THE​ ​IMPLEMENTATION​ ​OF​ ​REA​ ​MODELS​ ​IN​ ​ACCOUNTING
Krishma​ ​Sohani
OCTOBER​ ​30,​ ​2017
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Introduction
The​ ​world​ ​of​ ​accountants​ ​goes​ ​through​ ​changes​ ​as​ ​it​ ​moves​ ​toward​ ​providing​ ​efficient​ ​and​ ​meaningful
opinions​ ​and​ ​advice​ ​to​ ​business​ ​professionals​ ​in​ ​the​ ​society.​ ​The​ ​Resource,​ ​Events,​ ​and​ ​Agents​ ​(REA)​ ​model​ ​is​ ​a
concept-based​ ​modeling​ ​tool,​ ​the​ ​primary​ ​purpose​ ​of​ ​which​ ​is​ ​to​ ​establish​ ​a​ ​structure​ ​for​ ​designing​ ​Accounting
Information​ ​Systems​ ​databases.​ ​The​ ​model​ ​was​ ​developed​ ​in​ ​1982​ ​by​ ​William​ ​McCarthy,​ ​who​ ​“built​ ​an
accounting​ ​system​ ​based​ ​on​ ​the​ ​primitive​ ​notions​ ​of​ ​entity​ ​and​ ​relationship​ ​sets,”​ ​(McCarthy,​ ​555).​ ​McCarthy’s
vision​ ​to​ ​create​ ​the​ ​REA​ ​model​ ​was​ ​to​ ​diminish​ ​the​ ​dissension​ ​between​ ​business​ ​processes​ ​and​ ​the​ ​companies’
specified​ ​softwares.​ ​The​ ​conflict​ ​prior​ ​to​ ​1980s​ ​was​ ​that​ ​accountants​ ​were​ ​having​ ​a​ ​difficult​ ​time​ ​establishing​ ​the
what​ ​their​ ​roles​ ​need​ ​to​ ​be​ ​and​ ​how​ ​to​ ​switch​ ​roles​ ​at​ ​appropriate​ ​times​ ​in​ ​designated​ ​organizations.​ ​With​ ​the​ ​use
of​ ​the​ ​REA​ ​model,​ ​both​ ​accounting​ ​and​ ​non-accounting​ ​decisions​ ​can​ ​be​ ​identified,​ ​captured,​ ​and​ ​inputted​ ​into​ ​a
central​ ​database​ ​that​ ​will​ ​provide​ ​useful​ ​information​ ​to​ ​all​ ​users​ ​in​ ​the​ ​organization.​ ​There​ ​are​ ​many​ ​variations
and​ ​concepts​ ​companies​ ​need​ ​to​ ​comprehend​ ​in​ ​order​ ​to​ ​prevent​ ​violation​ ​of​ ​business​ ​domain​ ​rules​ ​“and​ ​to​ ​adopt
the​ ​applications​ ​to​ ​changing​ ​requirements​ ​without​ ​the​ ​need​ ​to​ ​change​ ​the​ ​overall​ ​architecture,”​ ​(McCarthy​ ​and
Geerts,​ ​Page​ ​6,​ ​1993).​ ​​ ​The​ ​REA​ ​model​ ​was​ ​proposed​ ​by​ ​McCarthy​ ​to​ ​implement​ ​the​ ​idea​ ​of​ ​recording​ ​and
storing​ ​accounting​ ​information​ ​in​ ​a​ ​way​ ​where​ ​these​ ​details​ ​are​ ​available​ ​as​ ​resources​ ​in​ ​transaction​ ​details​ ​for​ ​the
organizations​ ​to​ ​make​ ​non-accounting​ ​related​ ​decisions.​ ​(Dunn​ ​and​ ​McCarthy,​ ​Page​ ​3,​ ​1995).
In​ ​this​ ​paper,​ ​the​ ​author​ ​will​ ​explore​ ​the​ ​implementation​ ​of​ ​the​ ​REA​ ​Model​ ​in​ ​Accounting​ ​practice​ ​and
explain​ ​how​ ​the​ ​implementation​ ​of​ ​this​ ​model​ ​has​ ​made​ ​a​ ​significant​ ​impact​ ​on​ ​the​ ​structure​ ​of​ ​their​ ​profession.
The​ ​utilization​ ​of​ ​the​ ​REA​ ​model​ ​enables​ ​accountants​ ​to​ ​make​ ​use​ ​of​ ​accounting​ ​resources​ ​to​ ​make
non-accounting​ ​decisions,​ ​implement​ ​changes​ ​in​ ​their​ ​roles​ ​as​ ​accountants​ ​of​ ​an​ ​organization,​ ​and​ ​build​ ​a​ ​solid
foundation​ ​for​ ​developing​ ​business​ ​development​ ​for​ ​nearly​ ​all​ ​business​ ​domains​ ​or​ ​organizations​ ​(Nakamura​ ​and
Johnson,​ ​Page​ ​2,​ ​1998).​​ ​​The​ ​implementation​ ​of​ ​REA​ ​models​ ​is​ ​important​ ​to​ ​accountants​ ​as​ ​this​ ​model​ ​is​ ​used​ ​by
business​ ​firms​ ​and​ ​organizations​ ​to​ ​develop​ ​a​ ​strong​ ​framework​ ​and​ ​establish​ ​their​ ​changing​ ​roles​ ​in​ ​their​ ​work
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practice.​ ​Accountants​ ​use​ ​this​ ​model​ ​to​ ​set​ ​goals​ ​for​ ​their​ ​workplace​ ​and​ ​prevent​ ​conflicts​ ​in​ ​their​ ​changing
responsibilities​ ​at​ ​their​ ​workplace.
