Slide AKT 405 Teori Akuntansi 7 Godfrey
GODFREY
HODGSON
HOLMES
TARCA
CHAPTER 7
ASSETS
Assets defined
• IASB (AASB) Framework for the Preparation and
Presentation of Financial Statements:
– an asset is a resource controlled by the entity as a
result of past events and from which future
economic benefits are expected to flow to the
entity
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 entity’s 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 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 and likely to provide a reasonable basis
for the fair value measurement
– appreciate management’s 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
HODGSON
HOLMES
TARCA
CHAPTER 7
ASSETS
Assets defined
• IASB (AASB) Framework for the Preparation and
Presentation of Financial Statements:
– an asset is a resource controlled by the entity as a
result of past events and from which future
economic benefits are expected to flow to the
entity
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 entity’s 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 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 and likely to provide a reasonable basis
for the fair value measurement
– appreciate management’s 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