Liability definition
The current liability definition is that a liability of an entity is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
For years the IASB is working on a revision of this definition in the project Review of the Conceptual Framework, because of perceived problems with existing definitions and recognition criteria for assets and liabilities.
Asset definition
The current asset definition is that an asset of an entity is a resource controlled by the entity, as a result of past events, from which future economic benefits are expected to flow to the entity.
These two definitions proved useful tool for many years but for some problems (refer to the two definitions above):
- Confusion on which is the asset or liability?
- the resource vs inflows of economic benefits that the resource may generate
- the obligation vs outflows of economic benefits that the obligation may generate
- What is the role of uncertainty?
- Definitions: ‘Expected’
- Recognition criteria: ‘Probable’
Suggested revised Conceptual Framework definitions
The liability definition is that a liability of an entity is a present obligation of the entity to transfer an economic resource as a result of past events.
The asset definition is that an asset of an entity is a present economic resource controlled by the entity as a result of past events.
An economic resource = a right, or other source of value, that is capable of producing economic benefits