Future economic benefits: potential to

economic benefit must be contribute, either directly or indirectly, to the

controlled by the entity flow of cash and cash equivalents to the extent and timing of the recognition of assets
entity is important because it can have economic
consequences for preparers and users of future economic benefits
financial statements must be probable

Control by an entity

Ownership is often concurrent with resource controlled by the entity as a involves

control, but it is not an essential result of past events and from which recognition
characteristic of an asset future economic benefits are rules
expected to flow to the entity asset must be capable of being measured reliably

Past events
Assets defined reliance on the law
Asset recognition

Control as a result of a past event Past recognition criteria determination of

Planned assets
are excluded economic substance of
the transaction or
event
elements of accounting are linked and
measurement of profit flows from use of the conservatism principle:
measurement of the change in net assets Assets anticipate losses, but not gains
consider measurement concepts, principles and terms

Asset measurement FASB/IASB intend to address the issue of measurement in

Challenges for
rules and practices governing asset recognition and standard setters Phase C of the conceptual framework project
measurement will also affect measurement of profit
and, in turn, capital (equity) evaluate and rank measurement methods

Issues for auditors

Once the definition and recognition criteria have been
met, the accountant must decide how to measure the
asset potential that corporate failures will lead to legal action
need to against auditors who failed to approach their audit of
asset fair values appropriately

Auditing fair values creates difficulties --> requires

the application of valuation models, and,
frequently, the use of valuation experts
understand the client firm’s
processes and relevant controls for
determining fair values
make a judgement on whether the client
firm’s measurement methods and
assumptions are appropriate

appreciate management’s potential biases and

likely errors