Changes to the Definition of an Asset

Changes to the Definition of an Asset This memo was prepared in response to recent changes in the conceptual framework. It explains the changes that were made to the definition of an asset and looks into the possible implications of the changes. The memo also identified the date at which the new definitions will start applying to the organization.
An asset is defined as “an item of economic value that is expected to yield a benefit to the controlling entity in future periods (Powell 803; Petkov 37).” The main elements in this definition of an asset include “economic value,” “control,” “time,” and “expectations.” In 2004, it was found that these elements resulted in some shortfalls in the definition of the terms herein references. The shortfalls were imminent in the sense that they limited the exact definition of an asset. As the IASB found during deliberations on the definitions of an asset, there was the need to change the definition of an asset to eliminate the limitations imposed on an asset by the elements mentioned in this paragraph.
Under the realization of the limitations of the definitions of assets as an element of financial reports, the IASB proposed changes to the definition. The newly adopted definition of an asset is “An asset is a present economic resource to which an entity has a present right or other privileged access (Waybright and Kemp 43).” The new definition captions three key characteristics of an asset, which include the economic resource aspect, the rights and privileges of access to the asset, and the existence of the economic resource and the rights and privileges associated with the asset at the time of the financial statements. The new definition; hence, eliminates the uncertainty factor inherent in the previous definitions of an asset.
There are several notes that all members of the organization need to take into consideration. Firstly, the new definition of assets does not touch on the recognition of assets (Whittington 144). IASB indicated in the change of the definitions that it was never the intention of the organization to change the way organizations recognize assets. Consequently, there may not be major changes in the manner in which the organization recognizes and records assets.
The intention of this memo is to ensure that the members of the organization and particularly members of the finance and accounting departments across the organization get to appreciate and understand the new definition of assets. For the two departments, there may be a need to revisit the text to get a better understanding of the changes and their implications on the organization. There are various commentaries on the implications that the changes may have on organizations across the world concerning the recognition, measurement, and recording of assets. These commentaries have been made by the IASB, other accounting bodies, audit firm, and other professionals (Fiechter 55).
It is important to draw the attention of all to one particularly important point about the changes in the conceptual framework concerning the definition of assets. This regards the relationship between rights to an economic resource and the control of an economic resource.
The previous definition of an asset appreciated the control of economic resources while the new regulations do appreciate the rights to an asset. Notably, the control and rights to an economic resource can take place at different times, but on all occasions, the rights precede the control.
If the organization has control of assets that it does not have rights over, then it will not be allowed to recognize those assets in the financial assets. We have advised both the accountants and the legal team in the organization to look into the professional implications of the two elements.
The hope is that there will be no assets in the company’s control that the company does not have rights and privileges to. In concluding, the new definition of assets alongside all other changes made to the conceptual framework will take effect in the organization beginning Jan 1, 2017. The organization hopes that there will not be any material differences in the amounts and values of assets reported. Till then, the organization will operate an open door policy to any suggestions and comments on how we shall proceed in the handling of the company’s assets.
Insert your Organization, Insert the Address, Insert the City. Date: Client’s Name Insert Address Insert City Dear Sir/Madam Re: Changes to the Definition of an Asset It is my hope that this letter finds you well and healthy. The letter comes to you as an esteemed client of our organization. We appreciate that you believe in our organization and
we are committed to continuing improving our services and protect your interests.
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we are committed to continuing improving our services and protect your interests.
I am writing to inform you that the International Accounting Standards Board (IASB) recently made changes to the definitions of assets. The definition changed from an asset is an item of economic value that is expected to yield a benefit to the controlling entity in future periods to an asset is a present economic resource to which an entity has a present right or other privileged access.
The change in the definition does not change how the organization recognizes, measures, or reports assets (O’Bryan 72). However, there may be some changes in the amounts of assets reported depending on whether, at the time of reporting, the company has rights and privileges over the assets. It is expected that the changes in the definition of an asset may result in material differences between the amounts reported from period to period. It means that an asset that was formerly reported in the current period may be reported in coming periods and vice versa. Note that this change does not touch on the existence of assets or even on the manner of recognition. Consequently, there is no cause for alarm for the clients.
Our team of experts is working on determining any exposure that may come as a result of the changes herein explained. We do not expect any material differences and; hence, the assessment is just a procedural process. We are inviting all our clients to join in the discussion. We operate an open door policy, and our members of staff will be at your service should you need any explanations on the impact that the recent changes may have on your portfolio with our organization. The bottom line is that no monies will be lost or gained as a result of the changes.
We are committed to serving you better every day. Best Regards Insert Name