NationStates Jolt Archive

What a travesty! I am currently studying an accounting course for my bachelor in economics, and much to my cognitive dissonance, it seems the AASB (Australian Accounting Standards Board) do not recognise employees (or rather, employment contracts) as assets. What BS. The grounds that they base this premise is that it does not meet the recognition criteria in terms of control. that is they do not have economic conttrol of the employee, and so they may not list it as an asset. Golly what BS.

Allow me to elaborate on the accounting definition of an asset, so you don't get confused (it is not the same as what we call 'assets' in regular speech).

To be an asset, an item must meet all three of the follow criteria:

1) The item must be a result of a past action (e.g. signing a contract, fing some gold, purchasing the said item, etc)

2) The item must embody an expected inflow of economic benefit (e.g. expected to somehow make you richer than without it, marketablity, interest, enhancement of existing activities through usage or implementation, etc)

3) The item must be under the economic *control* of the entity claiming it as an asset. N.B. *Control* is not limited to legal ownership (e.g. a block of land you own, you control, thus it is an asset. A block of land you rent- and effectively control for economic purposes, is an asset. A signed contract promising the payment of money or rendering of services for your economic benefit, is an asset- as you economically control the contractor through the terms of the contract).

Furthermore, to be recognised at all an asset must be able to be
a) reliably measured ( cuts out most Intellectual property and trademarks, despite the fact they are assets, they are near impossible to measure in worth)
b)probable to effect economic benefit (if it isn't going to make you richer, even if it can, it is not an asset).

So an employment contract:
1) is the result of a past action (the mutual agreement to sign the contract)
2) embodies the realisation of an inflow of economic benefit (the reason you hire the person in the first place).
3) carries implicit economic control in the terms of the contract, just like any other (even though the employee has free will to do as he pleases, he has an obligation, or liability, to fulfill the terms of the contract he signed. This does not infringe upon his rights, it is just the result of a simple, agreement on behalf of two consenting parties. Even if it is possible, or even likely that the employee will be unreliable in his execution of his end of the deal- sick days, late, etc- this is written into the cost of the agreement as are the expected risks of any investment in an assset).

However, the AASB seems to think economic control of an employee somehow gives a bad orwellian vibe of reminiscent of slavery (despite the fact that they themselves invented the rule that economic control is not limited to legal ownership). It seems it is just a produc of PC, for I can see no other reason why the current situation may is the case.

Interestingly (and by 'interestingly' I mean 'hypocritically') the AASB has created an exemption for the contracts of sports-stars to sporting clubs, on the grounds that their contracts are bought and sold as assets- SOMETHING NOT EVEN IN THE CRITERIA. They are just blatantly making up rules now. What is the difference between the employment contracxt signed by a football player to his club, and the employment contract signed by a lawyer to his firm?

Let us remember that the role of accountancy is to inform. To inform the economic decision of interested parties to better equip them in the making of financial decisions. Thus accounting tries as hard as it can to give as accurate of a summary of the economic status of an entity as is possible.

Think about how this discrepancy reflects upon the accuracy of the accounting for service based industries. A Law firm, whose sole marketable purpose is the provision of skilled labour for the benefit of clients, is forced to write off all of it's most central and fundamental assets (it's trained and professional lawyers) as expenses! EXPENSES! How is it possible to accurate assess the worth of a law firm when their key asset cannot even be capitalised on the balance sheet?!

It's a travesty! And don't even start with your bleeding heart leftist shit "But then we'll all be slaves if we are listed as assets on the company balance sheet". Your status in terms of you economic contribution to your company impacts in no way on the real wortld, except in so far as how people read your contribution to the company.

For those of you who didn't read anything- control of an asset is not limited to legal ownership.

now join me in the self-gratifying dick wankery in acknowledgement that the system is screwed, for no apparent reason, and that we'd do it better 'if we were in charge'. Fucking government. A private AASB wouldn't pull this kind of shit.

http://farm1.static.flickr.com/82/316991530_4381e9ab5e_o.jpg

. *snip* A Law firm, whose sole marketable purpose is the provision of skilled labour for the benefit of clients, is forced to write off all of it's most central and fundamental assets (it's trained and professional lawyers) as expenses! EXPENSES! How is it possible to accurate assess the worth of a law firm when their key asset cannot even be capitalised on the balance sheet?!

