Discuss the criticisms that of SFAC No. 6?
What will be an ideal response?
ANSWER:
The definitions of the elements of financial statements have been criticized on the grounds that the various criteria for each of the categories is necessary but not sufficient to determine whether a general type of accounting event falls into a particular definitional category. However, it would be impossible to completely specify all characteristics of elements. The lack of completeness must be complemented by the professional judgment capabilities of the accountant and auditor.
It has also been argued that the FASB definition of assets that emphasized future economic benefits is grounded in future revenue and income measurement. Consequently, the matching concept is the primary focus of the definition. It has been argued that the asset definition should concentrate on property rights that are concerned with wealth, which provides a true balance sheet orientation. This would result in certain deferred charges being expensed immediately even though their incurrence may bring about future economic benefits.
Another argument related to the definitions of SFAC No. 6 concerns how broadly the term “past transactions” can be interpreted under the asset and liability definitions.
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