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Accounting for something in accordance with its legal form, instead of its economic substance, does not result in a faithful representation.

  • accounting for something in accordance with its legal form (even with appropriate disclosures) cannot result in a faithful representation if the economic substance of the item is different; and
  • substance over form is an aspect of reliability.

...continue reading "Substance of contractual rights and contractual obligations"

Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent. Hence an executory contract contains a combined right and obligation constituting a single asset or liability. The entity has an asset if the terms of the exchange are favorable; otherwise, it has a liability. ...continue reading "Executory contracts"

Obligation: A duty or responsibility to act or perform in a certain way. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. Obligations also arise, however, from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner. ...continue reading "Present obligation as a result of past event"

The transfer of an economic resource embodies economic benefits that will be required to settle the obligation, resulting in an outflow (in general of cash) from the reporting entity to a third party.

A definition of resource: ...continue reading "Transfer of an economic resource"

Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally the case, for example, with amounts payable for goods and services received. However, obligations do not have to be legally binding. ...continue reading "Obligation"

Definition: A liability is a present obligation of the entity to transfer an economic resource as a result of past events.

A liability is defined as a company's legal financial debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses. ...continue reading "Liability"

This is all about: An economic resource is a right that has the potential to produce economic benefits.

In the Conceptual Framework 2018, an asset is now specified as 'a present economic resource controlled by the entity as a result of past events'. An economic resource, which previously had no definition, is defined as 'a right that has the potential to produce economic benefits'. ...continue reading "Potential to produce economic benefits"

Introduction – set the stage

This is all about: An economic resource is a right that has the potential to produce economic benefits.

Many assets, for example, receivables and property, are associated with legal rights, including the right of ownership. In determining the existence of an asset, the right of ownership is not essential; thus, for example, property held on a lease is an asset if the reporting entity controls the benefits which are expected to flow from the property. This emphasises that the resource in question is not, for example, a physical object (such as an item of property, plant and equipment), but a right (or set of rights) over that physical object. This is a shift away from accounting for physical objects and towards accounting for different rights composing economic resources. However, describing a set of rights as a physical object will often provide the most concise, clear and understandable information. ...continue reading "Rights with potential to produce economic benefits"