Makes sense to me. The Law firm pays the Lawyers. It's an expense.

I wonder how professional sports teams view there players? They are an expense however if they do well they become an asset for trades.

There's an easy solution to this, though they might not see it. Just change the rules so instead of the employee being an asset, the contract you have with them is an asset.

Given how easy it is for your 'asset' to decide not to be your 'asset' and move to another company I do not see how you have economic control over them.

At any moment most employees can up and leave for another company or to start their own.

This is different to a contract where another company has contracted you to do work for them - as in that case it is very hard for them to quit the contract - which is why a contract for work can be an asset - it is guarenteed income (provided you do the work)

Some contracts are binding for a length of time, which is slightly different - however you would be really dumb to keep an employee in an important position against their will if you knew they intended to leave.

Sports contracts however are a bit different due to the way sports teams run. If you have a contract with a footballer for the next 5 years then you can sell the remainder of the contract to another team - this remaining contract has real value. Normally this is only done when the sportsman in question is happy for the transfer - but seeing as it normally involves a big pay rise they tend to be quite amicable to the deal. I suspect such a contract also prevents the footballer from just quitting and going to play for another team - but again, the team he is currently with would be very dumb to keep him playing would be a total liability and benching would be potentially burning millions by not cashing in on their transfer value. This system works for sport as it has a lot of benefit for the player - if they injure themselves, which is very likely, they keep their generous income for the next few years - which is why they are prepared to sign binding employment contracts lasting several years. Lawyers do not have this worry to nearly the same extent, and so do not sign legally binding contracts they can't easily get out of for 5 years.

Then there is slavery - I supose they would be assets as they can't choose to leave your employment and you can sell them against their will.

It seems to me you could more accurately say the employee-contracts are the assets, in economic terms.

Absence of control, an employee can leave an employer at anytime, an employee can choose to perform now work of benefit to the employer, an employee can choose to deliberately hinder the profit of an employer. It is the mixture of choice and employees counter-interests that prevent them from becoming assets.

http://farm1.static.flickr.com/82/316991530_4381e9ab5e_o.jpg

hehe, silly proletariat...

Makes sense to me. The Law firm pays the Lawyers. It's an expense.
nonononononononononono. no. No. the law firm *buys* the Lawyers time and expertise. It is an asset. Just like if the Law firm bought an investment property. Not an expense, but a capital investment (asset).

There's an easy solution to this, though they might not see it. Just change the rules so instead of the employee being an asset, the contract you have with them is an asset.
Well the employee was never really the asset at all anyway, it is the contract that you hold with them that justifies the capitalising of their wage on the balance sheet. However, AASB disagrees with both you and I. For some BS reason and employment contract (unlike all other contracts) 'doesn't count'.

Given how easy it is for your 'asset' to decide not to be your 'asset' and move to another company I do not see how you have economic control over them. Thats why it is the contract which embodies the asset, and not them. even if it is just a monthly contract, or even indefinite, as long as that contract is of a going concern it counts. If for some reason you lose control of the asset (like if they left for another company, or if your landlord evicted you from youre rental asset), then it goes down on the balance sheet. Remember, a balance sheet is just an economic snapshot in time, it does not provide for the future or the past. Just the present. Thus, if the employee is currently an asset, they go on the balance sheet. If they leave, they go off the balance sheet.

At any moment most employees can up and leave for another company or to start their own.

This is different to a contract where another company has contracted you to do work for them - as in that case it is very hard for them to quit the contract - which is why a contract for work can be an asset - it is guarenteed income (provided you do the work)

Some contracts are binding for a length of time, which is slightly different - however you would be really dumb to keep an employee in an important position against their will if you knew they intended to leave.

Then there is slavery - I supose they would be assets as they can't choose to leave your employment. Yeah, the first thing i said. The duration of the terms of their contract is immaterial, as long as it is presently valid.

