AASB 6: Inconsistencies with Conceptual Framework

AASB 6
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Contents
Introduction......................................................................................................................................3
Definition and Recognition criteria for assets specified in the AASB Framework.........................3
AASB 6 and the manner in which assets are recognised and defined as compared to conceptual
framework........................................................................................................................................4
Inconsistencies of AASB 6 with respect to the conceptual framework...........................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7
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Introduction
The International Accounting Standards Board (IASB) has amended the framework for
the development and presentation of financial statements to incorporate the conceptual
framework for finance reporting. The framework is specifically designed for determining the
concepts underlying the preparation and presentation of financial statements to be disclosed to
the end-users. Australian Accounting Standards Board (AASB) has also adopted the use of
conceptual accounting framework in its financial reporting process. This is done for promoting
the harmonizing of accounting regulations and to improve the quality of financial information
disclosed by Australian business entities. In this context, the present report is developed for
analyzing the extent of the AASB 6 rule developed for definition and recognition of assets in
meeting the criteria established by the framework. The rule has been developed for some specific
industries within the country for exploration and evaluation of the mineral resources. As such, it
has some rules that are considered to be outside with respect to the conceptual framework. In this
context, the report compares the AASB 6 rules with that of AASB framework specified for
recognition of financial elements. The report evaluates and analyses the inconstancies present
between them for identification of future scope of improvement.
Definition and Recognition criteria for assets specified in the AASB Framework
Conceptual framework has become a part of the financial reporting process adopted by
business entities within Australia as mandated by AAASB. The framework has provided a series
of concepts to describe in detail the general purpose of financial reporting. The main purpose for
the establishment of the framework is to provide definition of different elements of financial
statements (AASB: Framework, 2016). These include assets, liabilities, equity, revenues and
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expenses. The framework also needs to specify the criteria to be used for recognizing the specific
elements during the financial reporting. Recognition is defined as the process of including
financial items in the balance sheet or income statement that is expected to provide a future
economic benefit to an entity. The financial items have a monetary value and its amount should
be included in the financial statements. The financial items satisfying the recognition criteria
should be stated in the balance sheet or income statement. Therefore, a financial asset in order to
meet the recognition criteria should provide a future economic benefit and also has a cost or
value to be measured with reliability (Conceptual Framework, 2017).
Assets are regarded to be an item of raising economic gains in future by an entity due to
past transactions carried out. The recognition criteria are based on uncertainty in the future
economic benefit of a financial asset. The probability takes into account the uncertainties that
characterize the environment of an entity operation. The assessment of uncertainty is made on
the basis of information available at the time of developing the financial statements. The
financial asset is recognized of the probability of realizing future economic benefit is high then
its inclusion is justifiable in the financial statements. As such, an asset is not recognized in the
balance sheet if it is estimated to incur an expense in the future context. Such financial
transactions are recognized as an expense in the financial statement of income or balance sheet.
The asset controlled by an entity is recognized in the financial statements only when it can
depend on its nature and can use to provide goods and services to its customers in future context.
Also, an asset is to be recognized in the financial statements only when it is controlled by that
particular entity only. The control possessed by an entity over an asset can be determined
through legal rights and evidenced by possession or other actions and device protecting an entity
interests (Gore & Zimmerman, 2007).
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