are the cur-
rent economic system, financing, and market mechanisms. These aspects are depicted
by exchanges of identical or similar [1, IFRS 13] economic resources and obligations
in the market at transaction or reporting time.
As seen from the above exchange definition accounting depicts events as the changes
in the situation and the nature of events, e.g., the services acquired or surrendered, as
expense and revenue accounts. We think that due to the bilateral and even multilateral
nature of the contracts and exchange, the independently observed events and their prop-
erties should be the starting point for standard setting. In this context it is important to
distinguish among:
• Resources (services and goods) as characterizations or objects of transfer events,
• (Transferred) Economic Resources as rights that have the disposition to produce eco-
nomic benefits,
• (Changes in) Assets as Economic Resources controlled by the enterprise.
3 The Extended UFO Social Relator Pattern
We build our contract ontology on a general condition that a transfer agreed between
two parties of an Economic Resource (or Obligation) produces a Right (resp., Obliga-
tion) to the Consideration, which is measured in monetary terms (Valuation), and if a
Consideration is received first then the transfer obligation becomes unconditional. This
situation is represented by an Economic Relator, as a specialization of Social Relator
in UFO-C Ontology. However, there are several ways of how this relator is worked out.
In 3.1, we briefly summarize UFO. In 3.2, we discuss the different positions on Social
Relator and based on that, present a new Extended Social Relator pattern in 3.3. This
pattern will be the basis of the Economic Exchange pattern in Section 4.
3.1 UFO Background
In UFO [10, 14] Concrete Individuals comprise Objects (John, his car, the IASB 2018
Conceptual Framework), Reified Aspects of concrete individuals (John's height, his ser-
vice agreement with Amazon), Events (the acquisition of GitHub by Microsoft) and
Situations (the situation in which John weighs 80 kgs). A concrete individual has Begin
Point and End Point.
In UFO-A reified aspects are further divided into intrinsic aspects and extrinsic as-
pects. An Intrinsic Aspect depends on a single concrete individual in which it inheres,
such as the Moon's mass; mental dispositions, such as Bob's math skills. Intrinsic as-
pects are divided into Qualities in case the aspect is measurable by a certain value space
(e.g., Bob's weight), and Intrinsic Modes, which are not given a direct value (e.g., Bob's
capabilities). Extrinsic (or "relational") Aspects are reified relationships, e.g., John and
Mary's marriage, Mary's employment contract at NASA. A Relator mediates reciprocal
relationships of two or more concrete individuals. Extrinsic aspects can also be reified
one-sided relationships, e.g., John's admiration for Obama (which depends on Obama
but does not characterize him) [14].
In UFO-B an Event is a Concrete Individual that 'occurs' or 'happens' in time [13,
14]. Events are those "things that happen to or are performed by" endurants, e.g., actions
and processes, such as an offer, negotiation, acceptance, transfer; as well as natural
occurrences such as an earthquake. The relations between objects and events may be
captured with «participation», «creation», «termination» properties. Part-whole rela-
tions between events can be represented with the «component of» and other relations.
An event also can have «historicalDependence» from another event. An event can be
related to the endurants that are created or terminated in it. E.g., John and Mary's mar-
riage was brought into existence in their wedding ceremony, by «manifestation» prop-
erty can be used to identify specific aspects that manifest themselves in an event. En-
durants play processual (or historical) roles in events in contrast to relational roles in
relators. Situations can be used to represent certain configurations of entities that can
be comprehended as a whole. When that configuration is actual (present in reality), we
say that a situation is a fact. Events «bringAbout» Situations.
Individual Type is a Type whose instances are individuals. Kinds are sortals that
classify their entities necessarily and that provide a uniform principle of identity for
their instances. Instances of a kind can (contingently) instantiate Roles in relational
contexts or instantiate Phases in intrinsic contexts. E.g., a person can move in the ex-
tension of the role Employee by participating in Employment relators. Relators (as well
as qualities) are existentially dependent entities. E.g., the Employment of Mary in
NASA can only exist if both Mary and NASA exist. This particular relation of multiple
existential dependency is stereotyped as «mediation». A role-like anti-rigid non-sortal
that can be played by individuals of multiple kinds is termed a roleMixin, and by kinds
and types - a Mixin.
