CONCEPTUAL

FRAMEWORK FOR
FINANCIAL REPORTING
Purpose of Conceptual Framework

The Conceptual Framework prescribes the concepts for

general purpose financial reporting. Its purpose is to:
a. Assist the International Accounting Standards Board
(IASB) in developing Standards that are based on
consistent concepts;
b. Assist preparers in developing consistent accounting
policies when no Standard applies to a particular
transaction or when a Standard allows a choice of
accounting policy; and
c. Assist all parties in understanding and interpreting
the Standards.
The Conceptual Framework provides the foundation for
the development of Standards that:

a. Promote transparency by enhancing the international

comparability and quality of financial information.
b. Strengthen accountability by reducing the information
gap between providers of capital and the entity’s
management.
c. Contribute to economic efficiency by helping investors
to identify opportunities and risks around the world,
thus improving capital allocation. The use of a single,
trusted accounting language lowers the cost of capital
and reduces international reporting costs.
Status of the Conceptual Framework

The Conceptual Framework is not a Standard. If there is a conflict between a

Standard and the Conceptual Framework, the requirement of the Standard will
prevail.

The authoritative status of the Conceptual Framework is depicted in the hierarchy

of guidance shown below:
Hierarchy of reporting Standards

1. PFRSs
2. Judgment
When making the judgment:
 Management shall consider the following:
a. Requirements in other PFRSs dealing with the similar
transactions
b. Conceptual Framework
 Management may consider the following:
a. Pronouncements issued by other standard-setting bodies
b. Other accounting literature and industry practices
Scope of the Conceptual Framework

The Conceptual Framework is concerned with general purpose financial

reporting. General purpose financial reporting involves preparation of
general purpose financial statements. The Conceptual Framework
provides the concepts that underlie general purpose financial reporting with
regard to the following:

1. The objective of financial reporting

2. Qualitative characteristics of useful financial information
3. Financial statements and the reporting entity
4. The elements of financial statements
5. Recognition and derecognition
6. Measurement
7. Presentation and disclosure
8. Concepts of capital and capital maintenance
I. Objective of financial reporting
 
“The objective of general purpose financial
reporting is to provide financial information about
the reporting entity that is useful to existing and
potential investors, lenders and other creditors in
making decisions about providing resources to the
entity”.

This objective is the foundation of the Conceptual

Framework. All other aspects of the Framework
revolve around this objective.
Primary users

The objective of financial reporting refers to the following, so called the primary users:
1. Existing and potential investors; and
2. Lenders and other creditors

The Conceptual Framework is concerned with general purpose financial reporting.

General purpose financial reporting (or simply ‘financial reporting’) deals with
providing information that caters to the common needs of the primary users. Therefore,
general purpose financial reports do not and cannot provide all the information needs of
primary users. These users will need to consider other sources for their other
information needs.

General purpose financial reports do not directly show the value of a reporting entity.
However, they provide information that helps users in estimating the value of the entity.

Providing useful information requires making estimates and judgments. The Conceptual
Framework establishes the concepts that underlie those estimates and judgments.
Decisions about providing resources to the entity

The primary users’ decision about providing resources to the

entity involve decisions on:
a. Buying, selling or holding investments;
b. Providing or settling loans and other forms of credit; or
c. Exercising voting or similar rights that could influence
management’s actions relating to the use of the entity’s
economic resources.

These decisions depend on the investor/lender/other creditor’s

expected returns (e.g., investment income or repayment of loan).
Expectations about returns, in turn, depend on assessments of the
entity’s (i) prospects for future net cash inflows and (ii)
management stewardship.
Information on Economic resources, Claims and
Changes
 
General purpose financial reports provide information on a
reporting entity’s:
a. Financial position – information on economic resources
(assets) and claims against the reporting entity (liabilities and
equity); and
b. Changes in economic resources and claims – information on
financial performance (income and expenses) and other
transactions and events that lead to changes in financial
position.

Collectively, all these information are referred to under the

Conceptual Framework as the economic phenomena.
Economic resources and claims

Information on economic resources (assets) and claims (liabilities) helps users assess the
entity’s:
a. Liquidity and solvency
b. Needs for additional financing and how successful it is likely to be in obtaining that financing; and
c. Management’s stewardship on the use of economic resources.
 
