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Public Private Partnerships: A licence to print money … or value for money?

Author - Raymond Turner


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3 What is an asset?

The Concise Oxford English Dictionary (2003) defines an asset as the following:

1. a useful or valuable thing or person 2. property owned by a person or a company regarded as having value and being available to meet debts, commitments or legacies.

In financial accounting and reporting terms, Schuetze (1993) states that the Financial Accounting Standards Board (FASB) defined an asset as having three characteristics:

(a) it [an asset] embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows,
(b) a particular entity can obtain the benefit and control others’ access to it, and
(c) the transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred.

So an asset provides a present or future benefit to someone for something, somehow, somewhere, sometime. In agreement with Schuetze, the FASB’s definition appears to be vague and open ended and hardly even meets the accounting terms of exchangeability or comparability. According to Wikipedia, an asset has three essential characteristics but it goes further and defines an asset as the sum of the liabilities plus the shareholders equity on a company’s balance sheet. A simple definition is that an asset provides a benefit and increases the wealth of a nation or maximises the shareholder profits. The ownership of the asset will determine who receives the benefit.

The online encyclopedia, Wikipedia, (see http://en.wikipedia.org/wiki) states that:

Ownership is the state or fact of exclusive rights and control over property, which may be an object, land/real estate, intellectual property (arguably) or some other kind of property. It is embodied in an ownership right also referred to as title.

A public asset is owned by the state on behalf of community for the collective benefit of the public. The public derives benefits from the consumption of public assets. Traditionally, an asset is measured in monetary terms. The value of this figure is a measure of the worth of the asset. An asset is consumed over time by deriving benefits from it. In a company’s accounts, this decay of the value of an asset is shown as depreciation of the asset over an agreed time period according to financial reporting standards (FRS) or generally accepted accounting principles (GAAP).

But as can be seen, it is the transfer of ownership and subsequently the benefits that determine what the value of an asset is and, most importantly, what value to whom.

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