The International Financial Reporting Standards Conceptual Framework (IFRS CF) serves as the foundation for developing Standards, which are used in 168 jurisdictions. However, despite its continuous evolution over the past half-century, the primary concepts, and the application of the Framework in formulating Standards demand foster ontological and computational progress. Furthermore, the misalignment of the IFRS CF with other accounting frameworks, particularly the one used in the United States, hinders the development of converged standards and information systems and complicates the understanding of the core concepts. We propose an ontology of the Conceptual Framework for Accounting and Financial Reporting, grounded in the Unified Foundational Ontology (UFO) and the Core Ontology for Financial Reporting Information Systems (COFRIS), constructed as an enterprise value cycle. It is developed, presented, and verified using OntoUML tools. The ontological analysis includes suggestions for improvement and convergence of accounting frameworks. The ontology is aimed as a basis for standard setting and accounting model development. An example of a value cycle model for audit is provided.
The Conceptual Framework for Financial Reporting developed over five decades, is intended to be a
robust decision-making matrix aiding in the formulation of high-quality international accounting and
financial reporting standards (IFRS) [
The problem of engineering ontology for economics and accounting has been regarded before, e.g.
[
The research goal of this study is to provide an ontological analysis of the Conceptual Framework, using UFO and COFRIS, for the improvement and convergence of the accounting frameworks. The overall research frame is Design Science Research where COFRIS, as it has been developed along several cycles so far is the core artifact. The current paper represents a new design cycle; the primary research goal is to validate the usefulness of COFRIS by applying it to a practical purpose and to extend COFRIS if needed. We start with a concise overview of the IFRS Conceptual Framework, its counterpart within the United States, and definitions of the used social concepts from UFO-C and COFRIS, in Section 2. In Section 3, we introduce the CF Ontology in OntoUML and propose suggestions for convergence and sharing. In Section 4 the CF Ontology is used to construct a value cycle model for production- and distribution-oriented enterprises. The results of the CF ontological analysis is illustrated by an example of a value cycle model for audit in Section 5. Section 6 concludes and outlines further validation work.
The International Accounting Standards Board Conceptual Framework (IFRS CF) sets out the
fundamental concepts that guide the standard-setters in developing international accounting and
financial reporting standards. The Framework is summarized here in the short reviews of its chapters
[
Unified Foundational Ontology (UFO) is an axiomatic domain-independent formal Theory. UFO is
divided into three layered compliance sets: UFO-A, an ontology of concrete endurants – of
substantials and aspects [
In UFO-C, agents and (non-agentive) objects specialize substantials [
Commitments and claims always form a pair that refers to unique propositional content. A social
relator, mediated by agents, is an example of a relator composed of correlative
commitments/claims. Actions are intentional events, i.e., events that are performed by agents to
satisfy their goals. Actions are manifestations of agent modes and action types are specified in
commitment schedules or by committed resource types [
Reciprocity relators [
1 We use the same stereotypes for relations between endurant types and modes as for relations between endurant types and event types.
COFRIS adds economic resource flow and affected resource stock concepts to the commitments/
obligations and their (incremental) fulfillment [
An Economic Exchange is defined as a transaction whereby two economic agents (A and B)
conclude and execute contracted reciprocal performance obligations to transfer economic resources
and to provide services, affecting both parties’ resources and activities, with the goal of producing
economic benefits for either party [
Transactions are regarded primarily as institutional actions of Resource Transfer (see Figure 2)
of rights (and incurrence of claims) that may involve simultaneous or postponed service provision,
object custody, delivery, or production. The resource flow affects economic resources (and claims)
held and controlled by transactors, termed assets (and liabilities), valued by their holders or the
market [
As illustrated in Figure 2, a Market Participant (aka economic agent) acting in the role of an Obligor (denoted as x) bears a Performance Obligation to Transfer. This obligation is fulfilled by an event termed Resource Transfer and is directed towards other parties in the role of Obligee (denoted as y). The obligation entails the creation of a Transferred Resource flow of a specified type typically through the termination of the Obligor's existing Assets (creation of incurred Liabilities) but possibly as part of the Obligor's Activities (suppose it receives a service from a provider and immediately transfers it to the customer). Upon its termination, the Transferred Resource flow contributes to the creation of the Obligee’s Assets (termination of Liabilities) or is directly expensed within the Obligee's Activities.
For instance, in a basic sales contract, an enterprise employs designated quantities of grain assets and a hired workforce to transfer and deliver these resources to the other party. In return, the enterprise's cash assets are affected by the receipt of cash, but the accompanying bank’s services are expensed.