OntoUML [12] is a language whose meta-model has been designed to comply with
the ontological distinctions and axiomatization put forth by UFO [11]. OntoUML dia-
grams represent types and types of the types by the «type» stereotype.
In UFO-C [15] the key construct is a social relator of reciprocal social commitments
(and claims) between social agents. Unambiguous understanding of this concept, the
distinction between relator and extrinsic mode, its lifecycle and foundation events, legal
and monetary extensions are fundamental to exchange modeling.
3.2 The Social Relator
We remark that since the 18th-century economics is monetary, i.e., exchanges are me-
diated by money, and resources are treated as rights and measured in money. Hence an
exchange and a market can be viewed as a mechanism where resources are exchanged
for money (value) and money is exchanged for other resources. Money allows for par-
titioning and combining of exchanges, and consequently of their specification in con-
tracts. Thus, the economic contract comprises reciprocal social relators that comprise
economic social relators relating resources with monetary consideration.
An Economic Relator specializes Legal Relator (UFO-L [17]) which specializes So-
cial Relator (UFO-C [15]) which in turn specializes the basic notion of Relator (UFO-A
[11]). Per UFO-C, “Social Commitments and Claims [Counter-Commitments] always
form a pair that refers to a unique propositional content, and a Social Relator is an ex-
ample of a relator composed of two or more pairs of associated [correlate positions]
commitments/claims”, see the central line of boxes in Fig.1.
In contrast UFO-L [17] postulates that a “legal relation is reified by means of a Legal
Relator, which mediates entities that stand in correlate positions (e.g., if agent A has a
right to action [i.e., a claim, but not a commitment] X against agent B then B has a duty
[i.e., a commitment] to action X towards A).”, i.e., one pair of correlate positions.
Recently gUFO [14] made the subject clearer by explaining that “Extrinsic aspects
[but not relators] can also be reified one-sided relationships, … They can also be used to
reveal parts of relators, e.g., John's rights towards Amazon, Inc. (in the scope of a service
agreement) and Amazon's reciprocal duties, Amazon's rights towards John, John's
reciprocal duties”. We follow this distinction in our ontology.
In addition, there are several UFO related papers including ours’s where the «relator»
stereotype is used instead of the extrinsic «mode». Examples are decorating Service
Offering [16], and Exchange Offering [7, 21] with “definitely” «relator», and also
Economic Resource [9] with «relator».
We regard the abovementioned extrinsic modes as mixin relator, we suggest
introducing a relator type and a lifecycle pattern for social, legal, and economic relators
and their commitments (legal positions). Such types would be gradually materialized by
specialization and instantiation of category, mode and quality types. Offered by a
committor in an event, accepted by a counter-committor in another event, fulfilled
partially through a transaction or breached by non-performance of either committor,
realized in full by either committor, and then breached or settled by the other.
The positions that we recognize in Social Relator are reciprocal obligations (com-
mitments to norms) with correlative rights (entitlements to norms); obligations and ful-
filled obligations; and reciprocated fulfilled obligations.
The contract schemas have to be simple enough and the elements and relationships
that are implied or inherited should not make diagrams overcrowded. In UFO-L, each
right has a correlative obligation. We think that after explaining this fundamental
principle, it does not make sense to depict the correlative obligation of every right in
every diagram like in UFO-L or UFO-S related works.
3.3 Extended Social Relator
Before introducing our Basic Economic Exchange pattern, we present a new Extended
Social Relator Pattern, depicted in Fig.1. To simplify Fig.1 we assume that the
Committer offers and performs first, and omit its multiple roles and situation types.
The creation of the Commitment modes as instantiations of the Commitment Types
by Committers is represented by the «creation» stereotype [13] with the Offer event
(which creates a power of acceptance) and historically dependent Acceptance event.
Social Relators with one Commitment instantiated are in the Offered pre-phase, while
with both Commitments instantiated in the Executory phase. The termination of
Commitment modes as specializations is represented by the «termination» stereotype
[13] which relates historically dependent Fulfillment or Settlement events to a class
stereotyped «phase» which is instantiated by the endurant when it takes on a “historical”
nature1. In such a phase, endurants have still observable, but immutable properties.