Absence of control, an employee can leave an employer at anytime, an employee can choose to perform now work of benefit to the employer, an employee can choose to deliberately hinder the profit of an employer. It is the mixture of choice and employees counter-interests that prevent them from becoming assets.
However it is reasonable assumed that they will not arbitrarily leave on a contract that they agreed was worthwhile. Furthermore, as stated above, the control only has to be temporally confined to the moment that the balance sheet is calculated. As such, even if the employee is leaving tomorrow, they go on the balance sheet today.

Thats why it is the contract which embodies the asset, and not them. even if it is just a monthly contract, or even indefinite, as long as that contract is of a going concern it counts. If for some reason you lose control of the asset (like if they left for another company, or if your landlord evicted you from youre rental asset), then it goes down on the balance sheet. Remember, a balance sheet is just an economic snapshot in time, it does not provide for the future or the past. Just the present. Thus, if the employee is currently an asset, they go on the balance sheet. If they leave, they go off the balance sheet.
However a rental property is normally on a contract that guarentees your right to be there for a length of time - even if the landlord wants to boot you out - further to this your relationship with your landlord will not overtly hinder your companies performance. You do not have this guarentee with an employee.


Yeah, the first thing i said. The duration of the terms of their contract is immaterial, as long as it is presently valid.
The duration directly affects the value of the contract. A contract with 2/4weeks notice has no value - you cannot sell it to another company.

However it is reasonably assumed that they will not arbitrarily leave on a contract that they agreed was worthwhile.
Why? This happens all the time.

No. the law firm *buys* the Lawyers time and expertise. It is an asset. Just like if the Law firm bought an investment property. Not an expense, but a capital investment (asset).
The firm owns the time already worked. They own any products of it. They own patents and IP and the like - these are assets. They do not own future time and they do not have economic control over the employee.

However a rental property is normally on a contract that guarentees your right to be there for a length of time - even if the landlord wants to boot you out - further to this your relationship with your landlord will not overtly hinder your companies performance. You do not have this guarentee with an employee. immaterial. The guarntee is not essential to meet the AASB recognition criteria. All they require is that it is 'probable' that the asset will realise it's value through the inflow of economic benefit (which it already does anyhow, if it is a non-temporal contract. i.e. the ongoing and undefined period of wages constantly realise their value from the ongoing and undefined period of work). Which it is. Employees fucking over their companies are the exception to the rule.


The duration directly affects the value of the contract. A contract with 2/4weeks notice has no value - you cannot sell it to another company. Assets are not valued by market price for just that reason, too many kinds of assets are unsellable. Rather Assets are valued at 'historical cost' (i.e.whatever it cost you in the first place, the safest and most prudent method of asset valuation).


Why? This happens all the time. however it is assumed that it won't. If i employ you, i assume that you will not disappear tomorrow. It is 'probable' that you won't.


The firm owns the time already worked. They own any products of it. They own patents and IP and the like - these are assets. They do not own future time and they do not have economic control over the employee. They do. This is called accrual accounting, wherein transactions are accounted for as of the transaction date, rather than cash accounting wherein transactions are accounted for as payment is made/recieved. That is to say, if i sign a contract in which you promise me 1 day/month/year of work, I am considered as having that work as an asset already 9the unpaid wages go to the 'accounts payable' account under liabilities. This is double entry accounting in a nutshell.

immaterial. The guarntee is not essential to meet the AASB recognition criteria. All they require is that it is 'probable' that the asset will realise it's value through the inflow of economic benefit (which it already does anyhow, if it is a non-temporal contract. i.e. the ongoing and undefined period of wages constantly realise their value from the ongoing and undefined period of work). Which it is. Employees fucking over their companies are the exception to the rule.
This still has not shown how they have any economic control over the employee. As demonstrated by employees around the world every day employers have little economic control over wether you stay or not.

And employees fucking over employers, many companies with employees in critical positions prefer to pay the employee their notice without requireing the employee continue to work - so not that much of an exception.


Assets are not valued by market price for just that reason, too many kinds of assets are unsellable. Rather Assets are valued at 'historical cost' (i.e.whatever it cost you in the first place, the safest and most prudent method of asset valuation).
And this would point to the value of the past products of your employees work rather than the employee themselves.


however it is assumed that it won't. If i employ you, i assume that you will not disappear tomorrow. It is 'probable' that you won't.
But you have no control over wether I do or not.