This Section presents the CF Ontology by (1) presenting core concepts used in both frameworks (IFRS and US GAAP), and (2) conducting ontological analysis by visually representing and describing the nature of these concepts through OntoUML diagrams. The questions to be answered are (1) What are the core economic events and their participants; (2) What are the core economic resources and claims and their roles and phases affected by these events? In addition to (computational) grounding, the key requirements for CF Ontology include the need to accommodate the convergence of distinct frameworks and the availability of shared information systems. Beyond harmonizing core conceptbased common standard-setting and improving comparability, convergence should generalize different concepts that were introduced for solving particular problems in different frameworks. The shared information systems requirement calls for correlative standard-setting, alleviating cost constraints, and improving verifiability and comparability.
Building upon the foundation laid by COFRIS, CF Ontology takes a broader perspective by encompassing not only economic exchanges, but also owner transactions, service provision, and other events, roles, and phases of resources and claims additionally required for the frameworks. The concepts and terminology have been refined to align closely with those used in established frameworks, with particular attention given to cross-lingual validation using GPT-4 for term testing, including the nuanced selection of terminologies, such as differentiating between Received Resources and Resources Received. We have tried to minimize the introduction of new concepts beyond those found in existing frameworks. However, it is assumed that for most concepts, corresponding high-order types and correlative counterparts of concepts exist.
The UFO foundational concepts will be denoted in camelCase italics, such as roleMixin but CF Ontology concepts in italics, starting in uppercase – Input Asset.
Figure 3, the part of CF Ontology, shows the core model of transactions between an enterprise and other parties. This represents a generalization of the economic exchange model of COFRIS. The existing frameworks have the reporting entity perspective. We assume that an Enterprise is a Market Participant in some Environment and holds economic resources and claims that are affected by Economic Events - transactions and other events with enterprise participation. Within its Business Activities, the enterprise enters into transactions with other market participants with the goal of maximizing equity for its owners. We generalize the institutional actions of transfer (and receipt) and their participants to those of outflow (and inflow) of economic benefits. Initially, we refer to Table 2 for IFRS framework-based definitions of economic resources and claims, units of account, and executory contracts.
Definition or description A right that has the potential to produce economic benefits.
A present economic resource controlled by the entity as a result of past events.
A present obligation of the entity to transfer an economic resource as a result of past events.
The residual interest in the assets of the entity after deducting all its liabilities.
The right [to inflow] or the group of rights, the obligation [to outflow] or the group of obligations, or the group of rights and obligations, to which recognition criteria and measurement concepts are applied [1:4.48].
A combined right and obligation to exchange economic resources. [1:4.57] Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
Contributions from holders of equity claims [owners], and distributions to them.
Exchanges of assets or liabilities that do not result in increases or decreases in equity.
In Section 2, we refer to reciprocity relators as relators of enterprise claims and commitments. Similarly, we define Units of Account as relators of enterprise Obligations to Outflow of economic benefits and related Rights to Inflow of economic benefits. The rights to inflow may either arise from ownership of a particular physical or social Underlying object or be based on the correlative obligations imposed on other parties.
When these rights are predisposed to yield economic benefits—specifically, eventual cash inflows that are either greater than cash outflows of the related obligations for outflows or no such obligations exist, the units of account are categorized as Economic Resources.
Conversely, if the outflows are greater, or no rights exist, accounts are considered Economic Claims against the enterprise (aka economic obligations).
Contracts are subkinds of units of account having inseparable rights and obligations mutually agreed between two parties. Executory Contract is a phase of an unfulfilled contract with the net cash flow value typically equal to zero. Contracts, resources, and claims are not static; they are subject to fulfillment and fluctuating valuations. Therefore, we conceptualize them as distinct but interconnected phases within the lifecycle of a unit of account.
Economic resources and claims represent the rights and obligations between generic market participants and are characterized by market or transaction price, they represent stock held by a participant as well as a flow in a transaction, and changes in stock resulting from transactions and other events.
Assets specialize economic resources held and controlled by an enterprise, possibly adding enterprise-specific restrictions and additions on their recognition, purpose, and measurement. Control means the ability of the enterprise to realize the potential of the resource within some Business Activity type. Conversely, Liabilities specialize Claims that the enterprise has no practical ability to avoid. Control is not included in US GAAP CF. Given the specialization of relationships within the enterprise - assets, liabilities, and equity claims specialize resources and claims as roles. Right to Inflow and Obligation to Outflow manifestation progresses their fulfillment from Executory to (Partially) Fulfilled phases. Fulfilled rights and obligations of a contract result in Contract Fulfillment Assets or Liabilities.