Social Relators with one Commitment fulfilled are in the Unconditional phase, and with
both Commitments fulfilled in Fulfilled (Settled) phase. In Figures 1 and 2, types of
types are represented in violet, types of agents in pink, events in yellow, relators in green,
extrinsic modes in grey and situations in orange. In this relator pattern legal positions
(and their correlatives) and thus the economic relator will progress through the «phases»
created by events and situations. Conditional Commitment «termination» will create an
Unconditional Other Commitment. The propositional content of the commitments can
be time and context-dependent. We assume that an Unconditional Social Relator is
materialized at the moment of fulfillment of Commitment. It is important for our
ontology that commitments are externally dependent and that their fulfillment events are
not simply actions as in [21], but transfers, i.e., transactions for the (benefit) of the
counter-committer, and bring about the results (effects) in Situations of both parties.
Fig. 1. OntoUML diagram of an Extended Social Relator Pattern.
3.4 Basic Economic Exchange Contract Pattern
An Exchange Contract is a complex legally enforceable economic agreement concluded
between two Exchange Parties - economic agents – a party and a counterparty, that
comprises of reciprocal conditional performance obligations by the exchange parties as
obligors to transfer economic resources (obligations), see first the «type» part of Fig. 2.
A Conditional performance obligation (POB) of an Obligor to the Obligee is an Eco-
nomic Relator phase. A Conditional POB comprises an obligation to transfer an eco-
nomic resource (or an obligation) of a specified Resource (Obligation) Type and a recip-
rocal right (resp obligation) to the Consideration for the transfer, of a specified Valuation
Type. The latter component requires a single Contract Currency. The valuation price,
1 A different approach is taken in [20], whereby commitments cease to exist after fulfillment.
which approximates a consideration for a resource (obligation), is agreed to be constant
or determinable by a market price or by counter consideration during fulfillment. The
valuation of the contract is equal for both parties at inception. POBs are correlative and
consensual.
The last column of Fig. 2 depicts the recognition and measurement of the exchange
process via the changes in Units of Account – Assets (Liabilities) and corresponding Eq-
uity (Income and Expenses) Accounts i.e., in the situations of each exchange party.
The contract formation process starts with the instantiation of a contract type into
Exchange Offering by a party or its agent playing a processual role [13] of the Offerer
that via an Offer event transfers Offeror’s (a relational role) instantiated POBs to the
multiple Offerees of a specified type. Offeror’s POBs are conditioned by an offeree POB
of a specified type required in consideration. The offeror makes its own Assessments of
the recognition and measurement for the offering. An offeree playing an Acceptor role
continues with a lapse or Acceptance event, instantiating its POBs, transferring the cre-
ated contract to the Offeror, and making its assessments, that concludes the formation.
The Economic Exchange process is structurally decomposed into generally concur-
rent POB fulfillment processes of resource (obligation) transfers by each exchange party
in the processual roles of the Transferor (or fulfiller), Transferer, and Transferee. A
Resource (Obligation) Transfer fulfills and terminates the transfer obligations, instanti-
ates the promised resource (obligation) type, terminates the obligations or rights for a
resource of the transferor party, and creates the rights and the value for the transferee.
At the same time, the specified consideration valuation is accrued, and the POB is turned
into a fulfilled phase and becomes a resource and a Contract Asset of the transferor (Li-
ability of the transferee). A Fulfilled POB is a separate object that can be measured and
sold. Its timing is contract fulfillment or breach. The transfer event is characterized by
the transferred resource (obligation), for a simple transfer of services the «participation»
would be of the transferer, but for Economic Transfer, the «participation» involves con-
sumed rights and value. POB fulfillment changes the Executory contract into the Part-
Executed. The completion of fulfillment by one party - triggers the Value Exchange
event – a termination (an exchange) of all monetary consideration rights (obligations) of
both parties, which turns the contract into the Half-Executed phase and all unfulfilled
POBs into Unconditional POB phase that become Payables of the debtor (Receivables
of the creditor). The completion of fulfillment by both parties – the Settlement - causes
the termination of the contract.
The contract formation can also include the Value Exchange Negotiation and other
subevents like the contract fulfillment; however, they are less important for standard
setting. An Economic Resource (Type) is a characteristic of the Transfer (resp. Transfer
Obligation) and is a claim right for a service and a power for a good. The transfer results
in changes in Assets and Liabilities and corresponding Income and Expenses. A more
refined model would consider the production processes at the parties’ sites.