They do. This is called accrual accounting, wherein transactions are accounted for as of the transaction date, rather than cash accounting wherein transactions are accounted for as payment is made/recieved. That is to say, if i sign a contract in which you promise me 1 day/month/year of work, I am considered as having that work as an asset already the unpaid wages go to the 'accounts payable' account under liabilities. This is double entry accounting in a nutshell.
This would indicate the contract rather than the employee is the asset.

It would also indicate the company has no ownership of any time more than two/four weeks in advance - which would make the value of the asset pretty minimal.

This still has not shown how they have any economic control over the employee. As demonstrated by employees around the world every day employers have little economic control over wether you stay or not. It is not control over the employee, it is control invested in the contract between yourself and the employee. You have economic control written into the terms of the contract (as does the employee, control is not mutually exclusive between the two parties).

And employees fucking over employers, many companies with employees in critical positions prefer to pay the employee their notice without requireing the employee continue to work - so not that much of an exception. Who with the what now?

And this would point to the value of the past products of your employees work rather than the employee themselves. Right. The inflow of economic benefit for which you hired them for in the first place. I am beginning to detect we are argueing along different lines. I am not saying the employee as a human is an asset. I am saying that the employee as represented in their contract is an asset. Not them, but their commitment. Their status as an employee, if you will.

But you have no control over wether I do or not. However I had control over your obligation to do so as written in your employment contract. If you in fact do not is a seperate matter all together, the fact is that you have a liablility to do so. This meets the criteria for control, even if the shit hits the fan on the employees end. The contract is the key.


This would indicate the contract rather than the employee is the asset. *Cries*

It would also indicate the company has no ownership of any time more than two/four weeks in advance - which would make the value of the asset pretty minimal.over time it amounts to the same, especially since the benefit of past ongoing contracts would be present in Owners Equity as retained profits. Anyhow, and form of capitalisation of the employment contract is prefferable to a simple expensing of it.

That really is the sum of it. When a company signs an employment contract, they are investing in the asset of that employee's skills, time, and labour. They do so for the positive effects this contract bestows upon the business. To consider such an arrangement as a simple expense is erroneous, for why would the company continually and voluntarily incur this expense? Because they care for the well being of the employees? Not likely. Because the employees contribution (as manifested in their contract) is economically beneficial to the company. It is an asset.

hehe, silly proletariat...

Yeah, I'll bet that guy that makes the widgets is every bit smart enough to get a 300% gross margin.

Sports teams often do count players as assets, and that's a problem. Here's why:

As assets, they can depreciate. As their contracts expire, their value drops to zero; that depreciation counts as a loss for tax purposes. But, they also get to count salary as a loss, so the employees are getting double counted.

Counting employees as assets creates this problem Every time.

Valuing employment contracts as assets makes as much sense as valuing a rental contract on property as an asset. Contracts such as this are classed as operating leases (where a lessee pays a lessor a value much less than the overall value of the asset being leased in return for usage which is normally much less than the operating life of the asset) and are not classed as assets, but as expenses. The reason they are not classed as assets is because the lessee (in this case the employer) does not accept the risk and rewards associated with the performance of the asset provided by the lessor (in this case the labour provided by the employee). Most risks and rewards of labour are in the control of the employee - if the employee should find themselves incapable of providing their labour, such as through a severe illness, their employer will simply terminate their employment contract, so the risk is on the lessor, not the lessee. Similarly, if the employee should find that their skills are now in higher demand, such as through the widespread use of technology which they are highly qualified to operate or maintain, then the employee is perfectly entitled to end their current employment contract and seek a more lucrative contract. Obviously some risks and rewards are transferred to the employer but to a far smaller degree than those retained by the employee. So the risk and rewards are controlled by the employee (the lessor) rather than the employer (the lessee).

If the contract was classed as a financial lease, then it should be classed as an asset. However, to do so the lessee would have to take on the majority of the risks and rewards of the asset, which does not take place with an employment contract, and the lessee would have to agree to pay the lessor an amount equivalent to the full value of the asset - in this case, the employer would have to pay the employee's wages for the probable length of their usable life - that's almost fifty years of wages!

