Asset - Asset Characteristics

Asset Characteristics

Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board. The following is a quotation from the IFRS Framework: "An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise."

This means that:

• The probable present benefit involves a capacity, singly or in combination with other assets, in the case of profit oriented enterprises, to contribute directly or indirectly to future net cash flows, and, in the case of not-for-profit organizations, to provide services;
• The entity can control access to the benefit;
• The transaction or event giving rise to the entity's right to, or control of, the benefit has already occurred.

Employees are not considered to be assets, like machinery is, even though they are capable of generating future economic benefits. This is because an entity does not have sufficient control over its employees to satisfy the Framework's definition of an asset.

Similarly, in economics an asset is any form in which wealth can be held.