International Financial Reporting Standards

The views expressed in this presentation are those of the presenter,

not necessarily those of the IASB or IFRS Foundation.
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
IFRS measurements:
cross-cutting issues
Joint World Bank and IFRS Foundation train the
trainers workshop hosted by the ECCB,
30 April to 4 May 2012
K

The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation.
Myth 1
2
Everyone knows
what best
estimate means
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
What does best estimate mean?
3
Most likely
outcome?
Median outcome?
< 50% chance of higher cash flows
< 50% chance of lower cash flows
Expected value?
Average (mean) of range
Whatever amount
feels best?
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Myth 2
4
The IASB
prefers fair value
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
IASB does not always prefer fair value
Provisions
Impairment of property, plant, equipment, intangibles
Revenue recognition
Insurance contracts
Leases
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IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Myth 3
6
The IASB prefers
expected value
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Expected value might be best...
if objective is to measure current value of asset or
liability
if transactions recur frequently
if users are concerned about extreme outcomes
(outliers)
if expected value is as easy to estimate as other
measures
if the timing of cash flows is uncertain
you dont know
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IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Most likely or median might be better...
if objective is to predict future cash flows
if transactions do not recur frequently
if outliers are less important or more uncertain than
central outcomes
if expected value is more difficult to measure




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IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Myth 4
9
Expected value
needs accurate data
about all outcomes
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measuring expected value
use any suitable technique for estimating average
(mean) of range
if identifying range of possible outcomes:
use same data as would use to identify most likely
or median outcome
include everything you know
but dont make up what you dont know...

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IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measuring expected value continued


11
We have evidence that...
Most likely outcome is 100 currency units (CU)
We have no evidence that...
Distribution is other than normal (bell-shaped)
We would estimate expected value to be...
CU 100
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measuring expected value continued
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Outcome Estimated
outflows
Relative likelihood
Best case CU 100
Most likely outcome CU 200

About twice as likely as
best case
Worst case CU 1,000 Unlikely, but possible
Estimate of expected value
CU 100 X 30% CU 30
CU 200 X 60% CU 120
CU 1,000 X 10% CU 100
CU 250
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Myth 5
13
Expected values
take account of
risk
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Expected values may need risk adjustments
Asset 1
Probability Inflows
100% CU 500
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Asset 2
Probability Inflows
50% CU 250
50% CU 750
Expected value is CU 500 for each asset
But risk averse entity would put lower value on
asset 2
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Myth 6
15
Risk always
increases
discount rates
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Risk adjustments for liabilities
risk aversion typically increases transaction prices for
uncertain liabilities
in which case, account for risk by:
1. increasing estimates of cash outflows, or
2. adjusting estimates of probabilities, or
3. reducing rates at which cash outflows are discounted to
present value, or
4. adjusting the expected present value
adjusting discount rate doesnt always work


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IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Questions or comments?
The IASB encourages its
members and staff to
express their individual
views.
The views expressed in this
presentation are those of the
presenters.
Official positions of the IASB
on accounting matters are
determined only after
extensive due process
and deliberation.
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IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
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The requirements are set out in International Financial
Reporting Standards (IFRSs), as issued by the IASB at 1
January 2012 with an effective date after 1 January 2012
but not the IFRSs they will replace.
The IFRS Foundation, the authors, the presenters and the
publishers do not accept responsibility for loss caused to
any person who acts or refrains from acting in reliance on
the material in this PowerPoint presentation, whether such
loss is caused by negligence or otherwise.
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IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org