This is why employment contracts are not classified as assets.

<comic snipped>

When have you ever been to a company where the owner just stands around telling people to work faster? They would be a bit too busy with decision making and organising the overall working of the company.

The actual manufacturing is only a small part of the operations. Someone has to decide what the company is going to do, how it will do it, who's going to be interested in the product/services, how to get it to them, etc. etc.

http://farm1.static.flickr.com/82/316991530_4381e9ab5e_o.jpg

Cute.

Vast oversimplification, but cute.

Sports teams often do count players as assets, and that's a problem. Here's why:

As assets, they can depreciate. As their contracts expire, their value drops to zero; that depreciation counts as a loss for tax purposes. But, they also get to count salary as a loss, so the employees are getting double counted.

Counting employees as assets creates this problem Every time.

But wouldn't you just be depreciating the cost of the contract, which you'd have taken as an expense in one big whack anyway if you hadn't capitalised it. And you'll end up paying tax when you come to sell the player on, the more you've depreciated him, the higher the profit on disposal so the higher the tax.

Interestingly (and by 'interestingly' I mean 'hypocritically') the AASB has created an exemption for the contracts of sports-stars to sporting clubs, on the grounds that their contracts are bought and sold as assets- SOMETHING NOT EVEN IN THE CRITERIA. They are just blatantly making up rules now. What is the difference between the employment contracxt signed by a football player to his club, and the employment contract signed by a lawyer to his firm?

i think this falls under the 'must be able to be measured reliably' part of the asset definition. Unlike most other forms of employment, sporting contracts are actively traded which means you can very easily put your finger on the acual cost of the contract, rather than leaving it up to the FD to just put any figure he felt like on his balance sheet.

Valuing employment contracts as assets makes as much sense as valuing a rental contract on property as an asset. *void*
A rental contract on a property is considered an asset. Officially, by AASB accounting standards. Economic control is not limited to ownership. Try not to confuse the word 'asset' with the accounting term 'asset'.

i think this falls under the 'must be able to be measured reliably' part of the asset definition. Unlike most other forms of employment, sporting contracts are actively traded which means you can very easily put your finger on the acual cost of the contract, rather than leaving it up to the FD to just put any figure he felt like on his balance sheet.
It is easily measured in the same manner as all assets. Historical cost. That is, you list the value of the asset as whatever it cost you to acquire. This is a deliberate underestimation, purely for the purposes of conservatism. Measuring assets by market price is too unreliable, and too prone to abuse.

A rental contract on a property is considered an asset. Officially, by AASB accounting standards. Economic control is not limited to ownership. Try not to confuse the word 'asset' with the accounting term 'asset'.

Excuse me what? I thought we were talking about classifying employment contracts as assets by the accounting definition of an asset as set out in regulations by the Accounting Standards Board. In what sense of the word asset are you talking about?

Can you buy and sell employees?

No?

Not an asset.

Thus accounting tries as hard as it can to give as accurate of a summary of the economic status of an entity as is possible.*blinks* You ain't never going to be my accountant.

Excuse me, disregard my previous post as I was confused.

GreaterPacificNations, since when has a rental contract on a property been considered an asset? In four years of studying accountancy I have not once encountered a rental contract being classified as an asset. I would like to ask you to point me towards any financial reporting standard, textbook article or lecture note which says that rental on a property should be classified as an asset and presumably included on a balance sheet as such.

@Ifreann: not all assets are things that can be bought and sold. For example, a debtor is an asset.

@Ifreann: not all assets are things that can be bought and sold. For example, a debtor is an asset.

Oh yeah.....
*recalls the brief days of accounting in business class*

Bleh, nasty stuff.

Oh yeah.....
*recalls the brief days of accounting in business class*

Bleh, nasty stuff.

I'm pretty sure you can sell a debt.

But anyway - the debt is something the debtor owes you. They can't just up and leave deciding not to owe you money anymore. Unlike an employee.

