The FASB has issued an Exposure Draft related to the Conceptual Framework. The proposed Concepts Statement would replace Concepts Statement No. 6 and would become Chapter 4: Elements of Financial Statements of Concepts Statement No. 8, Conceptual Framework for Financial Reporting. While not considered authoritative, Concepts Statements serve as the framework that the FASB uses to develop new standards.

The proposed Concepts Statement defines the 10 elements of financial statements as follows: assets, liabilities, equity (net assets), revenues, expenses, gains, losses, investments by owners, distributions to owners, and comprehensive income. While these 10 elements of the financial statements are largely the same as under the previously issued Concepts Statement No. 6, their definitions have been clarified and in some cases revised.

One notable difference is the definition of an asset under the proposed Concepts Statement no longer includes the term control. The proposed Concepts Statement instead uses the term present right. The FASB believes most assets that previously met the definition under Concepts Statement No. 6 will continue to meet the definition under the proposed Concepts Statement but that the new definition of an asset will be more useful when considering items such as internally generated intangible assets.

Another notable change contained within the proposed Concepts Statement is that the definition of a liability has been fundamentally expanded to include present obligations that are required to be settled with a variable amount of an entity’s own shares. The FASB describes in the “Basis For Conclusions” section that instruments which are settled with a fixed number of shares would vary in fair value with the value of outstanding stock and are thus equity interests. However, an obligation that requires the issuance of a number of shares equal to a specific value is in essence a liability. In the latter circumstance, the value to the recipient is fixed and conveys nothing like the returns and rewards of an equity shareholder.

The comment deadline for the Exposure Draft is November 13, 2020. The full text of the Exposure Draft is available here.

^{Readers should not act upon information presented without individual professional consultation.}