International Board Revises Asset, Liabilities Definitions

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By David R. Jones

July 18 — The International Accounting Standards Board approved a series of staff recommendations for defining assets and liabilities and setting criteria for recognizing them under proposed changes to its conceptual framework.

The measures—all of which won unanimous support at IASB's July 18 meeting—are the latest proposed revisions the board has made to its conceptual framework (12 APPR 13, 7/1/16), (12 APPR 08, 4/22/16).

Guides Standards Development

IASB's cornerstone conceptual framework helps guide the board in developing and revising international financial reporting standards. It also helps preparers and financial statement users better understand and apply IFRS.

The board published an exposure draft (ED) in May 2015 to rewrite the framework (11 APPR 510, 6/5/15).

Control of Economic Resource

IASB approved several staff recommendations to revamp how it defines control of an economic resource—and, as a result, the definition of an asset—under the framework.

One change specifies that an economic resource is a right to a resource— not as a right or other source of value, as the board proposed in a 2013 discussion paper on amending the framework (09 APPR 651, 8/2/13).

“An entity controls an economic resource if it has the present ability to direct the use of the economic resource and obtain the economic benefits that flow from it,” a staff paper drafted for the meeting said.

Potential for Benefits

Another revision eliminates from the definitions of an asset and liability any requirements for expected inflows or outflows of economic benefits.

Instead, the revision makes clear that an economic resource an entity controls has the potential to produce economic benefits—not one that's anticipated to generate economic benefits.

Defining a Liability

In addition, a liability is defined as an obligation that has the “‘potential to require” the entity to transfer an economic resource, the staff paper said.

One board member suggested that IASB include further guidance in the definitions, but this wasn't adopted.

Recognizing Assets, Liabilities

Separately, IASB affirmed the ED's approach to recognition of assets and liabilities. “Recognition decisions should be made by reference to the qualitative characteristics of useful financial information,” another staff paper said.

IASB supported a staff recommendation that the framework shouldn't prescribe a so-called probability criterion—that it shouldn't bar entities from recognizing assets or liabilities with a low probability of producing an inflow or outflow of economic benefits.

The board agreed, however, that the ED should be strengthened to offer greater direction on the recognition of assets and liabilities with a small likelihood of inflows or outflows of economic benefits.

Criteria of Recognition

The board also adopted a staff recommendation that the revised framework identify only two criteria for recognition: relevance and faithful recognition.

Board members decided not to include a third criterion that the benefits for financial-statement users from providing recognition should surpass the reporting entity's costs.

“Instead, the Conceptual Framework should explain that, as with all other areas of financial reporting, cost constrains recognition decisions,” a staff paper said.

Little Additional Action

Respondents to the ED offered an array of other comments on the concepts supporting the definition of an asset, staff said. These will be assessed at a future board meeting, along with staff recommendations for further action.

“We think that most, if not all, of these comments will require no further action or can be addressed in drafting,” a staff paper said.

IASB plans to release the revised framework in early 2017.

To contact the reporter on this story: David R. Jones in London at

To contact the editor responsible for this story: Steven Marcy at

For More Information

The IASB staff papers are available at

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