Conceptual Framework - Elements

Date recorded:

The Boards' discussions focused on the following proposed definitions of an asset and liability, to determine if (1) the definitions follow a parallel structure and (2) the term 'economic resource' within the asset definition and referenced within the description of an 'economic obligation' in the definition of a liability is appropriately defined.

Asset: An asset of an entity is a present economic resource to which the entity has either a right or other access that others do not have.

Liability: A liability of an entity is a present economic obligation for which the entity is the obligor.

Both the FASB and IASB concluded that the proposed definitions, with some minor modifications (such as by removing the word 'either' from the definition of an asset) and the underlying components of the definition are conceptually correct and do provide a parallel structure. The Boards agreed to use these definitions going forward (with minor modifications). The Boards acknowledged that these definitions are not perfect, but they do not want to spend more time on this particular issue. However, both Boards also agreed that the definitions will need to be modified as the Boards progress with other projects, including the liabilities and equity project.

The discussion also focused on the the term 'economic resource' in the definition of an asset and referenced within the 'economic obligation' component of the liability definition. The Boards discussed whether an economic resource needs to be scarce to meet the definition of an asset. Additionally, the Boards discussed whether the definition of an economic obligation clarify that, when determining if the item forgone is an economic resource, that determination should be from the perspective of the recipient and not the entity. For example, if an entity settles a forward contract with the issuance of shares, the shares would not necessarily be considered an economic resource of the entity, but when given to a recipient, they would be considered an economic resource to the recipient; therefore, the contract could be considered a liability by the entity.

The Boards also discussed the difference between economic compulsion and constructive obligations. The staff indicated that the definition of a liability does not include the concept of economic compulsion.

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