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Assets and Liabilities: When Do They Exist?

47 Pages Posted: 8 Mar 2016 Last revised: 31 Aug 2017

Nicole L. Cade

University of Pittsburgh - Accounting Group

Lisa Koonce

University of Texas

Kim I. Mendoza

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: August 29, 2017

Abstract

In this paper, we investigate whether the current references to probability in standard setters’ conceptual definitions of assets and liabilities cause individuals to believe that the probability of a future transfer of economic benefits must be above some meaningful threshold for an asset or a liability to exist—a belief that is contrary to standard setters’ intent. Results of multiple experiments indicate that the majority of individuals do use a high probability threshold to determine asset existence whereas, in a liability context, the majority use a very low threshold. Thus, even under ceteris paribus conditions, liabilities are more frequently judged to exist than assets—a phenomenon analogous to accounting conservatism as has been discussed in terms of the performance statement. These findings are robust to variations in context and alternative approaches to judging existence. Our study provides important insights for standard setters as they continue work on their missions to update their Conceptual Frameworks and for researchers regarding the role of conservatism on the balance sheet.

Keywords: conceptual framework, assets, liabilities, definitions, probability

JEL Classification: M40, M41

Suggested Citation

Cade, Nicole L. and Koonce, Lisa and Mendoza, Kim I., Assets and Liabilities: When Do They Exist? (August 29, 2017). Available at SSRN: https://ssrn.com/abstract=2742336 or http://dx.doi.org/10.2139/ssrn.2742336

Nicole L. Cade

University of Pittsburgh - Accounting Group ( email )

United States

Lisa L. Koonce

University of Texas ( email )

Dept. of Accounting
McCombs School of Business
Austin, TX 78712
United States
512-471-5576 (Phone)
512-471-3904 (Fax)

Kim Ikuta Mendoza (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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