Conceptual Framework Phase B — Elements and Recognition
The purpose of this discussion was to summarise the status of the project and to agree on the next steps. The staff presented a summary of the informal consultation on the definition of an asset. Feedback was received mainly from the Boards' advisory councils, a conference with academics and a meeting of National Standard Setters. The staff came to the conclusion that the asset definition 'is on the right track' but that better explanation is required. The staff made the observation that responses tended to be more favourable in forums where the staff had the opportunity to explain the concepts, rather than from those who only read the proposals.
The staff proposed to temporarily set aside direct work on the definition issues regarding assets and liabilities and to begin consideration of the cross-cutting issues dealing with unit of account, recognition and derecognition for the following reasons:
- Some of the unresolved cross-cutting issues in the definitions cannot be fully resolved without commencing consideration of unit of account, recognition and derecognition. For example, considering unit of account issues will help to identify what the 'thing' is that is a candidate for meeting the definitions. As another example, consideration as to how to take into account uncertainty as to the existence of an asset or liability requires consideration of both definitional and recognition issues.
- The thinking developed in considering unit of account, recognition and derecognition might help finalising the definitions of an asset and a liability and might help find answers to disputed points. For example, in considering the boundaries between business opportunities and assets and business risks and liabilities we need to consider both definitional and recognition issues.
- Many of the reviewers from informal consultation on the definition of an asset had difficulties considering the definitions without considering unit of account, recognition and derecognition, and perhaps other concepts (some respondents suggested measurement).
- Considering some of the unit of account, recognition and derecognition issues at a conceptual level will increase the likelihood of greater consistency in decisions at the standards level. Several standards-level projects are considering issues presently that relate to those being considered in Phase B.
The Board strongly disagreed with this proposal. Most Board members noted that there needs to be a clear understanding of what assets and liabilities are before addressing any other issues. Any other approach was considered not to be helpful. In addition, some Board members pointed out that the decision to distinguish definition and recognition was made for good reasons.
Instead the Board asked the staff to finalise the working definitions of assets and liabilities. In a first step, the working definition of an asset should be applied to a range of examples and it should be analysed to whether or not the working definition makes things clearer. The FASB staff mentioned that the FASB came to a similar conclusion at its recent meeting.
No technical decisions were made. However, some Board members raised the concern that the working definition of an asset simply replaces certain ambiguous terms by other ambiguous terms. One Board member noted that, as an example, different understandings of 'control' led to problems with the existing definition and doubted that the term 'right or other privileged access' would make things better.