The transactions and other events of an enterprise lead to changes in assets and liabilities. Related
changes in equity - income, and expenses are accumulations of owners’ claims per reporting period
and depict the component of the equity resulting from the particular type of economic event. This
component should explain also why and how [2:18] these changes happen, creating some construct
overload [4:30], because the changes in Equity Claims per Period need to be also categorized either
by affected Activities or by the Economic Nature of the change. Activities (aka Function or Role),
involve production, realization, or administration. The Economic Nature of the income or expenses
involves the type of goods or services used or produced, transferred, or received. The need for more
detailed information is also proved by the recent acceptance of financial statement user requirements
to report expenses both by function and nature [
In accordance with COFRIS and our analysis, we find that the information about Rights and
Obligations, Inflow and Outflow Events, Resource and Claim Flows, Service Provision, and
Service Providers is shared between parties and is essential for revealing the economic nature of
the change. Conceptually, events, their participants, and resource flow should be recognized as such
and independently, as also proposed in ISO/IEC FDIS 15944-4: 2015 Standard REA Ontology [
The Resource and Claim Flow is different from the Asset and Liability Change in Table 2 (called ‘transferred component’ in [1:5.28] which can be regarded as concept redundancy [4:33]). It is different because service provision within the transfer generally Consumes assets and liabilities to Produce resource and claim flows. Consequently, there is a concept deficit in the CF.
The Claim incurrence and Service Provision as outflows of economic benefits are included in
the liability definitions in US GAAP CF [2:10], but there is an explicit concept deficit in [
A construct excess [4:32] emerges in frameworks, which stipulate that “services provided by
other entities can be assets of an entity only momentarily as they are received and used, and they
commonly are recognized as Expenses when received” [
All participants of the outflow and inflow events – changes in assets, liabilities, and equity claims, as well as resource and claim flows, play the historicalRoles and have Historical Cost valuation (conceptually a separate event is required to establish Current Value). The service provider plays the historicalRoleMixin. In detail, Outflows specialize economic events and are manifestations of Obligations to Outflow, and involve: 1. termination of Asset Decreases2/creation of Liability Increases, termination of
Expenses, 2. Consumption of Inflows or Services Provided for Production resulting in 3. creation of Resources Transferred/termination of Claims Incurred.
Inflows specialize economic events and are manifestations of Rights to Inflow, and involve:
1. termination of the Resources Received/creation of the Claims Transferred, and
2. Consumption of Services Received for Production resulting in Outflows, or
3. creation of Asset Increases/termination of Liability Decreases, creation of Income.
The transactions as processes in a shared IS can be observed more independently than changes in
participant-specific assets and claims. In addition, the information about the affected resources and
claims of all parties [
According to the needs of accounting and as in more detail described in [
Investment Contracts specialize Contracts by Owners specializing Other Parties. Owner
Transactions fulfill Investment Contracts and comprise Contributions and Distributions.
Contributions specialize Inflows by creation of Investments by Owners that redefine Income.
Distributions specialize Outflows by termination of Distributions to Owners that redefine
Expenses. The state and value of the investment contract are tracked by Equity Claim which
includes the fulfilled parts of contribution and distribution.
The US GAAP CF in contrast with IFRS has special elements for owner transactions [
Exchange contracts and non-reciprocal transfers and receipts [14:91] are directly modeled by transaction patterns. As described before, transaction events can involve service provisions.
The service provision becomes possible after the Service Provider (an employee or other market
participant) is hired [
Performance Schedules specialize Contracts by Hired Providers specializing Other Parties. Service Provisions fulfill Performance Schedules and comprise Rights to Appropriate and Obligations to Authorize. Service Providers perform by Consumption of authorized Inflows, Resources (including rights for their services), and Claims, and Production of appropriated Resources, Claims, and Outflows. The state and value of the schedule are tracked by the Work in Process which includes the fulfilled parts of appropriated rights and authorized obligations. The appropriation action results in the Income and the authorization action in the Expense element.
As noted above Service Provision can be involved in the actions of Contribution and Receipt
whereby the other party provides service for the processing of the resource inflow, or in the actions
of Distribution and Transfer whereby the enterprise provides service for the processing of the
resource outflow. In transfer, the enterprise itself plays the agent role (that is the other party owns
all outflow resources including services), while in receipt, the role of the principal (the enterprise
owns all inflow resources). Service Provisions can also be regarded and shared from the perspective
of the enterprise in the role of a hired provider. The shared perspective allows not only information
sharing [
Other events include Asset and Claim categorization or value Adjustments [14:91].
