Advanced Accounting: Memo To Colleague At Accounting Firm

Advanced Accounting

Name

Institution

Date

Memo to colleague at accounting firm To: Franklin Accounting Services

From:

Date April 22 2017 Subject: Changes to the definition of a Liability and description of a present obligation The existing definition of the liability of an entity highlights that it is the “present obligation that arises from the past events and there is expected to result in reflects resource outflows from the entity that embody economic benefits,” (IFRS 2013, p.4). As such, liability is a present obligation and this differentiates it from future commitments. The liability relates to the personal events and obligation that arise when the asset or service is received or there is a recoverable agreement to acquire the asset or service. The third component of the definition is that the liability is associated with the outflow of economic resources and this includes cash payments, transfer of other assets, obligations that arise, provision of services and replacing one obligation with another. The present obligation arises when there is no alternative, but to settle the obligation arising from past events for an entity that has received economic benefits or conducted activities that establish the obligation (IFRS 2013, p. 4). The proposed changes highlight that a “liability is recognized as a present obligation arsing out an entity transferring economic resources arising from past events” (IFRS 2013, p. 4). I highlight this as there is a need to understand how changes ii the definition of liability and personal obligation will affect how we record liabilities. In using the term expected, the existing definition can be misleading as entities may fail to emphasize the economic obligation at a particular date, and there it is still not clear how the contractual obligations apply the term. The proposed definition further represents economic resources, which are rights or the other sources of value that can produce economic benefits. The present definition does not define economic resources compared to the proposed changes, but in both cases the liabilities are recognized when they can be reliably measured.