ACCT5013 SP2 2017: Integers Accounting Group, Inc.

ADVANCE ACCOUNTING
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MEMO
To: Integers Accounting Group, Inc.
CC: All partners
From: Bob McLaren, CPA/Financial Reporting Director
Date: 4/22/2017
Subject: Issues and Possible Implications in the Changes to the Definition of a Liability and Description of a Present Obligation for Clients.
This is an informative memo regarding the subject. The purpose of the memo report is to inform the firm on the issues and implications brought by the changes and updates on the definition of a liability and the interpretation of the current obligations and how it affects the clients. Therefore, the report compares and contrast, the current and the proposed definitions of a liability and description of a present obligation, the impacts of the proposed changes to the definition of liabilities and description of a present obligation on the preparations of financial statements.
Comparison between the Existing and the Proposed Definitions Liability and Description Present Obligation
Currently, liability is defined as an entity’s obligations that accrued events of the past transactions and met through the transfer of asset at is expected to trigger an outflow from the firm of resources that represents the economic benefits (IASB, 2015, p. 4.24). On the other hand, the suggested definition defines liability as a business’ present obligation to transfer economic resources or to honor the obligations the stemmed from past transactions.
In detail, the party with the duty and obligation to meet an economic resource as a liability links with another party that has the right to receive the economy resource as an asset.
Importantly, either party it required to measure and account for the liability or asset as a specified amount, but the other party is should not equally account or measure the equivalent asset or liability at the same amount (IASB, 2015, p. 4.27). The proposed criteria imply that for one party to recognize and measure the assets or liabilities, the other party’s corresponding assets or liability are applied to conform to the objective of financial reporting.
However, an entity must possess the capacity to demand to transfer the liability to another party to earn the rightful obligations to transfer an economic resource. Also, the obligation must not be specific or predictable that a firm has a responsibility to honor an economic resource obligations (IASB, 2015, p. 4.27). However, the obligation ought to be pre-existing, and there should be at least one condition that will determine and prompt an entity to honor a liability.
Before the prosed definition of liability, entity tends to use different ways in fulfilling their obligations to transfer of an economic, resource. One of the approaches that entities used to settle obligations by negotiating a release from the obligations by the other partner. Another method is through transferring of-of the liability responsibility to a third party (IASB, 2015, p. 4.27). Also, other entities choose to replace obligation with other obligations to transfer a liability burden.
An obligation refers to a legal binding agreement between two parties specifying a definite payment or action to honor a liability. According to IFRS, an obligation is simply a responsibility to transfer economic resources (IASB, 2015, p. 4.31). Also, the IFRS assert that a firm assumes present obligations when it has no genuine reasons to avoid a transfer and forwarding of the liabilities that has emanated from the past events. In other words, a present obligation arises when a particular entity has received a particular economic benefit or any activity that created the liability.
According to the IFRS, a firm has no chance to avoid honoring its present obligations. For instance, when the obligation is legally enforceable. In such a situation, any attempt to prevent a transfer of economic resources obligations would disrupt an entities’ operation thus leading to economic consequences that can negative affect a business than the entity itself. For this reason, it is immaterial as to whether a firms’ management intends to honor the liability or the transfer is likely to occur.
Objections of Preparers of Financial Statements to the Proposed Changes to the Definition
As much as the updates on the definitions of liabilities and description of a present obligation have impacted positively in the report...