GreaterPacificNations, since when has a rental contract on a property been considered an asset? In four years of studying accountancy I have not once encountered a rental contract being classified as an asset. I would like to ask you to point me towards any financial reporting standard, textbook article or lecture note which says that rental on a property should be classified as an asset and presumably included on a balance sheet as such.

@Ifreann: not all assets are things that can be bought and sold. For example, a debtor is an asset.
See if you can get a copy of the Woolworths limited balance sheet. They rent most of their supermarket premises, yet the said premises are listed as assets seeing as the rental contract embodies economic control (which is, as you know, not limited to ownership). Mind you, I cannot assume that the Australian Accounting Standards Board have completely aligned their standards with all of the varied standards of the world. However, i do know they put a very active effort into it, and as such assume it should be the same wherever you are.

Isn't payroll a liability under GAAP. (To be honest, it is years since I thought about this.)

Anyway, they aren't assets because you don't have exclusive economic control over them. DUH.

Some employees are assets, sports teams and such, or those that have non-competition contracts, but they would be booked differently.

Basically, people are fungible. Live with it.

See if you can get a copy of the Woolworths limited balance sheet. They rent most of their supermarket premises, yet the said premises are listed as assets seeing as the rental contract embodies economic control (which is, as you know, not limited to ownership). Mind you, I cannot assume that the Australian Accounting Standards Board have completely aligned their standards with all of the varied standards of the world. However, i do know they put a very active effort into it, and as such assume it should be the same wherever you are.

And the contract guarentees them the use of the property they are renting for the duration of the contract. Neither side can terminiate the contract without the others permission. Very few employment contracts are like that - generally the employee can up and leave regardless of wether the employer wants them to.

The contract with an employee does not mean the employer has economic control of them. They have economic control of the products of their work, but not of the employee - who, based on the frequency with which people switch jobs these days, argeuably has more control than the employer.

See if you can get a copy of the Woolworths limited balance sheet. They rent most of their supermarket premises, yet the said premises are listed as assets seeing as the rental contract embodies economic control (which is, as you know, not limited to ownership). Mind you, I cannot assume that the Australian Accounting Standards Board have completely aligned their standards with all of the varied standards of the world. However, i do know they put a very active effort into it, and as such assume it should be the same wherever you are.

Not according to this (http://www.woolworthslimited.com.au/resources/full+year+profit+announcement.pdf) report from Woolworths Limited. Rent is clearly listed as an expense in the profit and loss account - for 2006, this value came to AU$926. Fixed assets are listed in the balance sheet but there is no mention of how they are comprised, as I imagine a company as large as Woolworths has a wide variety of fixed assets. I think you'll find that rent is always classified as an expense (unless the property can be classified as a financial lease rather than an operating lease).

As far as national differences go, the AASB are complying with the IFRS that most countries use these days, which includes IAS17 which covers leasing as has been discussed here.

What a travesty! I am currently studying an accounting course for my bachelor in economics, and much to my cognitive dissonance, it seems the AASB (Australian Accounting Standards Board) do not recognise employees (or rather, employment contracts) as assets. What BS. The grounds that they base this premise is that it does not meet the recognition criteria in terms of control. that is they do not have economic conttrol of the employee, and so they may not list it as an asset. Golly what BS.

Allow me to elaborate on the accounting definition of an asset, so you don't get confused (it is not the same as what we call 'assets' in regular speech).

To be an asset, an item must meet all three of the follow criteria:

1) The item must be a result of a past action (e.g. signing a contract, fing some gold, purchasing the said item, etc)

2) The item must embody an expected inflow of economic benefit (e.g. expected to somehow make you richer than without it, marketablity, interest, enhancement of existing activities through usage or implementation, etc)

3) The item must be under the economic *control* of the entity claiming it as an asset. N.B. *Control* is not limited to legal ownership (e.g. a block of land you own, you control, thus it is an asset. A block of land you rent- and effectively control for economic purposes, is an asset. A signed contract promising the payment of money or rendering of services for your economic benefit, is an asset- as you economically control the contractor through the terms of the contract).

Furthermore, to be recognised at all an asset must be able to be
a) reliably measured ( cuts out most Intellectual property and trademarks, despite the fact they are assets, they are near impossible to measure in worth)
b)probable to effect economic benefit (if it isn't going to make you richer, even if it can, it is not an asset).

