The definition for liabilities will be "an entity’s present obligations to sacrifice resources or future resources that it has little or no discretion to avoid." The project scope includes transactions and other events, measurement focus, basis of accounting, specific elements (for example, assets, liabilities, revenue), and the interrelation of elements. The Board agreed to continue pursuing the hybrid approach in which assets, liabilities, net inflows of resources, and net outflows of resources are defined based upon their inherent characteristics, with deferred items serving to articulate the statement of net assets and change statement. 33, Accounting and Financial Reporting for Nonexchange Transactions. Second level: The qualitative characteristics and the elements of financial statements, which form a bridge between the 1. After considering the theoretical ranges of measurement focuses, bases of accounting, measurement attributes, and the various combinations thereof, the Board tentatively decided to pursue defining elements of financial statements by their inherent characteristics such that the definitions would be applicable to any measurement focus, basis of accounting, and measurement attribute employed in a particular financial statement. The remaining revisions were editorial in nature. As a result of its evaluation of comments received on Issue 4 (interperiod equity) and Issue 5 (the definitions of deferred outflows and inflows of resources) in the Exposure Draft, Elements of Financial Statements, the Board tentatively agreed to the following changes: The Concepts Statement will include the statement that standards will establish which items meet the definitions of deferred outflows and inflows of resources and that it is inappropriate for practitioners to analogize that any other item or items should be reported as deferred outflows or inflows of resources due to the judgment needed to assess applicability to the period. The definition of assets will be "resources that the entity presently controls." The Board also agreed with the staff recommendation to place the definition and discussion of resources before all definitions of elements of financial statements and to augment the discussion to recognize that human resources (for example, as embodied in payroll costs) are a type of resource that is used by a government. Assets are resources that the entity presently controls. The resource is capable of providing a future benefit. The Board reviewed a preballot draft of Concepts Statement No. During the period from December 2006 through March 2007, the Board has evaluated comments received on Issue 1, the overall approach to defining elements of financial statements; Issue 2, using resources as a feature common to definitions of all elements; Issue 3, the definitions of assets, liabilities, outflows of resources, and inflows of resources; and Issue 6, constructive liabilities, as well as other general comments. The Board reviewed the comments from task force members on the draft sections of a Concepts Statement on Elements of Financial Statements. At the June 2005 and August 2005 meetings, the Board further discussed the hybrid approach, tentatively concluding that all elements should be defined at a high level, such that they can be applied to all measurement focuses and bases of accounting. The Board tentatively concluded that these elements will be named "outflows and inflows of resources," and that the inherent characteristics of these elements are (1) consumption and acquisition of net resources and (2) applicability to the current reporting period. Access to or use of the future benefit is presently controlled by the entity. Comprised of. An increase in the level of borrowing will be used as an example of how the burden of paying for the cost of services can be shifted to future-year taxpayers or revenue providers. Investments by Owners. The monetary unit is assumed to remain relatively stable over the years in terms of purchasing power. The Board confirmed that the discussion of uncertainty in the proposed concepts statement remains appropriate. Next, the Board considered whether time restrictions, such as those related to property taxes that have been levied for the subsequent year, create an obligation. Also, an obligation is a present obligation when the sacrifice of resources is not contingent of future events. Third level: Recognition, measurement, and disclosure concepts, the “how” or implementation. Liabilities are an entity’s present obligations to sacrifice resources or future resources that it has little or no discretion to avoid. First level: The objective of financial reporting, the “why” or purpose of accounting. The Board did not reach any conclusions on this issue. This definition changes the way the term. Knowing that companies' financial statements are prepared in connection with a set of universal accounting standards and rules, investors and creditors can make decisions based on the face value of the financial information received. The Board provided suggestions to improvement the clarity of the examples in that paragraph and concluded that the notion of current financial resources should be described as resources that are financial in nature and are available for spending. Enhancing qualities complement the fundamental qualities and include: Comparability means that companies record and report information in a similar manner. Specifically in accounting, the rule and standards set the the nature, function and limits of financial accounting and financial statements. Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. Project Description: The objective of this project is to define key elements of financial statements as well as to describe or define related concepts that primarily will guide the Board in establishing future standards. Some of the explanation of constructive obligations in the Basis for Conclusions will be moved the concepts section of the document. Elements of the financial reporting system 4. This approach recognizes that there are circumstances in which it may be appropriate to defer costs and revenues. To avoid potential confusion, both terms service capacity and present service capacity should not be used; present service capacity will be used exclusively. Cost Constraint Although accounting theory is based upon certain assumptions and the application of basic principles, there are some exceptions to these assumptions. This project has been an integral part of the overall reexamination of the financial reporting model since that project’s inception in 1984; however, it was not identified as a stand-alone project until January 1993. It is not appropriate to discuss construction in progress in the explanation of present service capacity. The Board reviewed comments on a variety of issues and tentatively agreed that: Minutes of Meeting, July 31, 2006 Teleconference. Expenses. Money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis. The board extensively discussed the issue of the way the current financial resource flows measurement focus would be discussed in the document. The cost constraint (or cost-benefit relationship) relates to the notion that the benefits to be derived from providing certain accounting information should exceed the costs of providing that information. Paragraph 31 of Concepts Statement No. The Board also briefly discussed the revised draft language for the definition of an asset, but decided to defer finalizing the language until definitions of additional elements have been further explored. It has several components that are outlined in figure 1 below. The Board tentatively agreed not to limit what is considered an obligation to only legal obligations. The Board considered the question of whether an obligation should be considered only as a legal obligation, or whether it also includes constructive or equitable obligations. The Board requested minor revisions to the language in the scope section of the proposed Concepts Statement to expand the explanation of a legally separate entity. The components are: 1.The Objectives of Financial Reporting 2.The Qualities of Useful Information 3.Elements of Financial Statements 4.Recognition and … The Board tentatively agreed to modify the language that stated absolutely that liabilities that are constructive in nature arise only from exchange transactions. Liabilities. Period costs, such as officers’ salaries and other administrative expenses, attach to the period, and are recognized in the period incurred. Board’s conceptual framework project. For an item to be an asset of an entity, it is required to possess both of the following inherent characteristics: For this resource to also be reported as an asset of an entity, it should also meet applicable recognition and measurement criteria. Qualitative characteristics and the fundamentals are the underlying Concepts that help achieve those.... 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