FASB Report Entitled Selected Issues Term Paper

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" To explain its thinking, the exposure draft provides an insurance contract as means of example on its proposed thinking of the relation between unconditional and conditional rights. According to the example, an entity purchasing an insurance contract has two inherit rights: both an unconditional right to the insurance coverage and a conditional right to reimbursement if an insured loss occurs sometime in the future. The unconditional right is a present asset, whereas the conditional right to reimbursement is not a present asset as it becoming an asset is dependent on an uncontrollable and unpredictable future event.

Likewise, the proposed conceptual framework also proposes to delete the term "contingent liability" from is standards. Under the current definition, "contingent liability" refers to either a possible obligation whose existence depends on a future event or a yet unrecognized present obligation. The reasoning for the proposed elimination is similar to that used for the proposed elimination of the term "contingent asset" previously discussed. Namely, the board proposes the term's deletion because "a contractual liability often comprises both an unconditional obligation that meets the definition of a liability and a conditional obligation that may indicate the presence of the related unconditional obligation but is itself only a possible future liability that does not meet the definition of a liability.

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When reviewing such proposed alterations to the current conceptual framework, the proposed changes are proactive ways of coordinating the definition of assets and liabilities as they relate to uncertainties. As is, the current conceptual frameworks use inconsistent terms and ideas between the standards and the framework, thus leading to inaccurate financial reporting. In order to be able to produce accurate financial reporting, a standardized format needs to be utilized. The purpose of the standards and conceptual framework is to provide this needed standardized format. Thus, it is essential that the guidance provided by the standards and conceptual framework be accurate and consistent. The proposed conceptual framework offered by the joint taskforce of the FASB and IASB succeeds at accomplishing this and therefore should be approved and adopted for use......

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