 Liquidity refers to an entity’s ability to pay short-term obligations while solvency
refers to an entity’s ability to meet its long-term obligations.
 
All of these contribute to the assessment of the entity’s ability to generate future cash
flows. For example:
• Information on currently maturing receivables and obligations can help users assess the timing of
future cash flows.
• Information about the nature of economic resources can help users assess whether a resource can
produce future cash flows independently or only in combination with other resources.
• Information on liquidity and solvency helps users assess the entity’s ability to obtain additional
financing. Overleverage (use of too much debt) may cause difficulty in obtaining additional
financing.
• Information about priorities and payment requirements of claims can help users predict how future
cash flows will likely to be distributed among the claims.
Changes in economic resources and claims

Changes in economic resources and claims result from:

a. Financial performance (income and expenses); and
b. Other events and transactions
 
Information on financial performance helps users assess the
entity’s ability to produce return from its economic resources.
Return provides an indication on how well management has
efficiently and effectively used the entity’s resources.
Information based on accrual accounting provides a better
basis for assessing an entity’s financial performance than
information based solely on cash receipts and payments
during the period.
II. Qualitative Characteristics

The qualitative characteristics of useful

financial information identify the types of
information that are likely to be most useful
to the primary users in making decisions
using an entity’s financial report. Qualitative
characteristics apply to information in the
financial statements as well as to financial
information provided in other ways.
The Conceptual Framework classifies the qualitative
characteristics into the following:

1) Fundamental qualitative characteristics – these are the

characteristics that make information useful to users. The
consist of the following:
a. Relevance
b. Faithful representation
 
2) Enhancing qualitative characteristics – these are the
characteristics that enhance the usefulness of information.
They consist of the following:
c. Comparability
d. Verifiability
e. Timeliness
f. Understandability
Relevance

Information is relevant if it is capable of making a difference in

the decisions made by users. Relevant information has the
following:
a. Predictive value – the information can help users in making
predictions about future outcomes.
b. Confirmatory value (feedback value) – the information can help users
in confirming their previous predictions.
 

Predictive value and confirmatory value are interrelated.

Information that has predictive value is likely to also have
confirmatory value. For example, revenue in the current period
can be used to predict revenue in a future period and at the same
time can also be used in confirming a past prediction.
Materiality

“Information is material if omitting, misstating or obscuring it could

reasonably be expected to influence decisions that the primary users of a
specific reporting entity’s general purpose financial statements make on
the basis of those financial statements”.

The Conceptual Framework states that materiality is an ‘entity-specific’

aspect of relevance, meaning materiality depends on the facts and
circumstances surrounding a specific entity. Accordingly, the Conceptual
Framework and the Standards do not specify a uniform quantitative
threshold for materiality. Materiality is a matter of judgment.

IFRS Practice Statement 2 Making Materiality Judgments provides a non-

mandatory guidance that entities may follow in making materiality
judgments. The guidance consists of a four-step process called
“materiality process”.
The four-step Materiality Process

 Step 1 – identify information that has the potential to be material.

 Step 2 – Assess whether the information identified in Step 1 is, in

fact, material.

 Step 3 – Organize the information within the draft financial

statements in a way that communicates the information clearly and
concisely to primary users.

 Step 4 – Review the draft financial statements to determine

whether all material information has been identified and
materiality considered from a wide perspective and in aggregate,
on the basis of the complete set of financial statements.
Faithful representation
 

Faithful representation means the information provides a true, correct and

complete depiction of what it purports to represent. Faithfully represented
information has the following characteristics:

a. Completeness – all information (in words and numbers) necessary for users to
understand the phenomenon being depicted is provided.
b. Neutrality – information is selected or presented without bias. Information is
not manipulated to increase the probability that users will receive it favorably
or unfavorably. Neutrality is supported by prudence, which is the use of caution
when making judgments under conditions of uncertainty, such that assets or
income are not overstated and liabilities or expenses are not understated.
c. Free from error – this does not mean that the information is perfectly accurate
in all respects. Free from error means there are no errors in the description and
in the process by which the information is selected and applied. If the
information is an estimate, that fact should be described clearly, including an
explanation of the process used in making that estimate.
Comparability

Information is comparable if it helps users identify similarities and

differences between different sets of information that are provided by:
a. A single entity but in different periods (intra-comparability); or
b. Different entities in a single period (inter-comparability).

