The Recognition of Executory Contracts

Abstract

Abstract This paper examines the nature of executory contracts using as examples forward exchange contracts, asset purchase commitments and leases. FECs are paid particular attention as they have not previously been the focus of discussions concerning executory contracts. The arguments in the literature for recognition of wholly executory contracts can be summarised as follows: recognition provides more relevant information for decision making and is therefore useful; and the contractual rights satisfy the control criterion required by most asset and liability definitions if the contract is firm, thereby evidencing the commitment of the parties. It is argued in this paper that the decision usefulness argument neglects representational faithfulness as it recognises rights that a party does not control; the rights under the contract can be separately identified as rights of alienation and use or conversion; and an approach using deprivai value provides a better indication of commitment than firmness.