The Environment changes the utility or substance of enterprise resources. Environmental Impact includes Asset Appreciation, Asset Impairment, and other reclassifications.
The Market situation plays a pivotal role in influencing fluctuations in price levels, as well as shaping the legislative landscape that impacts both assets and claims. Value measurement of the assets and claims in addition to initial recognition involves Resource and Claim market Price Changes for the Fair Value Measurement Base, Interest Income for the time value of money, Onerousness Checks for the claims [1:6.43], and Circumstance effects [2:24].
Having elucidated the core concepts and events used in the Frameworks, we will now synthesize these elements within the value cycle of a production- and distribution-oriented enterprise.
The IFRS Management Commentary posits that "the value creation and cash flow cycle of an entity
involves integrated processes through which the entity (1) acquires (a) inputs for its operations, (2)
transforms these (a) inputs into (b) outputs, (3) sells these outputs, (a) delivers them to customers, and
(b) collects cash [
Figure 5 offers the OntoUML diagram that expands this description. An enterprise organizes the value cycle by forming and executing various contracts and schedules that change resources and claims. Additionally, external factors, such as environmental conditions or market situations, can also impact changes in value stocks.
Cash specializes Economic Resource as the Right to Inflow for which value equals its quantity. Cash is a liability of the (Central) Bank. Cash integrates all the instantaneous cash inflows and outflows of the enterprise. Cash as a Resource Flow affects Cash as an Asset thus simplifying cash flow depiction. Since values in our model are represented as attributes, so is the cash committed, claimed, paid, and received in Figure 5. IFRS Framework does not define the cash concept.
Owner Contributions and Distributions proceed as described in the previous section except that in this context they are usually done through cash receipts or cash accruals or payments.
In the Economic Exchange section, an enterprise Purchase Contract specializes Contract whereby a Seller specializes Other Party. Payable specializes Obligation to Outflow, and Cash Payable specializes Resource Transferable and Asset Decrease Type. Conversely, Right to Receive specializes Right to Inflow, Input Asset specializes Asset Increase, and Receipt specializes Inflow. Contract manifestation leads to (1) Acquisition comprising: • Rights to Receive manifestation by Inflows bringing the contract into the Contract Liability or Derecognized phase by termination of the Resources Received and creation of Input Assets; • Payables manifestation by Payments specializing Outflows resulting in Cash termination (or netting of Payables with Receivables), bringing the contract into the Contract Asset or eventually into the Derecognized phase.
In the Production section, consequently to (1), as agreed upon with the Hired Providers, Performance Schedule manifestation (2) leads to: • Obligations to Authorize manifestation by Authorizations and Consumptions resulting in the termination of Input Assets and creation of Resource Flow; and • Rights to Appropriate manifestation by Productions and Appropriations resulting in termination of Resource Flow and creation of Output Assets. Further, an enterprise Sales Contract specializes Executory Contract whereby a Buyer specializes Other Party, Receivable specializes Right to Inflow, and Cash Receivable specializes Resource Receivable and Asset Increase Type. Conversely, Obligation to Transfer specializes Obligation to Outflow, Output Asset specializes Asset Decrease, and Transfer specializes Outflow. Contract manifestation leads to a Realization (4) comprising: • Obligations to Outflow manifestation by Outflows that bring the contract into the Contract Asset or Derecognized phase by termination of Output Assets valued at Cost or Market, and creation of Resources Transferred to the Buyer valued at Transaction Price; and • Receivables manifestation by Collections specializing Inflows resulting in Cash creation (or netting of Payables with Receivables), bringing the contract into the Contract Liability or Derecognized phase.
Outflows and Inflows shown in Figure 5 affect Equity. Equity Claim manifestation by Transfers of residual Assets brings the Equity Claim and eventually the Enterprise into the Derecognized phase.
The CF Ontology is primarily oriented towards creating standard subontologies by specializing the core ontology. However, the system of core concepts and events allows for wider use of the CF Ontology. A mandatory element of financial reporting is the audit. The audit uses the same Frameworks, so the concepts required for the assurance such as non-financial measures and intercompany reconciliation views need to be built into the model.