Comparison is not uniformity, meaning like things must look alike

and different things must look differently. It would be inappropriate to
make different things look alike, or vice versa.

Although related, consistency and comparability are not the same.

Consistency refers to the use of the same methods for the same items.
Comparability is the goal while consistency is the means of achieving
that goal.
Verifiability

Information is verifiable if different users could reach

an agreement as to what the information purports to
represent.

Verification can be direct or indirect. Direct

verification involves direct observation (e.g., counting
of cash). Indirect verification means recalculating
using the same formula (e.g., checking the inputs in the
cash ledger and recalculation the ending balance).
Timeliness

Information is timely if it is available to users in time to be able to influence

their decisions.

Understandability

Information is understandable if it is presented in a clear and concise manner.

Understandability does not mean that complex matters should be excluded to

make information understandable to users because this would make
information incomplete and potentially misleading. Accordingly, financial
reports are intended for users:

a. Who have reasonable knowledge of business activities; and

b. Who are willing to analyze the information diligently.
III. Financial statements and the Reporting entity

The objective of general purpose financial statements is to provide

financial information about the reporting entity’s assets, liabilities, equity,
income and expenses that is useful in assessing:
a. The entity’s prospects for future net cash inflows; and
b. Management’s stewardship over economic resources.

That information is provided in the:

c. Statement of financial position (for recognized assets, liabilities and
equity;
d. Statement(s) of financial performance (for income and expenses); and
e. Other statements and notes (for additional information on recognized
assets and liabilities, information on unrecognized assets and
liabilities, information on cash flows, information on contributions
from/distributions to owners, and other relevant information).
Reporting period

Financial statements are prepared for a specified period of time

and provide information on assets, liabilities and equity that
existed at the end of the reporting period, or during the reporting
period, and income and expenses for the reporting period.

Comparative information

To help users of financial statements in evaluating changes and

trends, financial statements also provide comparative information
for at least one preceding reporting period. For example, an
entity’s 2019 current-year financial statements include the 2018
preceding year financial statements as comparative information.
This allows users to assess the information’s intra-comparability.
Going concern assumption

Financial statements are normally prepared on the

assumption that the reporting entity is a going concern,
meaning the entity has neither the intention nor the
need to end its operations in the foreseeable future.

If this is not the case, the entity’s financial statements

are prepared on another basis (e.g., measurement at
realizable values rather than mixture of costs and
values).
The reporting entity

A reporting entity is one that is required, or chooses, to prepare

financial statements, and is not necessarily a legal entity. It can be a
single entity or a group or combination of two or more entities.

Sometimes an entity controls another entity. The controlling entity is

called the parent, while the controlled entity is called the subsidiary. “If
a reporting entity comprises of both the parent and its subsidiaries, the
reporting entity’s financial statements are referred to as ‘consolidated
financial statements’. If a reporting entity is the parent alone, the
reporting entity’s financial statements are referred to as ‘unconsolidated
financial statements’.

If a reporting entity comprises two or more entities that are not all
linked by a parent-subsidiary relationship, the reporting entity’s
financial statements are referred to as ‘combined financial statements’.
IV. The
Elements of Financial
Statements

The elements of financial statements are:

1. Assets
2. Liabilities
3. Equity
4. Income
5. Expenses
Asset

Asset is “a present economic resource controlled by the

entity as a result of past events. An economic resource
is a right that has the potential to produce economic
benefits”.

The definition of asset has the following three aspects:

a. Right
b. Potential to produce economic benefits
c. Control
Right

Rights that have the potential to produce economic benefits include:

a. Rights that correspond to an obligation of another party:
i. Right to receive cash, goods or services
ii. Right to exchange economic resources with another party on favorable
terms.
iii. Right to benefit from an obligation of another party to transfer an economic
resource if a specified uncertain future event occurs.
b. Rights that do not correspond to an obligation of another party:
i. Right over physical objects (e.g., right to use a property or right to sell an
inventory).
ii. Right to use intellectual property.

Rights normally arise from law, contract or similar means.

Potential to produce economic benefits

The asset is the present right that has the potential to produce economic
benefits and not the future economic benefits that the right may produce.
Thus, the right’s potential to produce economic benefits need not be
certain, or even likely – what is important is that the right already exists
and that, in at least one circumstance, it would produce economic benefits
for the entity.

