Assets and Liabilities: when do they exist?

Transcription

1 IFRS Foundation Assets and Liabilities: when do they exist? Mary Tokar IASB IFRS/CAR Research Forum Waterloo, Ontario October 2016 The views expressed in this presentation are those of the presenter, not necessarily those of the International Accounting Standards Board (the Board) or IFRS Foundation. Copyright IFRS Foundation. All rights reserved

2 Overview of IASB response 2 Natural reasoning vs CF definitions of asset and liability -- current vs proposed definition -- natural asymmetry CF vs standard-level guidance -- understand interaction Supports direction of IASB CF proposals Other issues for IASB -- asymmetry/ relationship to debate re: prudence -- not just the words driving behavioural change Methodology observations: -- does summarisation of IASB CF impact findings? -- slope vs bar representations

3 Natural reasoning vs CF definitions 3

4 Natural reasoning vs CF definitions Current definition probably ineffective vs misused Difference between right answers old vs new definitions suggests that proposed wording change will be more effective communication of IASB intent: asset: 20% probability: old 38% vs new 78% 80% probability: old 96% vs new 94% liability: 20% probability: old 67% vs new 75% 80% probability: old 70% vs new 85% Strong natural asymmetry (38% vs 67%): suggests inherent conservatism (prudence)? But why 80% probability responses lower for liability than for asset? Words do matter (conclusions reached using new vs old definitions) 4

5 Does the CF matter? 5 Role of standards vs Conceptual Framework CF does matter but standards apply more directly CF comes into play in standard-setting and interpretations Applied by preparers IF no guidance in standards Sometimes the IASB may be part of the problem we haven t always adhered to CF definitions of elements CF doesn t override standards so eg IAS 37 requirement for probable outflows will remain unless standard amended

6 Relationship to other issues 6 Conceptual Framework Prudence and asymmetry Overriding natural reasoning Is information useful if it s not aligned with natural reasoning? Best estimate vs expected value Expected value often not a possible outcome for an individual item Uncertain tax positions (cumulative probability vs expected value) Symmetrical thresholds for asset and liability recognition

7 Making change stick driving behavioural change Words matter but they may not be enough Identification of tension between natural reasoning and application of definitions helpful Reinforce with: Requirements at standards level Examples Educational material Speechifying Changing words encourages re-examination Disclosure overload and materiality introduction in IAS 1 of understandability as counterbalance to completeness 7

8 Methodology observations Paraphrasing definitions Current asset definition as example Not direct test of effectiveness of proposed definition 8 A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity An item is an asset if it provides the company with a probable future economic benefit

9 Implications for standard setters 9 Definitional changes: On the right track Issue with current definition is ineffectiveness, not misuse Need to be more sensitive to natural reasoning biases, including natural asymmetry Conclusions Making the proposed change effective: Change the words but also work to change behaviours. Standards a starting point, not entirety of effort. Challenge for standard setters: Do requirements that are inconsistent with natural approaches produce useful information?

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