Given that the purpose of the reporting is to provide decision-useful information to the owners
and creditors, we find it reasonable to regard the Dutch Owner-Ordered Audit Theory [
Figure 6(a) shows a Petri Net based expression of the VCM [
(b) (a)
As we can see from the example in 6(b) the exact quantities and values (or their proportions) for the
actions are shown on the arcs as real numbers. They represent the flow when the resource type of
the flow is the same as that of the stock. A crucial element in this model (deviating from current
mainstream accounting), is that the goods stream is measured in physical units, as this is the only
way to ensure robust traceability [
Let us regard an example depicted in Figure 6(b). The main characteristic of the example milling
company VCM is that it grinds grain into flour, bran, and germ in reasonably fixed proportions. The
main business of the milling company is to buy grain, grind it, and sell the result. The grind transition
in the bottom left grinds grain in batches of one ton. A ton of grain is purchased for 250 EUR. Grinding
the grain results in flour, germ, and bran. It is a property of grain that the ratio of these three products
is 830:140:30. The miller also buys the paper to package the flour, bran, and germ. According to the
process model buying paper can occur independently, but normally it must occur in a certain ratio
with the other transitions, just as the packing and sales. Measuring such minor flows and comparing
them to major flows provides an opportunity to reveal anomalies in recordings [
When trying to use CF Ontology for modeling with accountants and software developers we found that the universality of grounding concepts and the stereotypes in OntoUML can be a challenge. By redefining core concepts into the core stereotypes like <<seller>>, <<transfer>>, <<resourceOutflow>>, and so on, we can make the models more appealing and accessible to users. However, a stereotype should not be interpreted as a superclass, but rather as a metaclass. For instance, a specialization of a seller, such as the "Grain Seller" depicted in Figure 7, should possess an applied stereotype of <<sellerType>>3.
Illustrating this approach, consider the core stereotyped diagram for a miller in Figure 7. In this
scenario, a ton of grain is procured from a grain seller, creating an input asset increase. Notably, there
is no requirement for a separate receipt event no resource inflow modeling, as the inflow is consistent
in type and quantity with the input asset increase. Following the grain acquisition, the milling process
results in an increase of assets in the form of flour, germ, and bran, with the respective proportions
highlighted in the diagram. Furthermore, the miller acquires paper for packaging, recognized as
another input asset increase. The packaging process, involved in the cash sale to the backer, incurs a
decrease in assets and generates resource outflows. In contrast, had the products been packaged prior
to the sale, this process would be modeled as a separate production event producing stock, but not
flow. This example also shows that the VCM can be depicted in the OntoUML diagram using CF
Ontology and core stereotypes. The advantage to VCM is the opportunity to use wide categorization
and mereology provided by UFO for specifying situations, causality, and proportions. The CF
Ontology can gain abilities to use Petri net modeling and unit translation for improving models and
assurance. As explained in [
3 We are thankful to J.P.A. Almeida, one of the UFO and OntoUML developers, for raising this noteworthy point. Grounding in UFO and COFRIS social endurants, events, and their primitive relations we have developed an ontology of the Conceptual Framework for Financial Reporting. This ontology is a novel attempt to describe the core transactions and other events, the elements for financial reporting and their synthesis in a value and cash flow cycle. It charts the path for setting standard ontologies through framework specialization, framework improvement via convergence, theory and technology adaptation, and standard generalization. In our development process, we have clarified the taxonomy and value cycle of economic events and expanded upon the roles and phases of economic resources and claims. We have also identified areas of construct overload, excess, redundancy, and deficit in the frameworks. The CF Ontology diagrams were syntactically verified using OntoUML tools. The successful development of the CF Ontology demonstrates the conceptual richness of the COFRIS ontology and its suitability as an ontological analysis tool.
COFRIS was used for two experimental applications. Our model and suggestions with technical
improvements were utilized to develop IFRS-compliant Hyperledger Fabric-based transaction entry
and financial reporting application [17]. The ontology can be further tested by ontologists,
accountants, and shared-AIS developers for its utility across several policy and standard-setting, and
implementation tasks. A notable example that we are working on includes its application as a
foundation for building and analyzing subontology for IFRS 15 Revenue from Contracts with
Customers [
The standard-setting process can benefit from the use of ontology engineering tools, anti-pattern recognition, and stereotype specialization, which help in reducing notable overlaps between Frameworks and Standards. Conversely, the development of core ontologies serves as a crucial validation mechanism for foundational ontologies. [17] Garcia, C., T. Itabashi, An experiment on double entry bookkeeping and financial reporting using blockchain - FIRE CONFERENCE - diva-portal.org, 2023: 75-91.