Although it may come as a surprise to many non- accountants, the accounting profession internationally has encountered a great deal of problems in arriving at robust definitions for the elements of financial statements. Defining assets, liabilities, and gains and losses (income and expenditure) has been particularly problematical. These definitions form the core of any conceptual framework that is to be used as a basis for preparing financial statements. It is also in this area that the International Accounting Standards Committees Framework for the Preparation and Presentation of Financial Statements has come in for some criticism. It seems that the current accounting treatment of certain items does not (fully) agree with definitions in the Framework. A major objective of the Framework is to exclude from the balance sheet items that are neither assets nor liabilities; and to make off balance sheet assets and liabilities more visible by putting them on the balance sheet whenever practicable.
[...] In future, there may yet be more introductions of new provisions for the accounting treatment of contingent assets and liabilities or at least some alterations to the IAS 37 might be mad 8.1 e. Some notable accounting organizations have already begun to request that IACS make amendments to the IAS 37 provisions because they are less practical under certain instances9. Furthermore, there is no doubt that the criticisms that have been made regarding the difference that exist between frameworks definitions and actual treatments of accounts could certainly lead to amendments to the framework as a whole10. [...]
[...] Summarily, it can be suggested that the IASC framework definitions of assets and liabilities depict a true and fair view of how assets and liabilities are accrued and incurred respectively. This sets out a clear foundation on which firms can present accurate financial statements regarding their financial position. However, the fact the definitions place substantial emphasis of legal ownership of assets and whether or not liabilities are present obligations or future commitments are two points which can be criticised or at least discussed. [...]
[...] European Business Journal pp Pomeranz, The Probable Future of International Accounting Standards, Published in EDPACS Volume 28, Issue 9March pages 1 Fleming, P. D. (1991) The Growing Importance of International Accounting Standards. Journal of Accountancy pp Walton, Haller, A and Raffournier, B (2ND Ed.)(2003): International Accounting, Thomson, pp Carol A. Adams ; Pauline Weetman Sidney J. Gray(1993): Reconciling national with international accounting standards European Accounting Review, Volume Issue 3 December pages Cairns, D. (1992) Should Listed Companies Conform with IAS?. [...]
[...] Another aspect of the IASC framework definition of assets stipulates that a company will often apply its assets to produce a good or a service, which in turn can be will be sold to satisfy the specific need of all potential consumers. These consumers invariably contribute the firm's cash every time they purchase the good or service in question. Again, this assertion is practically representative of the nature of corporate commercial activity and industrial economics. The framework provides that assets do not necessarily have to have a literal form in order to be considered an asset. [...]
[...] It is worth mentioning that this accounting treatment is stipulated under US GAAP Another instance where the introduction of IAS 37 was necessary was in scenarios where companies sell their goods and services on a warranty basis, for example a toy manufacturing company. This means that customers can return defective products and as such, the company would have to bear all the replacement costs. In estimating the amount of costs the company would incur in terms of replacements, the IAS 37 stipulates that present values or discounting need to be used after taking into full account the time value of money7. [...]
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