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• An asset is ‘a present economic resource controlled by the entity as a result of past events.’ (CF, Table 4.1)

An economic resource is defined as ‘a right that has the potential to produce economic benefits.’ (CF, 4.3)

The three aspects of the definition of an asset are:

 right

 potential to produce economic benefits, and

 control. (CF, 4.4)

• A liability is ‘a present obligation of the entity to transfer an economic resource as a result of past events.’ (CF, 4.26)

The three criteria that must exist for a liability to exist are:

 ‘the entity has an obligation

 the obligation is to transfer an economic resource

 the obligation is a present obligation that exists as a result of past events.’ (CF, 4.27)

• Equity is ‘the residual interest in the assets of the entity after deducting all its liabilities.’ (CF, 63)

• Income is ‘increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.’ (CF, 4.68)

• Expenses are ‘decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.’

Only items that meet the definition of an asset, a liability or equity are recognised in the statement of financial position. Similarly, only items that meet the definition of income or expenses are recognised in the statement(s) of financial performance. However, not all items that meet the definition of one of those elements are recognised An asset or liability is recognised only if recognition of that asset or liability and of any resulting income, expenses or changes in equity provides users of financial statements with information that is useful(a) relevant information about the asset or liability and about any resulting income, expenses or changes in equity; and

(b) a faithful representation of the asset or liability and of any resulting income, expenses or changes in equity

As defined in the qualitative characteristics of the Conceptual Framework, ‘Relevant financial information is capable of making a difference in the decisions made by users. Information may be capable of making a difference in a decision even if some users choose not to take advantage of it or are already aware of it from other sources.’ (CF, 2.6)

According to the Conceptual Framework, an asset or liability may not be recognised if:

• ‘it is uncertain whether or not the asset or liability exists,’ or

• ‘it may exist, but the probability of an inflow or outflow of economic benefits is lowAs defined in the qualitative characteristics of the Conceptual Framework, ‘To be useful, financial information must not only represent relevant phenomena, but it must also faithfully represent the substance of the phenomena that it purports to represent‘ and ‘To be a perfectly faithful representation, a depiction would have three characteristics. It would be complete, neutral and free from errorThe level of measurement uncertainty associated with the asset or liability may impact on whether a faithful representation can be provided of the itemthe recognition of income occurs at the same time as:

 the initial recognition of an asset, or an increase in the carrying amount of an asset; or

 the derecognition of a liability, or a decrease in the carrying amount of a liability.

• the recognition of expenses occurs at the same time as:

 the initial recognition of a liability, or an increase in the carrying amount of a liability, or

 the derecognition of an asset, or decrease in the carrying amount of an asset.’