Conceptual Framework Phase B — Elements and Recognition

Date recorded:

The Board continued its deliberation of the working definitions of an asset and a liability from the April 2006 meeting.

The Board focussed its discussion on the asset definition during this session. The following asset definition working definition was presented to the Board:

An asset is a present economic resource of an entity. An asset of an entity has three essential characteristics:

  • a. There is an underlying economic resource.
  • b. The entity has rights or other privileged access to the economic resource.
  • c. The economic resource and the rights or other privileged access both exist at the financial statement date.

First, the Board discussed what is the economic resource? An example to buy/sell corn forward was presented to the Board as a way to explain that the existence of the product-corn-is irrelevant, as the present economic resource is the promise to deliver/accept the corn by the parties. The Board was asked whether they agreed that it was the promise rather than the corn that defined the economic resources by the parties.

The majority of Board members agreed to the statements as set out in the working paper. However one Board member commented that it was hard to accept the promise as the asset as the contract initially was executory.

The Board agreed that it is the promise rather than the corn that is the economic resource.

Secondly the Board discussed whether both parties in such a contract would have an asset. It was agreed that both parties have an asset as there are two promises: the seller promises to deliver (buyer's asset) and the buyer promises to accept the delivery of the corn (seller's asset).

In the end the Board discussed the application of the asset definition to an entity's own shares. During a previous meeting some Board members concluded that an entity's own issued shares would meet the proposed working definition of an asset. The staff therefore presented the Board with text to amplify the working definition as follows:

  • a. A promise with no external counter party, in the form of unissued or treasury shares (or unissued debt), constitutes neither an economic resource nor an economic burden to the entity.
  • b. A promise by an entity in the form of issued shares (or issued debt) constitutes an economic burden-not an economic resource.
  • c. A contract that does not involve an inbound promise by a party external to the entity cannot constitute an economic resource of the entity.

This would clarify that even if an entity has a prospectus approved for the issue of debt, that does not create an asset representing the debt. The Board agreed to the proposal.

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