1. Redefining Assets: A Proposal for the Conceptual Framework
Richard Gore
Associate Professor
Fort Lewis College
&
Richard Samuelson
Emeritus Professor
San Diego State University

2. Why is the Definition Important?
What is an Asset?
Principal-based Accounting Standards

3. Three Asset Definitions
The Existing Asset Definition (FASB Concept Statement No. 6)
The Proposed Asset Definition (FASB/IASB, 2007)
The Alternative Definition (Samuelson/Gore, 2008)

4. Criteria Fisher’s Criteria of a good definition:
The definition should be useful for scientific analysis
The definition should harmonize with common usage

5. Classical Measurement Theory
Size
Weight
Asset
Cost
Fair Value

6. Existing 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

7. Problems
What goes in here?
Walter Schuetze, 1993

8. Future Economic Benefit
More Problems
Future Economic Benefit
(Flow)
Asset
(Stock)
Measurement
Proprietary
(Samuelson, 1996)

9. Proposed 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.

10. Economic 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.

11. Examples Accounts Receivable & Prepaid Expenses
Is it an economic resource or a right to a resource?
Leasehold Interests & Plant and Equipment
What is the nature of the right to the resource (future cash flows or technical services)?

12. Another 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.

13. “What-You-May-Call-Its”

14. Goodwill Continued Master Valuation Account Debit Credit
Identifiable Net Assets
Fair Value
Goodwill
Plug
Consideration Given

15. Summary 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.

16. Alternative Definition
“An Asset is the present right to the services (or uses) of an existing economic resource.”
Rights are limited to enforceable rights
Resources are defined in terms of their technical services or uses, not cash flow.

17. Illustration Robinson Crusoe:
Economic resources are everything that is useful to him (e.g., forest, meadows, and streams)
There is no exchange value.

18. Barter Exchange
The 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.

19. Money Economy Most assets now have exchange value
Classical Measurement Theory separates the thing being measured from the attribute used to measure it.

20. Diagram of Universe
Assets
Rights
Economic Resources
Everything

21. Alternative Definition
Emphasizes the right to use a resource by placing it first in the definition.
Can be used to classify objects
Defines economic resources in terms of utility or technical services, not cash flows.
Disentangles definition from measurement
Distinguishes between rights and economic resources

22. Conclusion
Alternative Definition satisfies Fisher’s two criteria for a good definition.
It is useful for scientific analysis
It harmonizes with common usage
Alternative definition will:
Promote representational faithfulness of financial statements elements.
Promote the development of Principle-based Financial Reporting Standards

23. Thank You.