4Criteria Fisher’s Criteria of a good definition: The definition should be useful for scientific analysisThe definition should harmonize with common usage
5Classical Measurement Theory SizeWeightAssetCostFair Value
6Existing Asset Definition Economic“Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transaction.”(FASB Concept Statement No. 6.)Proprietary
8Future Economic Benefit More ProblemsFuture Economic Benefit(Flow)Asset(Stock)MeasurementProprietary(Samuelson, 1996)
9Proposed Asset Definition “An asset of an entity is a present economic resource to which, through an enforceable right or by other means, the entity has access or can limit access by others.”Intent is to focus the question of whether an asset exists on the present, not the past or the future.
10Economic Resource“Economic Resource is defined as something that is scarce and capable or producing cash inflows, directly or indirectly, alone or together with other economic resources.”Per FASB/IASB, resources are scarce and must be capable of producing cash flows.
11Examples Accounts Receivable & Prepaid Expenses Is it an economic resource or a right to a resource?Leasehold Interests & Plant and EquipmentWhat is the nature of the right to the resource (future cash flows or technical services)?
12Another Example Goodwill FASB view is that goodwill is an asset even though it cannot be separately identified.Goodwill may arise for many reasons including future growth opportunities, cost savings, and financial flexibility.These items are attributes of some other resource.
14Goodwill Continued Master Valuation Account Debit Credit Identifiable Net AssetsFair ValueGoodwillPlugConsideration Given
15Summary of Proposed Definition Weaknesses:Defines economic resources in terms of future benefits (i.e. cash flows).This confuses asset definition with asset measurement.Emphasizes the economic component over the proprietary component.It isn’t very useful in classifying objects.
16Alternative Definition “An Asset is the present right to the services (or uses) of an existing economic resource.”Rights are limited to enforceable rightsResources are defined in terms of their technical services or uses, not cash flow.
17Illustration Robinson Crusoe: Economic resources are everything that is useful to him (e.g., forest, meadows, and streams)There is no exchange value.
18Barter ExchangeThe economic resources are the same, but now they must be divided among the inhabitants.Assets are the “rights” to use the economic resources. Resources now have “exchange value.”For example, Robinson Crusoe could exchange two fish for 10 bananas.
19Money Economy Most assets now have exchange value Classical Measurement Theory separates the thing being measured from the attribute used to measure it.
20Diagram of UniverseAssetsRightsEconomic ResourcesEverything
21Alternative Definition Emphasizes the right to use a resource by placing it first in the definition.Can be used to classify objectsDefines economic resources in terms of utility or technical services, not cash flows.Disentangles definition from measurementDistinguishes between rights and economic resources
22ConclusionAlternative Definition satisfies Fisher’s two criteria for a good definition.It is useful for scientific analysisIt harmonizes with common usageAlternative definition will:Promote representational faithfulness of financial statements elements.Promote the development of Principle-based Financial Reporting Standards