Professional Documents
Culture Documents
Slide AKT 405 Teori Akuntansi 7 Godfrey
Slide AKT 405 Teori Akuntansi 7 Godfrey
HODGSON
HOLMES
TARCA
CHAPTER 7
ASSETS
Assets defined
IASB (AASB) Framework for the
Preparation and Presentation of Financial
Statements:
2
Assets defined
Three essential characteristics:
future economic benefits
control by an entity
past events
exchangeability
recognition rules
3
Future economic benefits
Future economic benefits are the
potential to contribute, either directly
or indirectly, to the flow of cash and
cash equivalents to the entity
profit seeking entity
not-for-profit entity
Relate to economic resources
scarcity
utility
4
Future economic benefits
An asset is something that exists
now
Has the capability of rendering
service or benefit currently or in the
future
Distinguish between the object, such
as a building or machine, and the
service or benefit embodied in it
5
Control by an entity
The economic benefit must be
controlled by the entity
An entitys right to use or control an
asset is never absolute
Ownership is often concurrent with
control, but it is not an essential
characteristic of an asset
Does not rely on legal enforceability
6
Past events
Control as a result of a past event
Planned assets are excluded
Event can be interpreted in different
ways
executory contracts
7
Exchangeability
Some argue that a 4th essential
characteristic is that an asset be
exchangeable
Separable from an entity
8
Exchangeability
MacNeal
A good that lacks exchangeability must
lack economic value because its
purchase or sale must forever remain
impossible, and thus no market price for
it can ever exist
goodwill
subject to evaluation not measurement
9
Asset recognition
The extent and timing of the
recognition of assets is important
because it can have economic
consequences for preparers and
users of financial statements
10
Asset recognition
Recognising assets on the balance
sheet involves recognition rules
conventions and authoritative
pronouncements
Recognition criteria
the future economic benefits must be
probable
the asset must be capable of being
measured reliably
11
Asset recognition
Past recognition criteria
reliance on the law
determination of economic substance
of the transaction or event
use of the conservatism principle:
anticipate losses, but not gains
12
Asset measurement
All the elements of accounting are
linked and measurement of profit
flows from measurement of the
change in net assets
The rules and practices governing
asset recognition and measurement
will also affect measurement of profit
and, in turn, capital (equity)
13
Asset measurement
Once the definition and recognition criteria
have been met, the accountant must
decide how to measure the asset
several measurement approaches available
qualitative characteristics of financial
information
Once measured
on balance sheet
restricted to just note disclosure
14
Tangible assets
Traditional approach has been to
measure assets at historical cost
IASB standards permit subsequent
remeasurement using a number of
approaches
fair value
exit value or value in use
UK and Australian firms could use values
other than historical cost for many years
15
Intangible assets
Accounting measurement has
generally been conservative
cost (less accumulated amortisation and
impairment) is commonly used
fair values from an active market
internally generated intangibles cannot
be recognised
16
What are the divergent arguments for
recognising customer relationships in a
business combination? Is it a true
intangible asset?
17
Financial instruments
FASB/IASB
derivatives are measured at fair value
rather than cost
IASB
committed to the use of fair value
measurement for financial instruments
18
What are the objectives of
the fair value
measurement project?
19
Challenges for standard
setters
FASB/IASB intend to address the
issue of measurement in Phase C of
the conceptual framework project
consider measurement concepts,
principles and terms
evaluate and rank measurement
methods
qualitative characteristics
20
Which measurement
model?
Fair value is the frontrunner
Both the IASB and FASB support
greater use of fair value
measurement
21
What are the arguments
for and against fair value
measurement?
22
How to calculate fair
value measurement
Various valuation techniques to
calculate fair value
the market approach
observable prices
actual transaction data
23
How to calculate fair
value measurement
Various valuation techniques to
calculate fair value
the income approach
conversion of future amounts - cash flows or
earnings to a single discounted present
amount
24
How to calculate fair
value measurement
Various valuation techniques to
calculate fair value
the cost approach
the amount that currently would be required
to replace its service capacity (current
replacement cost)
25
In response to the credit crisis the IASB changed the rules
to allow entities to choose to reclassify some financial
instruments from a fair value measurement basis to a cost
basis. Under what circumstances is this reclassification
allowed?
26
How to calculate fair
value measurement
The valuation must emphasise
market inputs
assumptions and data that market
participants would use in their estimates
of fair value
27
How to calculate fair
value measurement
Three hierarchical levels for the inputs
Level 1 quoted prices for identical items
in active markets, without adjustment
Level 2 quoted prices for similar items in
active markets, adjusted as appropriate
for differences
Level 3 estimated fair value using
multiple valuation techniques consistent
with the market, income and cost
approaches
28
Issues for auditors
Auditing fair values creates
difficulties because it requires the
application of valuation models, and,
frequently, the use of valuation
experts
29
Issues for auditors
Auditors need to
understand the client firms processes and
relevant controls for determining fair values
make a judgement on whether the client firms
measurement methods and assumptions are
appropriate and likely to provide a reasonable
basis for the fair value measurement
appreciate managements potential biases and
likely errors
incentives
30
Issues for auditors
There is the potential that corporate
failures will lead to legal action
against auditors who failed to
approach their audit of asset fair
values appropriately
31
Summary
Defining assets
Recognition and measurement criteria
Asset recognition and the measurement of
income and capital are interrelated
Mixed attribute measurement model and fair
value measurement methods
Issues arising for standard setters and auditors
32
Key terms and concepts
Assets
Definitions
Future economic benefits
Control
Past events
Exchangeability
Asset recognition
Asset measurement
Fair value measurement
33
34