An economic resource can produce economic benefits for an entity in many

ways. For example, the asset may be:
a. sold, leased, transferred or exchanged for other assets;
b. Used singly or in combination with other assets to produce goods or
provide services;
c. Used to enhance the value of other assets;
d. Used to promote efficiency and cost savings; or
e. Used to settle a liability.
Control

Control means the entity has the exclusive right over the benefits of an
asset and the ability to prevent others from accessing those benefits.
Accordingly, if one party controls an asset, no other party controls that
asset.

Control does not mean that the entity can ensure that the resource will
produce economic benefits in all circumstances. It only means that if the
resource produces benefits, it is the entity who will obtain those benefits
and not another party.

Control normally stems from legally enforceable rights (e.g., ownership or

legal title). However, ownership is not always necessary for control to exist
because control can arise from other rights.

Physical possession is also not always necessary for control to exist.

Liability

Liability is “a present obligation of the entity to

transfer an economic resource as a result of past
event”.

The definition of liability has the following three

aspects:
a. Obligation
b. Transfer of an economic resource
c. Present obligation as a result of past events
Obligation

An obligation is “a duty or responsibility that an entity has no practical ability to

avoid”.

An obligation is either:
a. Legal obligation – an obligation that results from a contract, legislation, or
other operation of law; or
b. Constructive obligation – an obligation that results from an entity’s action
(e.g., past practice or established policies) that create a valid expectation on
others that the entity will accept and discharge certain responsibilities.

An obligation is always owed to another party. However, it is not necessary that

the identity of that party is known, for example, an obligation for environmental
damages may be owed to the society at large.

There can be instances where the existence of an obligation is uncertain. Until that
uncertainty is resolved (for example, by a court ruling), it is uncertain whether a
liability exists.
Transfer of an economic resource

The liability is the obligation that has the potential to require the transfer of
an economic resource to another party and not the future economic benefits
that the obligation may cause to be transferred. Thus, the obligation’s
potential to cause a transfer of economic benefits need not be certain, or
even likely, for example, the transfer may be required only if a specified
uncertain future even occurs. What is important is that the obligation
already exists and that, in at least one circumstance, it would require the
entity to transfer an economic resource.

An obligation to transfer an economic resource may be an obligation to:

a. Pay cash, deliver goods, or render services;
b. Exchange assets with another party on unfavorable terms;
c. Transfer assets if a specified uncertain future event occurs; or
d. Issue a financial instrument that obliges the entity to transfer an
economic resource.
Present obligation as a result of past events

The obligation must be a present obligation that exists

as a result of past events. A present obligation exists as
a result of past events if:

a. The entity has already obtained economic benefits

or taken an action; and
b. As a consequence, the entity will or may have to
transfer an economic resource that it would not
otherwise have had to transfer.
Examples:

 Entity A intends to acquire goods in the future.

Analysis:
Entity A has no present obligation. A present obligation arises only when Entity A:
a. Has already purchased and received the goods; and
b. As a consequence, Entity A will have to pay the purchase price.

 Entity C enters into an irrevocable commitment with another party to acquire

goods in the future, on credit.

Analysis:
A non-cancellable future commitment gives rise to a present obligation only when
it becomes onerous (i.e., burdensome), for example, if the goods become obsolete
before the delivery but Entity C cannot cancel the contract without paying a
substantial penalty. Unless it becomes burdensome, no present obligation normally
arises from a future commitment.
Although not stated in the sales contract, Entity D has a publicly-known policy
of providing free repair services for the goods it sells. Entity D has
consistently honored this implied policy in the past.

Analysis:
Entity D has a present constructive obligation to provide free repair services
for the goods it has already sold because:
a. Entity D has already taken an action by creating valid expectations on the
customers that it will provide free repair services; and
b. As a consequence, Entity D will have to provide those free services.

Entity E obtained a loan from a bank. Repayment of the loan is due in 10-
years’ time.

Analysis:
Entity E has a present obligation because it has already received the loan
proceeds, and as a consequence, has to make repayment, even though the bank
cannot enforce the repayment until a future date.
Equity

“Equity is the residual interest in the assets of the entity after

deducting all its liabilities”.

The definition of equity applies to all entities regardless of form

(i.e., sole proprietorship, partnership, cooperative, corporation,
non-profit entity, or government entity).

