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Conceptual Framework (IASB only)

Date recorded:

The IASB held an education session to continue their discussions on the Conceptual Framework project.  The Staff presented four sets of slides to the IASB Board members:

  • Definition of an asset – this paper discussed the common problems faced when applying the existing definition of an asset and possible ways of addressing those problems.
  • Definition of a liability – this paper discussed the common problems faced when applying the existing definition of a liability and possible ways of addressing those problems.
  • Recognition/Derecognition – this paper discussed the common problems faced when applying the existing recognition criteria and the problems associated with the lack of derecognition criteria in the Conceptual Framework.  The paper also highlighted possible ways to address the problems.
  • Presentation – this paper discussed presentation issues and a discussion of how to address the problems associated with presenting income and expenses in other comprehensive income (OCI).

The paper 9C was teed up by the Staff at the beginning of the meeting but was not actually discussed

The Staff noted that they were not discussing the liability/equity split in the Board meeting as this was discussed in December

The Board were not asked to make any decisions in the meeting

One Board member asked why income and expenses was not being addressed in the education session and when this will be discussed.  The Staff noted that the future Discussion Paper (that would be presented in the February Board meeting) would include proposals for the definition of income and expenses and these would be consistent with the current definitions.  This view was shared by another Board member.  Board members felt that a discussion of income and expense and their definitions is important in the concept of the OCI/Profit or loss split.  One member noted that the current definitions of income and expense confused the debate as to whether items should be disclosed in profit or loss or OCI.  The Staff noted that the paper on presentation would touch on these presentation points.

Definition of an asset

The Staff noted that an asset is defined as a resource controlled by an entity as a result of past events from which future economic benefits are expected to flow to the entity.

The Staff noted that there were identified problems associated with the existing definition of an asset.  The Staff identified that there were problems with the existing definition such as the notion of expectation of benefits flowing to the entity.  The Staff noted that this implied that there was a probability threshold to be met for an asset to be recognised.  The Staff noted preparers interpreted “expect” as more likely than not.

The Staff also noted that preparers confused the resource with the resulting inflows and they felt that there was a need to clarify what the resource is in the asset definition.  The Staff gave an example of a lottery ticket and noted that the resource would be the lottery ticket and not the resulting winnings.  The Staff proposed to provide examples of different types of resources in the Discussion Paper.

The Staff proposed to clarify in the asset definition that the resource is capable of producing economic benefits.

One Board member noted that the word “capable” in the revised definition could still be interpreted as implying some probability and hence would still need to be looked at.

The Staff proposed to remove the term “past event” and proposed that the definition of an asset focuses on whether the asset exists now.  One Board member asked whether the Staff could assess the effect of removing “past event” from the asset definition to see what effect, if any, this may have on existing practice.  Another Board member expanded upon this request and asked the Staff if they could look into the effect the proposed definition has on existing practice – he was concerned that the effect of the change would not result in many changes in practice.  He wanted to know what other items would now be caught within the new definition that would not currently be defined as assets.  One example given by the Staff was that executory contracts may now be explicitly captured.

Other Board members did not agree that past event should be removed from the definition.

The Staff proposed a revised definition of an asset as a present economic resource.

One of the Board members questioned why the asset definition was being changed when, in his opinion, it was fine as it is.  He noted that the focus of the Conceptual Framework project should be on more critical issues.  This view was shared by another Board member.

Definition of a liability

The Staff noted that in the Conceptual Framework a liability is defined as 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.

The Staff also noted that in IAS 37 the obligating event is defined as the event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling the obligation.

As with assets, the Staff noted that there were identified problems associated with the existing definition.  Consistent with the existing asset definition, the Staff noted that the use of the word “expected” implies a probability threshold.  The Staff also noted that when an obligation is conditional on future events, there was uncertainty as to whether and when a liability exists – this was noted as the largest problem.  Other issues were understanding what a constructive obligation is and whether obligations to stand aside/forgo inflows are liabilities.  For constructive obligations, the Staff proposed either the existing definition is amended or more guidance is given.  In the Discussion Paper, the Staff proposed to explore whether obligations to stand aside/forgo inflows are liabilities.

The Staff proposed to remove “expected to result in an outflow” from the definition of a liability.

The Staff then proposed to classify two types of future events – those outside of the entity’s control and those within the entity’s control.  The Discussion Paper would then provide guidance that where outside of the entity’s control the entity has an obligation to “stand ready” to transfer resources.

Where within the entity’s control, the Staff proposed four alternatives (that will be explored in the Discussion Paper) – one of them being that the entity does not have an obligation if it could avoid the transfer through future actions, one being where an obligation builds over a period in which an entity fulfils a final condition, another where an obligation may arise before all conditions are satisfied and another where one would look to the past event (rather than the future condition) to determine whether an obligation exists.

One Board member asked what the implications of these options would be on the previous tentative decisions reached by the Board – i.e. would the decisions have changed in light of any of these options.  The Staff noted that they would provide such analysis in the Discussion Paper.

Another Board member highlighted that he would like to see “past events” remain within the definition of a liability as this was an important factor in determining whether the entity has a present obligation.


This paper was not discussed at the Board meeting.


The Staff highlighted that in the Agenda Consultation 2011 the majority of respondents were concerned with the concept of profit or loss, the nature of Other Comprehensive income (OCI) and the conceptual basis for recycling.  The Staff noted that these issues are interrelated.

The Staff noted that these key issues were to be addressed in the Presentation section of the Discussion Paper.  The Staff noted that there was a lack of a clear definition for OCI and hence the use of the OCI has not been consistent and OCI has been used as a “dumping ground” for presenting items that are not considered to fit into the Profit or Loss but without justification.  The Staff also stated that there is a lack of a clear definition for the roles of OCI and Profit or Loss and this had led to confusion for preparers as to where to present specific items.

The Staff noted that under IAS 1.10A the Statement of Profit or loss and OCI is presented in two sections under one statement or two separate statements but there is no consistently applied conceptual basis for recognition in each section or statement and reclassifications between sections or statements.

The Staff noted that the Discussion paper will discuss three approaches to addressing these problems:

  • Remove the distinction between Profit or Loss and OCI – in this sense all items of income and expense would be presented in one statement of performance with no recycling
  • Retain the concept or Profit or Loss and characterise Profit or Loss and OCI separately – this is the approach that the Staff will concentrate upon in the Discussion Paper.  Recycling permitted.
  • Do not address presentation of income and expense in the Discussion Paper but in a separate project.

One Board member noted that the first approach was not a realistic alternative.

Under the second approach the Staff proposed to characterise items that would be presented within OCI into three groups.  The Staff noted that they had analysed existing items within OCI (current treatment under IFRS) and had grouped based on common characteristics that they exhibited.  The Staff noted that these three groups could then be used as a discussion point as to what characterised OCI with anything else being Profit or Loss.

Many Board members liked the analysis as a starting point for discussion.  However, one Board member identified that characterising OCI and Profit or Loss items would be difficult as there are some OCI items that exhibit Profit or Loss characteristics.

Another Board member noted that the Discussion Paper should make it clear when items are presented within the OCI or Profit or Loss.  Another Board member asked whether the Discussion Paper would provide a Board view – the Staff noted that the Discussion Paper would present the Board view of retaining the Profit or Loss.  Other Board members noted that the Discussion Paper should present a balanced view and the Staff noted that the alternatives (noted above) would be presented with a preference for retaining the concept of Profit or Loss.

No decisions were made by the Board.

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