Conceptual Framework Phase B — Elements and Recognition

Date recorded:

The Board discussed the following proposed definition and essential characteristics of an asset:

  • An asset is a present economic resource to which an entity has a present right or other privileged access.
  • An asset of an entity has three essential characteristics:
    • a. There is an 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.

All three characteristics must be met for an item to meet the definition of an asset. That is, each characteristic is a necessary condition and, collectively, they constitute a sufficient condition for an item to be an asset.

The Board discussed this definition and the related elaboration of the 'essential characteristics' in depth. Many of the concerns raised by Board members retraced underlying concerns about what an asset represented (the resource; the right to the resource; or the right to the right) and whether a promise to provide a resource (e.g. an option) would meet the definition of an asset.

Board members requested the staff to reinstitute prior wording in the elaboration of 'economic resource' such that it was clear that, at the balance sheet date, there is the non-zero likelihood of generating inbound cash flows or reducing outbound cash flows.

It was suggested that the definition of an asset might be reworded as follows:

  • An asset is an entity's present right or privileged access to an economic resource.

This proposal was supported by some Board members, however other Board members wanted more emphasis given to benefits.

Board members then tested various items that might represent an asset against the proposed definition. These discussions demonstrated that there are still problems in the way the general principle is articulated that the staff must resolve before the Board is satisfied with the definition. However, a majority of the Board agreed to proceed on the basis of the definition outlined by the staff (with amendments).

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