In summary, we have two components at the lowest level – a transfer obligation and
a consideration – with Promised/Expected and Fulfilled phases. Fulfilling by a transfer
event of either of these components progresses four possible phases of POBs – Condi-
tional, Fulfilled, Unconditional, and Settled. Fulfillment of the POBs progresses Con-
tract fulfillment phases – Executory, Part-Executed, Half-Executed, and Executed. The
whole exchange process comprises the accumulation of the transfer and value exchange
parts. Contract fulfillment is recognized by balanced posting events in the accounts and
their phases of the exchange parties.
Fig. 2. COFRIS. OntoUML diagram of Basic Economic Exchange Contract Pattern.
4 Comparison with Reporting Frameworks and Standards
We think it is necessary to confront any contract ontology, including ours, with the Cor-
porate Reporting Standards. On the one hand, we have to check the completeness and
correctness of our ontology, and on the other hand, we want to see whether it can be of
use for improving the current formulations in the Standards. Within the scope of this
article, this confrontation is limited to a few observations. The IASB 2018 Conceptual
Framework for Financial Reporting (CF) [2] introduces the concept of a Unit of Account
as a bundle of Rights and Obligations that can be recognized, measured as a whole and
derecognized as a whole or in parts. That means such an object can be transferred in
parts, and valuated upon a contract and is like our concept of a ‘Resource (Obligation)’.
In contrast, when regarding transfers in the definition of Liabilities, not Units of Account
but only Economic Resources in a restricted sense are regarded. That can be understood
in general because liabilities are obligations to transfer resources and transfer of liabili-
ties transfer resources eventually, however not in a particular Contract. Standards, for
example, IFRS 13 Fair Value Measurement [1] support transfers of Obligations, or even
large bundles of Rights and Obligations, such as Business Enterprises as a whole – IFRS
3 Business Combinations [1].
Per CF 4.57 [2], “An executory contract [is a Unit of Account and] establishes a
combined right and obligation to exchange economic resources. The right and obligation
are interdependent and cannot be separated. Hence, the combined right and obligation
constitute a single asset or liability. The entity has an asset if the terms of the exchange
are currently favourable; it has a liability if the terms of the exchange are currently
unfavourable.” Similarly, in our model, the contract is represented by the relator of re-
ciprocal obligations and rights and their valuation. Initially, the total valuation is equal
to zero and off-balance, if a party’s obligation value becomes greater than the counter-
party’s then the contract is the liability of the party, or an asset otherwise.
Per CF 4.58 [2], “To the extent that either party fulfils its obligations under the con-
tract, the contract is no longer executory. If the reporting entity performs first under the
contract, that performance is the event that changes the reporting entity’s right and obli-
gation to exchange economic resources into a right to receive an economic resource.
That right is an asset. If the other party performs first, that performance is the event that
changes the reporting entity’s right and obligation to exchange economic resources into
an obligation to transfer an economic resource. That obligation is a liability.”
The difference with our model is that we distinguish between a conditional and un-
conditional right to receive (resp, obligation to transfer) consideration, where the former
is before and the latter after the realization and both are phases of the Contract and POB.
For example, if a party makes a transfer and fulfills only part of the contract, a condi-
tional right to receive consideration is accrued, but complete fulfillment by one party
raises an unconditional right to receive.
We will finish our short analysis regarding some aspects of the most comprehensive
Contract Standard – IFRS 15 Revenue from Contracts with Customers [1]. In addition
to the duplication of concepts of the CF (that could be avoided through core contract
ontology), IFRS 15 states that an Enterprise “shall recognise revenue when (or as) the
entity satisfies a performance obligation by transferring a promised good or service [ie
a subset of Economic Resources] to a customer.” This Standard conforms to the Basic
Contract Pattern. The main purpose of the Standard is to estimate the Amount of Con-
sideration (i.e., Revenue) that the Enterprise expects to receive (vs Promised) in ex-
change for transferring its goods and services.
