Elements of financial statements

Liabilities

They represent a present duty or responsibility (there is no practical ability to avoid them).

The duty or responsibility obligates the entity to transfer an economic resource.

The obligation results from a past transaction or event.

Assets

Assets have three essential characteristics:

They represent a present economic resource—a right that has the potential to produce economic benefits.

The entity has control over that resource.

The resource results from a past transaction or event

Foundational principles

Economic entity assumption

Periodicity assumption

Full disclosure principle

Control

Monetary unit assumption

Revenue recognition and realization principles

Going concern assumption

Historical cost principle

Matching principle

Fair value principle and value in use

Revenue recognition principles - ASPE

risks and rewards have passed or the earnings process is substantially complete (significant acts have been performed and there is no continuing involvement);

the revenue is measurable; and

the revenue is collectible (realized or realizable).29

An icon reads, A S P E. This is an income statement approach in that it focuses more on the earnings process. ASPE continues to follow this approach.

Revenue Recognition - IFRS

IFRS 15 Revenue from Contracts with Customers follows a five-step approach in determining when revenue is recognized:

Identify the contract with the customer.

Identify the performance obligations in the contract (promises to transfer goods or services that are distinct).

Determine the transaction price.

Allocate the transaction price to each performance obligation.

Recognize revenue when each performance obligation is satisfied.

This approach is a balance sheet approach, which recognizes that a transaction has occurred when the entity enters into a contract. The entity has rights and performance obligations under the contract. Collectible revenues are recognized when performance obligations are settled (when control over goods or services passes to the customer). There is a presumption that the contract is measurable. We will examine this in greater detail in Chapter 6.