The main outcome of the research paper is that the proposed new definition removes problems related to the ambiguity of the notion of “control” included in the previous definition. It also clarifies the identification of a “past event”.
The European Financial Reporting Advisory Group (EFRAG) and the Autorité des Normes Comptables (ANC) have for information purposes jointly published on their websites a research paper on the proposed new Definition of an Asset tentatively adopted by the IASB and FASB. It is important to note that the paper is a staff paper and does not necessarily represent the views of EFRAG or ANC.
The research paper sets out the results of work carried out in researching and analysing the proposed definition. EFRAG and ANC believe that its communication to IASB staff and its publication on their respective websites can serve as an useful input to IASB’s deliberations on this issue (which they understand forms part of the work-in-progress on phase B of the Revision of the Conceptual Framework “Definition of Elements, Recognition and Derecognition”). It is important to stress that the views expressed are those of the staff and not those of either EFRAG or the ANC.
They have tested the proposed new definition of an asset against a series of 12 economic arrangements: six of these arrangements were previously tested (together with 18 others) by the IASB staff in its Agenda Paper produced for the October 2007 IASB Board meeting on an earlier version of the asset definition. Six other economic arrangements have been identified and included in the analysis. The purpose of the analysis was to test whether the proposed new definition of an asset as defined by the IASB/FASB staff team would work and result in an improvement over the existing IASB definition of an asset.
The main outcome of the work is that the proposed new definition removes problems related to the ambiguity of the notion of “control” included in the old definition. It also clarifies the identification of a “past event” and explains to a greater extent what an economic resource is. However, it seems that the notion of “capable” which replaces the notion of “expected” may result in many items with low economic value meeting the definition of an asset. This may, therefore, fail the costs and benefits constraint in the Framework.
Other outcomes of the analysis include a need to clarify how one should understand and apply the terms “capable of producing cash inflows or reducing cash outflows”, “right and other access that others do not have” and “equivalent means”. It may also be useful to clarify the nature of an “economic resource”, – is it the promise/right or the related property item, and to analyse if the notion of an “economic resource” is wide enough compared to the previously used notion of “economic benefit”. Finally, the consequences of the removal of the “past event” notion on the assessment of the management stewardship and on the identification/separation of assets may merit further analysis.
EFRAG and ANC hope the paper will stimulate thoughts and research on conceptual accounting issues.
© EFRAG - European Financial Reporting Advisory Group
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