Per para. 105 of IFRS 15, “When either party to a contract has performed, an entity
shall present the contract in the statement of financial position as a contract asset or a
contract liability, depending on the relationship between the entity’s performance and
the customer’s payment. An entity shall present any unconditional rights to considera-
tion separately as a receivable.” This statement not only proves the first-class concept
omnipresence but also in contrast with CF, regards contract asset (liability) as a contract
phase and not as a new object. At the same time, it proves that contract assets and re-
ceivables are material, but not computable, and can be subject to exchange and impair-
ment, per para. 107: “A contract asset is an entity’s right to consideration … An entity
shall assess a contract asset for impairment.” Standard particularly requires offsetting
contract asset and contract liability.
5 Related Work
The conceptual modeling theory of Economic Resources, Events, and Agents (in fact of
Economic Exchanges, and Contracts) started in the late 70s with the development of
REA accounting model by McCarthy [22]. While our research was largely based on
REA accounting model initially, we briefly list some issues not explicit in REA as also
raised in [27, 7, 24] which do not allow REA to cover essential accounting requirements:
• Any economic or accounting theory includes the recognition, measurement, and dis-
closure of resources, obligations, and uncertainty in quantified and monetary terms.
• The recognition and measurement of changes in assets and liabilities of an enterprise
are not determined exclusively by exchanges and participating economic resources.
• Economic Resources are rights over goods, services, and rights that are transferred
(in the past), but Assets are Economic Resources controlled by an Enterprise (future).
• Economic Claims (in REA sense) are not computable imbalances between currently
incomplete promised and transferred resources. Claims are (“materialized” at the
moment of transfer) consideration obligations and phases of contracts and can be
transferred and exchanged themselves.
• Environment, Government, Market, and Owners of an Enterprise (Equity Claim
Holders) context deserve a special recognition of the theory.
Table 2. Comparison of Economic Exchange Ontologies.
Contract Phase Information Processing
Ontology Formation Fulfillment Recognition Measurement Disclosure
REA ISO [23] commitments basic partial no no
REA2 [25] no basic partial no no
UFO-S [16] commitments services no no no
UFO-L [17] legal positions services no no no
ATE [21] commitments services no no preferences
OntoREA [24] no basic balance-sheet derivatives basic
COFRIS v 0.5 detailed detailed detailed basic basic
During the last decade, several attempts were made to ground and improve an REA On-
tology in UFO. The approaches are quite different, often not consistent, and still do not
cover all concepts developed in REA (e.g., internal agents, production). That was also
due to the fact of rich development efforts within UFO itself. First attempts to compare
REA conceptualizations in UFO were reviewed and found not fully compliant [18]. Sep-
arate from REA, UFO service and legal exchanges were regarded in [16, 17]. These did
not involve resource nor obligation transfers and did not regard the measurement and
recognition issues (cf. [7]). In 2007 (2015), REA Ontology as ISO Standard [23] was
published and introduced the independent view of collaboration space as a business ac-
tivity space where an economic exchange of valued resources is viewed independently
and not from the perspective of any business partner.
An Economic Exchange is an exchange of transfers of valued economic resources.
A transfer can be regarded, although not always observed, as an effort of one economic
agent - a transferor - towards another - a transferee. This effort, say, delivering of goods,
or providing services can be measured, in nature, quality, and quantity of physical ob-
jects or labor, but also in rights (obligations) and value that is transferred-to or used-by
the transferee. This describes our understanding of the independent view.
These transfers affect the Situations of both Parties, forming that can be regarded as
a dependent view. Each party recognizes and measures transferred and received re-
sources (or obligations) in their accounts of Assets (Liabilities) and corresponding Eq-
uity, Income, and Expenses. Their categorization and measurement depict their purpose,
cost, uncertainty, and future exchange or use value. In REA the distinction between re-
sources and assets is not always clear – “An economic resource - good, right, or service
of value, under the control of a Person” [23]. We think that a service cannot be under the
control of an enterprise, because it is consumed at the moment received or produced. It
is a resource as a participant of transfer that can only affect resources other than services,
i.e., those that are controlled by the enterprise.
Laurier et al, formalized part of REA-ISO using OntoUML, called REA2 [25]. The
approach was based on an original approach of introducing agent-resource, resource-
event, and event-agent relators and centers on the roles of the relata. However, the ap-
proach of involving events as relata was not supported by the UFO-B model [13].
