The Conceptual Framework for Financial Reporting defines an asset in a way that refers to a right.1 It defines a liability in a way that refers to an obligation.
The two definitions are interlinked more deeply than a superficial reading may suggest. Because one definition relies on the concept of a right, it is no accident that the other definition relies on the concept of an obligation. Although the Conceptual Framework does not say this explicitly, rights and obligations are two sides of the same coin:
- If an entity has a right to perform some action, it has no obligation not to perform that action.
- If an entity has a right not to perform some action, it has no obligation to perform that action.
- If an entity has an obligation to perform some action, it has no right not to perform that action.
- If an entity has an obligation not to perform some action, it has no right to perform that action.
Because of these equivalences, both definitions could, in theory, refer only to a right or only to an obligation. But that would have made the definitions impenetrably cumbersome. So the IASB did not rewrite them in that way.
Does the Framework mention this link?
The Conceptual Framework does not state explicitly that a right could be described as an absence of an obligation—and that an obligation could be described as an absence of a right. Nevertheless, the Conceptual Framework does make a somewhat similar point, though less generically: paragraph 4.29 states that an obligation is a duty or responsibility that an entity has no practical ability to avoid. Unpacking the last part of that statement: the entity has no right (that it can practically exercise) to avoid the duty or responsibility.
Finally, the Conceptual Framework makes a point about the relationship between one party’s obligation and a different party’s right. As paragraph 4.30 points out, if one party has an obligation to transfer an economic resource, another party (or parties) has a right to receive that economic resource. The point discussed above is different: it is about the relationship between one party’s right (or obligation) and the same party’s obligation (or right).
1the reference to a right is in the supporting definition of an economic resource, not in the definition of an asset itself.