As per International Financial Reporting Standards (IFRS), assets can be defined as the financial resource that can be controlled by any unit which results into the flow of income from the past actions and leading economic benefits in the future. However, the existing definition given by IFRS focuses on the phenomena which are based on the economic situation in the real world and that can be easily understandable to many users of the financial statements. The assets are considered as a resource rather than considering as the income from financial benefit which can be generated through economic resource. The regulatory authority has proposed significant changes in its financial statement which has affected the definition of both assets and liabilities. In addition, it is intended to transmit the requirement of an entity that is having a probability of generating income or out flow of the cash to meet some expected criteria (IFRS, 2016).
According to the proposed definition by IASB, an asset should be able to produce such benefits in future which are financial in nature. The chance of attaining an economic benefit is not required to be definite as it depends on the financial viability of the company. The company proposing any change in its economic benefits does not require attaining the minimum verge. Overall the existing definition of an asset has changed from the definition proposed recently by IFRS. The new definition of the assets indicates a current economic resource which is conveniently handled by the entity in relation to the past results (IAS Plus, 2016).
However, many objections have been arisen due to this proposed definition. The individual who prepares the financial statement has objected to this definition and has critically analyzed the other definition including liabilities of the financial statements. Many respondents have disagreed from the changes made in the definition of assets. According to the preparers of financial statements, the changes made in the definition of would likely to expand the number of items involved in the category of assets. This may raise the problem of identifying the different items of the assets and thus, it would be less useful for the entities (IFRS, 2013).
Apart from recognizing the listed assets in the financial statements, other issue related to complexity and inadequacy results into the financial reporting. Moreover, it is also objected that the definition of assets proposed by the IFRS is likely to be conflicting with the other definitions which are used in the IAS 37 and IAS 38. The new definition involves many flaws and thereby, alteration in the assets definition is not required as it is well implicit by many individuals who prepare financial statements (IFRS, 2006). In contradiction, many other people have agreed from the definition proposed by the regulatory authority. According to these individuals, the assets which were not recognizable earlier in the financial statements are now able to identify those assets which are important for the entity. Some financial statement preparers has obligated the fact that assets as an economic resource is correct rather than considering it as the other source of value in the statement (International Accounting Standards, 2016).
The critical analysis of this section involves the comment letter. It defines the definition of elements including assets. In this section of Question 3, respondents have agreed with the definition but they have commented on the few issues. According to them, there are many cases where the rights of an individual arise in the ownership of object which is physical in nature and is accounted for the single holding item. This develops an issue of conflict for an entity who is preparing a financial statement. Although, theoretically the financial resource is regarded as a set of legal rights rather than the physical object. But, the set of legal rights which can be described as an object can provide a clear, short and understandable meaning. In the opinion of the respondents, even if the stated definition presents a clear substance for an economic resource so far, the definition should clarify the case where the set of legal rights is only accounted for the single item of an asset and also in the case where it is similar with the economic and financial substance. The criticism for the proposed definition also needs a clarification in the case where the economic substances are different from the form which is legally concerned. However, it might be possible to a situation where the legal possession of an object is in relation with more than a single item of an asset. Therefore, it laid emphasizes on the legal formation of the proposed asset definition (IFRS, 2015).
According to the reviewed feedback of many respondents, I disagree with the proposed change definition of an asset because the proposed definition is not clear and thereby is not understandable because of many legal forms which have arose in certain cases of possessing assets in the financial assets. The conceptual framework of the proposed definition creates a separate legal right and thereby also includes a separate obligation for the possession of the assets within the entity. Further, while recognizing the items of assets, existing assets are not possibly able to be defined in the financial statements. This sometimes leads to incorrect transaction in the financial statements which in turn results into the rise of conflict (CNC, 2016). However, the new proposed definition includes a wide concept which is difficult to estimate the changes made in the original definition. Practically, if the assets are not able to be recognized properly in the entity’s resources then it will provide the unclear presentation of the entity’s financial position as it involves incomplete information of assets hold by the entity. Therefore, in order to have a clear picture of the financial position an individual should be able to recognize all its financial assets and liabilities (MOF, 2014). Also failure in the detection of financial assets cannot be rectified easily, either through a revelation of the used accounting policies and procedures neither it can be rectified by the material which is explanatory in nature. Hence, I am disagreeing with the proposed definition of assets.
References
CNC, 2016. Pro-active Paper on the Definition of an Asset.
IAS Plus, 2016. Conceptual Framework for Financial Reporting 2010. [Online] Available at: http://www.iasplus.com/en/standards/other/framework [Accessed 17 September 2016].
IFRS, 2006. Conceptual Framework Asset Definition.
IFRS, 2013. Conceptual Framework Round-table Meeting.
IFRS, 2015. International Accounting Standards Board.
IFRS, 2016. Conceptual Framework. [Online] Available at: http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Pages/Conceptual-Framework-Summary.aspx [Accessed 17 September 2016].
International Accounting Standards, 2016. Conceptual Framework.
MOF, 2014. A Review of the Conceptual Framework for Financial Reporting.
