Cross-cutting issues – Taking uncertainty into account in the measurement of an asset or liability
The Boards held an education session to understand and evaluate different ways of addressing the uncertainty that arises when:
- an asset or a liability is measured by reference to future cash flows
- the future cash flows are uncertain (e.g., there is a range of possible outcomes).
To measure the asset or liability, it is necessary to reduce the range of possible outcomes to a single measure, and to this end, the education session compared different measures potentially available to:
- provide the most relevant information to users, or
- be a reasonable proxy for other measures on cost-benefit grounds.
The session compared six different measures described in current accounting literature:
- expected value
- maximum amount that is more likely than not to occur
- most likely outcome
- minimum or maximum amount in range of possible outcomes
- midpoint of range of possible outcomes
- possible outcome nearest to expected value.
A noticeable exclusion to the above list, best estimate, was excluded as it is described differently in different contexts and there is no common understanding of its meaning.
In presentation and discussion of the above measures, consideration was placed on the appropriateness of use of each of these measures and potential consequences of use.
Certain members of the Boards expressed concern as to how the above models could be used in practice, whereby multiple measures represented an 'ideal' where significant data would be required for assessment of such a measure. Other members of the Board noted the importance of including this information in the context of the conceptual framework across all areas of accounting literature.
No decisions, however, were sought or reached at this meeting.