So an employment contract:
1) is the result of a past action (the mutual agreement to sign the contract)
2) embodies the realisation of an inflow of economic benefit (the reason you hire the person in the first place).
3) carries implicit economic control in the terms of the contract, just like any other (even though the employee has free will to do as he pleases, he has an obligation, or liability, to fulfill the terms of the contract he signed. This does not infringe upon his rights, it is just the result of a simple, agreement on behalf of two consenting parties. Even if it is possible, or even likely that the employee will be unreliable in his execution of his end of the deal- sick days, late, etc- this is written into the cost of the agreement as are the expected risks of any investment in an assset).

However, the AASB seems to think economic control of an employee somehow gives a bad orwellian vibe of reminiscent of slavery (despite the fact that they themselves invented the rule that economic control is not limited to legal ownership). It seems it is just a produc of PC, for I can see no other reason why the current situation may is the case.

Interestingly (and by 'interestingly' I mean 'hypocritically') the AASB has created an exemption for the contracts of sports-stars to sporting clubs, on the grounds that their contracts are bought and sold as assets- SOMETHING NOT EVEN IN THE CRITERIA. They are just blatantly making up rules now. What is the difference between the employment contracxt signed by a football player to his club, and the employment contract signed by a lawyer to his firm?

Let us remember that the role of accountancy is to inform. To inform the economic decision of interested parties to better equip them in the making of financial decisions. Thus accounting tries as hard as it can to give as accurate of a summary of the economic status of an entity as is possible.

Think about how this discrepancy reflects upon the accuracy of the accounting for service based industries. A Law firm, whose sole marketable purpose is the provision of skilled labour for the benefit of clients, is forced to write off all of it's most central and fundamental assets (it's trained and professional lawyers) as expenses! EXPENSES! How is it possible to accurate assess the worth of a law firm when their key asset cannot even be capitalised on the balance sheet?!

It's a travesty! And don't even start with your bleeding heart leftist shit "But then we'll all be slaves if we are listed as assets on the company balance sheet". Your status in terms of you economic contribution to your company impacts in no way on the real wortld, except in so far as how people read your contribution to the company.

For those of you who didn't read anything- control of an asset is not limited to legal ownership.

now join me in the self-gratifying dick wankery in acknowledgement that the system is screwed, for no apparent reason, and that we'd do it better 'if we were in charge'. Fucking government. A private AASB wouldn't pull this kind of shit.


Wow!

Isn't payroll a liability under GAAP. (To be honest, it is years since I thought about this.)Yes, they currently are. I think that they shouldn't be.

Anyway, they aren't assets because you don't have exclusive economic control over them. DUH.

Some employees are assets, sports teams and such, or those that have non-competition contracts, but they would be booked differently. However, all employees are effectively on an employment contract (AWA), thus no different to sports stars. You do have control over them, in the terms of the contract. Sure an employee could quit and break contract (rather than providing 2 weeks notice as stipulated in the contract), just as a sports start could just fuck his contract and play for another team. Nevertheless there are consequences of varying severity depending on the specifics of each contract. The point is that both entities have an economic liability to you as signified by their contracts to you. It is regular to assume that they won't dodge those obligations, but even if you do there are ways to write this into the balance sheets to. It shouldn't, however influence upon their classification as an asset.

Basically, people are fungible. Live with it. I guess I have to.

And the contract guarentees them the use of the property they are renting for the duration of the contract. Neither side can terminiate the contract without the others permission. Very few employment contracts are like that - generally the employee can up and leave regardless of wether the employer wants them to.

The contract with an employee does not mean the employer has economic control of them. They have economic control of the products of their work, but not of the employee - who, based on the frequency with which people switch jobs these days, argeuably has more control than the employer. Now we are simply nitpicking the specifics of each contract. An employment contract usually is arranged in such a way that neither party can immediately veto the agreement, but must instead give 2 weeks notice. Rental contracts are usually the same, in that the landlord or the tenant can terminate without the other's consent provided a certain period of notice is given, or certain conditions are met.