Although, equity is defined as a residual, it may be sub

classified in the statement of financial position. For example,
the equity of a corporation may be sub-classified into share
capital, retained earnings, reserves and other components of
equity. Reserves may refer to amounts set aside for the
protection of the entity’s creditors or stakeholders from losses.
Income

Income are “increases in assets, or decreases in liabilities, that result in increases in

equity, other than those relating to contributions from holders of equity claims”.

Expenses

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.

Contributions from, and distributions to, the entity’s owners are not income, and
expenses, but rather direct adjustments to equity.

Although income and expenses are defined in terms of changes in assets and
liabilities, information on income and expenses is just as important as information
on assets and liabilities because financial statement users need information on both
the financial position and financial performance of an entity.
V. Recognition and Derecognition

The recognition process

Recognition is the process of including in the statement of
financial position or the statement(s) of financial
performance an item that meets the definition of one of the
financial statement elements (i.e., asset, liability, equity,
income or expense). This involves recording the item in
words and in monetary amount and including that amount
in the totals of either of those statements.

“The amount at which an asset, a liability or equity is

recognized in the statement of financial position is referred
to as its ‘carrying amount’”.
The statements are linked because the recognition of one element (or
a change in its carrying amount) requires the recognition or
derecognition of another element(s).
 Recognition of income  Recording a sale increases
resulting in an increase in both ‘cash’/’receivable’ (asset)
asset. and ‘sales’ (income).
 Recognition of income  Earning an unearned income
resulting in a decrease in decreases ‘unearned income’
liability. (liability) and increases
income.
 Recognition of expense  Accruing unpaid salaries
resulting in an increase in increases both ‘salaries
liability. expense’ and ‘salaries payable’
(liability).
 Recognition of expense  Payment for supplies expense
resulting in a decrease in increases ‘supplies expense’
assets. and decreases ‘cash’.
Recognition criteria

An item is recognized if:

a. It meets the definition of an asset, liability, equity,
income or expense; and
b. Recognizing it would provide useful information,
i.e., relevant and faithfully represented information.

Both criteria above must be met before an item is

recognized. Accordingly, items that meet the definition
of a financial statement element but do not provide
useful information are not recognized, and vice versa.
Derecognition

Derecognition is the opposite of recognition. It is the removal of a previously

recognized asset or liability from the entity’s statement of financial position.

Derecognition occurs when the item no longer meet the definition of an asset
or liability, such as when the entity loses control of all or part of the asset, or
no longer has a present obligation for all or part of the liability.

On derecognition, the entity:

a. Derecognizes the assets or liabilities that have expired or have been
consumed, collected, fulfilled or transferred (i.e., ‘transferred
component’), and recognizes any resulting income and expenses.
b. Continues to recognize any assets or liabilities retained after the
derecognition (i.e., ‘retained component’). No income or expense is
normally recognized on the retained component unless there is a change
in its measurement basis. After derecognition, the retained component
becomes a unit of account separate from the transferred component.
VI. Measurement

Recognition requires quantifying an item in monetary

terms, but necessitating the selection of an appropriate
measurement basis.

The application of the qualitative characteristics,

including the cost constraint, is likely to result in the
selection of different measurement bases for different
assets, liabilities, income and expenses. Accordingly,
the Standards prescribe specific measurement bases for
different types of assets, liabilities, income and
expenses.
Measurement bases

The Conceptual Framework describes the following

measurement bases:

1. Historical cost
2. Current value
a. Fair value
b. Value in use and fulfillment value
c. Current cost
Historical cost

The historical cost of an asset is the consideration paid to

acquire the asset plus transaction costs.

The historical cost of a liability is the consideration

received to incur the liability minus transaction costs.

In cases where it is not possible to identify the cost, such

as on transactions that are not on market terms, the
resulting asset or liability is initially recognized at current
value. That value becomes the asset’s (liability’s) deemed
cost for subsequent measurement at historical cost
Unlike current value, historical cost does not reflect
changes in value, but is updated overtime to depict the
following:
Historical cost of an asset Historical cost of a liability
a. Impairment, depreciation a. Increase in the obligation
or amortization resulting from the liability
becoming onerous
b. Collections that extinguish b. Payments or fulfillments
part or all of the asset made that extinguish part
or all of the liability
c. Discount or premium c. Discount or premium
amortization when the amortization when the
asset is measured at liability is measured at
amortized cost amortized cost
Current value

Current value measures reflect changes in values at the

measurement date. Unlike historical cost, current value
is not derived from the price of the transaction or other
event that gave rise to the asset or liability.

