The Elements of Financial Statements (B6.4)

In 2018, the IASB changed the definitions of assets and liabilities

In 2018, the International Accounting Standards Board (IASB) made key revisions to the definitions of **assets** and **liabilities** under the Conceptual Framework for Financial Reporting. The updated definitions were intended to improve the clarity and consistency of these fundamental concepts in accounting.

Changes to the Definitions:

1. Asset:

   Previous Definition: An asset was considered a resource that had the potential to generate future economic benefits.

   New Definition (2018): An asset is now defined as a present economic resource controlled by an entity as a result of past events. The definition emphasizes that the resource must be under the entity's control and has the potential to generate future economic benefits.

2. Liability:

   Previous Definition: A liability was an obligation to transfer an economic resource in the future.

   New Definition (2018): A liability is now defined as a present obligation of the entity to transfer an economic resource as a result of past events. This clarifies that a liability arises from a past event and that the obligation must lead to an outflow of resources.

Key Points:

Economic Resources: The term "economic resource" is now central to both definitions. An economic resource is something that can produce future economic benefits, which includes physical items (e.g., property) as well as intangible resources (e.g., intellectual property or rights).

Control and Obligation: The revised definitions emphasize the need for control over an asset and the existence of an obligation for a liability, rather than just the potential for future inflows or outflows.

These changes aimed to provide clearer guidance on how to identify and measure assets and liabilities, aligning the definitions with the principles of control and obligation, which are central to the accrual basis of accounting.