Currently, IFRS issue a discussion paper about conceptual Framework in order to assist the IASB by identifying concepts that will consistently use. As discussion paper said, “Although the existing Conceptual Framework has helped the IASB when developing and revising IFRSs, the IASB has identified a number of problems with the existing Conceptual Framework” . For example: “important area are not included, the guidance in some area is unclear and some aspect of existing Conceptual Framework are out of date and fail to reflect current thinking.”
According to Leisenring(2013)“That assets and liabilities are the fundamental elements of financial statements still is undoubtedly the most controversial, and the most misunderstood and misrepresented, concept in the entire conceptual framework” This essay focus mainly on revised definition of asset and liability , incorporating the discussion of the weakness of current definition about asset and liability, the analysis of proposed definition and demonstration of how the new proposal strengthen the weakness.
Weakness of current definition:
The existing definitions of assets and liabilities are:
(a) an asset: a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity;
(b) a liability: a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
According to discussion paper , the existing recognition criteria specify any future economic benefit related flow to or from the entity will be recognized as asset or liability. But it should be noticed that the word “expected” used in both ...
... middle of paper ...
...enefits that the obligation may generate). Proposed definition claimed there is no minimum probability threshold that those inflows (or outflows) must reach before a resource (or obligation) qualifies as an asset (or liability), which eliminated the uncertainty rise from “expect” since lot of people assume falsely that “expect” indicate a minimal threshold probability in recognizing a asset(or liability).Besides, definition replaces future economic benefits with present economic resources, which can help to avoid misinterpretation that focus on identifying a future flow of economic benefits to demonstrate that an asset exists. Moreover, proposed definition of an economic resource would include the notion that the resource was: “Scarce” and “Capable” of producing economic benefits, which can make relatively easy to determine whether or not an item can meet criterion.
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