It is allowed (or required) by the Standards [2] that both parties recognize, measure,
and disclose an exchange differently, hence “an automated transformation of view-de-
pendent data into view-independent data and vice versa” [25] is not possible in general.
However, it is important to recognize the maximally consensual and independent recog-
nition, measurement, and disclosure of an exchange for relevant, faithful, understanda-
ble, verifiable, and comparable reporting [10]. That makes the works in [25] important.
An endeavor to improve REA, by modeling traditional accounting logic, and to pro-
vide UFO grounding is OntoREA [24]. OntoREA models recognition of the results, it
does not include the independent view and the lifecycles of contract formation and de-
tailed fulfillment. The most recent model [24] is from our view generally correct but
covers only the final states of future and spot market contracts. From the fundamental
accounting concepts, the Income and Expenses, at least as different from owner-initiated
equity changes, are not covered. There are also definitional differences with our ontol-
ogy concerning Economic Resource and its subtypes – Assets and Liabilities are not
positive and negative resources, but a positive and negative control over resources [of a
specified type]. Like all reviewed ontologies, OntoREA has goals additional to the ones
of the standard setting, such as a deep consideration of Derivative instruments and Un-
certainty representation. The latter underlines the distinction between the old accounting
[and the ontologies which do not include recognition and measurement] related back-
ward looking perspective into the past and the finance related forward looking perspec-
tive into the future [24]. Forward looking perspective can include forecasting and plan-
ning, and their mathematical modeling as suggested in [6] and [24], although standard-
setting today does not require it [1]. An ontological issue raised in [24] is the anti-eter-
nalist view [26] of events, which is different than in other regarded exchange ontologies
and in UFO-B, where the events are the past events and future events are specified by
types of event types.
The foundational ontologies must indeed develop and incorporate new or previously
unresearched concepts. However, to fulfil their role of understanding and communica-
tion, they need to be relatively stable, or even standardized, and include alternative con-
cepts only with proper explanations of use. We find the anti-eternalist view as one of
such alternative issues. In our ontology, we prefer a materialization metaphor, which
allows to depict event types progressing from conditional specification of situation
change effects to specification of concrete action in time, space, and social context.
A separate Action Based Core Ontology for Economic Exchanges - ATE [21]
evolved in the UFO Economics project, claiming to cover REA Ontology. Its main con-
tribution from our standpoint is the introduction of the preference concept. Standards do
not explicitly require capturing preferences for an enterprise. However, they can be in-
ferred by, e.g., comparing lapsed and accepted offerings, or other historical information
for some exchange type or by comparing the transaction price with the market price (fair
value). These options are included in our model. Perhaps other UFO developments in
economics such as risk, value, trust, decision, game theory can enrich the exchange con-
cept and the ontologies listed in Table 2 in the future as well.
ATE includes phases of contract formation, but surprisingly in ATE economic ex-
change is portrayed as a set of actions, while they are reciprocal transactions aimed from
one agent to the benefit of another. There is no resource (obligation) participation, no
recognition, nor measurement. ATE is also experimenting with another approach to con-
ceptualization employing the future event constitution relationship [26].
Regarding ATE we must emphasize that a depiction of exchange and services
through actions is not sufficient and recognition of action results in the situation of each
exchange party is necessary (in economics in general not only for accounting).
6 Conclusions and Future Work
Extended Social Relator and Basic Economic Exchange Contract patterns are proposed
for Enterprise Reporting standard-setting. Patterns are based on Contract Law and
Accounting theories, grounded in UFO and OntoUML with recent updates. An initial
comparison with the Reporting Conceptual Framework and Standards shows
compliance, with minor inconsistencies among them and a possibility to move some
Standards’ conceptualizations to the Framework. We compared COFRIS with other
UFO grounded work in Contract conceptualization and indicated why the latter is not
yet sufficient for standard setting. It is important to admit that some of our crucial
contract modeling aspects are still in the development and experimentation stage.
Nevertheless, we conclude that the new OntoUML tool and advances in UFO modeling
of Economics and Law will allow our COFRIS ontology to be proposed for Enterprise
Reporting standard-setting to relevant Boards. For this purpose, future work comprises
updating all existing COFRIS models, a developing Production Pattern, validation by
modeling of Contract types listed in Table 1, and development of the standard-setting
methodology using COFRIS.
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