Definitions for TrueValueMetrics
Liabilities Liabilities are amounts owed by an entity to others ... a fairly simple concept. In money profit double entry accounting, liabilities are one of three main sections of the balance sheet. The others are the assets and the equity.
Quantifying a liability. It is not always easy to quantify what amount is the liability. This may be because of the terms of a contract, it may be because there is some conditionality.
Conditional liabilities . This can be complex, and the amounts may be large relative to other liabilities and the assets deployed. Liabilities may become very large when a set of conditions apply, but may not exist at all if other conditions apply. The issues of analysis and reporting around contingent liabilities are not settled.
I was part of an investment group that almost acquired a shipbuilder in Florida. There was a good business plan and the future of the acquired organization looked good ... but there was one problem. The shipbuilder built mainly fishing trawlers, and there was the potential for a lawsuit related to one of the company's trawlers sinking in a storm in the Atlantic with loss of life. While all the normal insurance protections were in place ... there was a small possibility that there might be a counter-claim about a deficiency in design, or something along those lines. Even though several hundred vessels of this or similar design were in use ... this contingent liability was sufficient to stop this transaction from closing.
Risk The liability associated with risk is often ignored in money profit accounting and in decision making. It should not be.
Take the issue of hydraulic fragmentation ('fracking') which is a new and cost effective way of exploiting deep reserves of oil and gas by pumping fluids at very high pressure into the rock formations below ground. These fluids have the potential to pollute groundwater and critical aquifers on a very large scale which might put supplies of potable water for major cities in jeopardy. It may not happen. It might. There is a risk. It should be accounted for and it should be provided for.
What is equivalent to a liability in the TVM balance sheet The money related liabilities have the same form on a TVM balance sheet as they do in a money profit balance sheet. Activities and issues that impact the performance of the community are liabilities if they constrain, and assets if they facilitate. Any deficit in quality of life is quantified and recorded as a liability. Governance is a matter that may facilitate the progress of a community or constrain it ... governance may therefore be an asset or a liability. Anything that contributes to an enabling environment for progress is an asset ... otherwise it is a liability.