Not according to this (http://www.woolworthslimited.com.au/resources/full+year+profit+announcement.pdf) report from Woolworths Limited. Rent is clearly listed as an expense in the profit and loss account - for 2006, this value came to AU$926. Fixed assets are listed in the balance sheet but there is no mention of how they are comprised, as I imagine a company as large as Woolworths has a wide variety of fixed assets. I think you'll find that rent is always classified as an expense (unless the property can be classified as a financial lease rather than an operating lease). The rent is indeed an expense. The rental property is an asset. Double entry accounting. Woolworths expenses the rental payments, and capitalises the rental property. It should be the same for employees; expense their wage, capitalise their input as an asset. It isn't called a 'balance' sheet for nothing :p

As far as national differences go, the AASB are complying with the IFRS that most countries use these days, which includes IAS17 which covers leasing as has been discussed here. Good, i suspected as much.

Wow!

?

The rent is indeed an expense. The rental property is an asset. Double entry accounting. Woolworths expenses the rental payments, and capitalises the rental property. It should be the same for employees; expense their wage, capitalise their input as an asset. It isn't called a 'balance' sheet for nothing :p

Except that you've got it the wrong way round. You can't use an expense to increase the value of an asset, only decrease it. As you debit (increase) the expense account you credit (decrease) the asset account. Wether you're paying bills (debit bill account, credit bank account) or depreciating your assets (debit depreciation, credit fixed assets) as expenses go up the value of your assets - usually current assets like cash - goes down.

I should also like to point out that your claims that a firm has economic control over its employees is ludicrous.

"Property held on a lease is an asset if the enterprise controls the benefits which are expected to flow from the property".

So you believe that a company controls the benefits which arise from the property (the labour provided by the employee). Under the standards of economic control that is simply not true. The conditions for economic control are as follows:

1. Acceptance of the risks and rewards - 'substance over form'.
2. Exclusive use of the asset for one's own purpose.
3. The possibility to convert the asset on one's own initiative.
4. The possibility to sell the asset to benefit from sale proceeds.

Now lets study how these apply to the asset of labour.

1. The risk and rewards are fairly evenly divided, not mostly accepted by the employer. The rewards are divided - the employee receives regular cash payments and possibly bonuses for achieving a level of performance while the employer receives labour to be used within his organisation. The risks are evenly divided as well - if the employee's labour is inefficient or becomes unable to provide the labour any more then the employer can terminate their contract, while if the employee is offered a more lucrative contract they can simply leave at any time, within reason. So this fails the definition of economic control as neither entity accepts the majority of the risks and rewards.

2. The employee has exclusive use of their asset for their own purpose, but the employer does not. Most employees are perfectly entitled to contract their labour out to another firm, whether this is in the form of two part time jobs, or an independent consultant working for two firms at once. There are not many exeptions to this rule - one is instances of professional sports players only being allowed to play for one particular team that they are contracted to, but as already discussed sports players are classified as assets. So this fails the the definition of economic control.

3. A firm can sometimes convert the use of the asset - it depends whether the contract has very stringent guidelines on the employees job decription. An employer cannot ask a sales manager to clean the toilets - his contract stipulates that he is employed as a sales amanger and has a limited number of functions within the company. A person working for a supermarket is less likely to be under such control - they could be rotated between checkouts, stacking shelfs, delicatessen and stock room if their manager wished. However, an the employee can convert the use of their asset - they can use their labour however they like - very few people are capable of only woring one type of job. So it fails the definition of economic control for some people while it passes for others.

4. The vast majority of employment contracts cannot be sold. Again a notable exeption is sportspeople, but as has already been metioned they are assets. So this definition is failed. The employee cannot truly sell the asset either only lease it, so this definition does not really apply to labour.

So their you have it. Of all definitions of economic control, labour from the employer's point of view can only lossely be applied to the risk and reward condition and the convertability condition, which is not enough. Therefore, the employers does not have economic control over labour and does not control the benefits arising from the labour (the employee does) and as such labour cannot be classified as an asset.

Id just like to say to all the respondents to this thread, gratz. I tried to read it 3 times and my eyes glazed over and i started to think about puppies after paragraph 3 each time. You win.