Current value measurement bases include the

following:
a. Fair value
b. Value in use for assets and Fulfillment value for
liabilities
c. Current cost
Fair value

Fair value is “the price that would be received to sell an

asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date”.

Fair value reflects the perspective of market participants (i.e.,

participants in a market to which the entity has access).
Accordingly, it is not an entity-specific measurement.

Fair value can be measured directly by observing prices in an

active market or indirectly using measurement techniques,
e.g., cash-flow-based measurement techniques. Fair value is
not adjusted for transaction costs.
Value in use and fulfillment value

Value in use is “the present value of the cash flows, or other economic benefits,
that an entity expects to derive from the use of an asset and from its ultimate
disposal”.

Fulfillment value is “the present value of the cash, or other economic resources,
that an entity expects to be obliged to transfer as it fulfills a liability”.

“Value in use and fulfillment value reflect entity-specific assumptions rather

than assumptions by market participants”.

Value in use and fulfillment value are measured indirectly using cash-flow based
measurement techniques, similar to those used in measuring fair value but from
an entity-specific perspective rather than from a market-participant perspective.

Value in use and fulfillment value do not include transaction costs in acquiring
an asset or incurring a liability but include transaction costs expected to be
incurred on the ultimate disposal of the asset or fulfillment of the liability.
Current cost

Current cost of an asset is “the cost of an equivalent asset at the

measurement date, comprising the consideration that would be paid at
the measurement date plus the transaction costs that would be incurred
at that date”.

Current cost of a liability is “the consideration that would be received

for an equivalent liability at the measurement date minus the transaction
costs that would be incurred on that date”.

Current cost and historical cost are entry values (i.e., they reflect prices
in acquiring an asset or incurring a liability), whereas fair value, value
in use and fulfillment value are exit values (i.e., they reflect prices in
selling or using an asset or transferring or fulfilling a liability). Unlike
historical cost, however, current cost reflects conditions at the
measurement date.
VII. Presentation and disclosure objectives and
principles

Presentation and disclosure objectives are specified in

the Standards. Those requirements strive for a balance
between:

a. Giving entities the flexibility to provide relevant

and faithfully represented information; and
b. Requiring information that has both intra-
comparability and inter-comparability.
VIII.Concepts of Capital and Capital maintenance

The Conceptual Framework mentions two concepts of

capital, namely:

a. Financial concept of capital – capital is regarded

as the invested money or invested purchasing
power. Capital is synonymous with equity, net
assets, or net worth.
b. Physical concept of capital – capital is regarded as
the entity’s productive capacity, e.g., units of output
per day.
Commentary on the changes in the Conceptual
Framework
Asset
Previous version New version
 Definition  Definition
Asset is a resource controlled by Asset is a present economic
the entity as a result of past events resource controlled by the entity as
and from which future economic a result of past events.
benefits are expected to flow to the An economic resource is a right
entity. that has the potential to produce
economic benefits.
 Essential elements  Essential elements
a. Control a. Right
b. Past events b. Potential to produce economic
c. Future economic benefits benefits
c. Control
 Previous version New version
 Recognition criteria  Recognition criteria
a. The item meets the definition of a. The item meets the definition of
a financial statement element; a financial statement element;
b. It is probable that any future and
economic benefit associated with b. Recognizing it would provide
the item will flow to or from the useful information, i.e., relevant
entity; and and faithfully represented
c. The item has a cost or value that information.
can be measured with reliability.

Previous version New version

 Derecognition (asset)  Derecognition (asset)
Not specifically addressed An asset is derecognized when it has
expired or has been consumed,
collected, or transferred.
Liability
Previous version New version
Definition Definition
Liability is a present obligation Liability is a present obligation
of the entity arising from past of the entity to transfer an
events, the settlement of which economic resource as a result of
is expected to result in an past events.
outflow from the entity of
resources embodying economic
benefits.
Essential elements Essential elements
a. Present obligation arising a. Obligation
from past events b. Transfer of an economic
b. Outflow of economic resource
benefits c. Present obligation as a result
of past events