Making​ ​Decisions​ ​with​ ​the​ ​REA​ ​Model
Decision​ ​making​ ​within​ ​any​ ​firm​ ​or​ ​business​ ​is​ ​a​ ​significant​ ​factor​ ​that​ ​allows​ ​the​ ​advancement​ ​and
future​ ​of​ ​the​ ​organization.​ ​The​ ​REA​ ​model​ ​was​ ​implemented​ ​primarily​ ​to​ ​develop​ ​a​ ​distinct​ ​relationship​ ​between
accountants​ ​and​ ​all​ ​users​ ​of​ ​the​ ​organization​ ​to​ ​make​ ​decisions​ ​and​ ​“​enables​ ​and​ ​enhance​ ​interoperability,”
(Nakamura​ ​and​ ​Johnson,​ ​Page​ ​3,​ ​1998).​ ​The​ ​model​ ​has​ ​allowed​ ​to​ ​build​ ​high​ ​quality​ ​systems​ ​in​ ​many​ ​ways
through​ ​the​ ​three​ ​accounting​ ​models​ ​introduced:​ ​database​ ​orientation,​ ​semantic​ ​orientation,​ ​and​ ​structuring
orientation,​ ​(Nakamura​ ​and​ ​Johnson,​ ​Page​ ​3,​ ​1998).​ ​Figure​ ​1​ ​explains​ ​a​ ​summarized​ ​version​ ​of​ ​how​ ​all​ ​three
accounting​ ​models​ ​fit​ ​together​ ​under​ ​the​ ​REA​ ​Model.​ ​The​ ​outer​ ​circle​ ​is​ ​labeled​ ​as​ ​the​ ​Events​ ​Accounting
because​ ​all​ ​the​ ​articles​ ​thereunder​ ​fit​ ​this​ ​criteria​ ​of​ ​being​ ​accounting​ ​models​ ​that​ ​focus​ ​on​ ​events​ ​as​ ​the​ ​primary
ones​ ​and​ ​advise​ ​less​ ​aggregation​ ​than​ ​double​ ​entry​ ​bookkeeping.​ ​The​ ​next​ ​circle​ ​towards​ ​the​ ​center​ ​represents
those​ ​models​ ​that​ ​have​ ​a​ ​database​ ​orientation,​ ​but​ ​not​ ​a​ ​semantic​ ​or​ ​structuring.​ ​The​ ​third​ ​circle​ ​towards​ ​the​ ​center
stands​ ​for​ ​models​ ​that​ ​have​ ​a​ ​database​ ​and​ ​semantic​ ​orientation,​ ​but​ ​not​ ​structuring.​ ​The​ ​innermost​ ​circle
represents​ ​all​ ​three​ ​models​ ​and​ ​is​ ​labeled​ ​the​ ​REA​ ​accounting​ ​because​ ​REA​ ​is​ ​the​ ​only​ ​one​ ​model​ ​that​ ​possesses
all​ ​three​ ​orientations​ ​in​ ​one​ ​model.
The​ ​first​ ​model,​ ​database​ ​orientation,​ ​sets​ ​forth​ ​three​ ​main​ ​conditions​ ​that​ ​are​ ​necessary​ ​for​ ​all​ ​aspects​ ​of
the​ ​firm​ ​to​ ​record​ ​data:​ ​all​ ​of​ ​the​ ​data​ ​must​ ​be​ ​at​ ​their​ ​most​ ​primitive​ ​levels,​ ​all​ ​authorized​ ​members​ ​of​ ​the​ ​firm
must​ ​have​ ​access​ ​to​ ​the​ ​data,​ ​and​ ​that​ ​all​ ​data​ ​can​ ​be​ ​redeemed​ ​in​ ​various​ ​formats,​ ​if​ ​needed​ ​for​ ​any​ ​purposes.
(Dunn​ ​and​ ​McCarthy,​ ​Page​ ​6​ ​1995).​ ​This​ ​accounting​ ​model​ ​is​ ​useful​ ​since​ ​users​ ​cannot​ ​evaluate​ ​information​ ​that
is​ ​present​ ​in​ ​the​ ​database​ ​unless​ ​they​ ​fully​ ​understand​ ​the​ ​methods​ ​used​ ​to​ ​produce​ ​the​ ​information.​ ​Using​ ​the
database​ ​orientation​ ​can​ ​prevent​ ​users​ ​from​ ​collecting​ ​multiple​ ​files​ ​of​ ​data​ ​and​ ​consolidating​ ​it,​ ​improving
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efficiency​ ​within​ ​the​ ​organization.​ ​Sometimes,​ ​one​ ​particular​ ​form​ ​of​ ​data​ ​may​ ​be​ ​important​ ​to​ ​other​ ​users​ ​for​ ​a
different​ ​purpose,​ ​so​ ​having​ ​this​ ​model​ ​is​ ​an​ ​advantage​ ​to​ ​all.
The​ ​second​ ​model,​ ​semantic​ ​orientation,​ ​revolves​ ​around​ ​the​ ​idea​ ​that​ ​business​ ​organizations​ ​should
record​ ​their​ ​information​ ​in​ ​a​ ​way​ ​where​ ​it​ ​is​ ​beneficial​ ​to​ ​all​ ​users​ ​of​ ​the​ ​organization,​ ​not​ ​just​ ​accountants.​ ​All
business-related​ ​information​ ​should​ ​be​ ​put​ ​into​ ​one​ ​database​ ​that​ ​is​ ​like​ ​a​ ​one-stop​ ​shop.​ ​In​ ​this​ ​model,​ ​all​ ​users