Highly probable

IFRS Definition –  Highly probable: Significantly more likely than probable.

IFRS Definition –  Probable: More likely than not.

Other probability qualifications used in IFRS Standards are: Unlikely, Highly unlikely, Highly likely, Likely, More likely than not, Most likely, More likely and Virtually certain.

Looking at the statistical data below, highly probable would be equivalent to almost certain in the shortened gradation. But almost certain has a negative connotation in the prudent world of accounting. However, in accounting differentiation in probabilities remains a professional judgement consideration, except for statistical sampling.

Here is the source.

Virtually certain – ‘Virtually certain’ is used but not defined in IAS 37 but it is certainly a much higher hurdle than ‘probable’ and, indeed, more challenging than the term ‘significantly more likely than probable’ in Appendix A of IFRS 5 Non-current assets held for sale and discontinued operations.

It is reasonable to interpret virtually certain to be as close to 100% as to make any remaining uncertainty insignificant. What this means in practice is that each case must be assessed on its own merits and any judgement should be made in the knowledge that, in any event, it is rarely possible to accurately assess the probability of the outcome of a particular event. However, to the extent that the inflow of economic benefits is probable (the event is more likely than not to occur), IAS 37 requires disclosure of the contingent asset.

Where is highly probable used in the International Financial Reporting Standards?

– Classification of non-current assets (or disposal groups) as held for sale or as held for distribution to owners

IFRS 5 7 For this to be the case (editor: the case being – IFRS 5 6 An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use), the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.

IFRS 5 8 For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value.

In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except as permitted by paragraph 9, and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The probability of shareholders’ approval (if required in the jurisdiction) should be considered as part of the assessment of whether the sale is highly probable.

– Qualifying items for hedged itemsHighly probable

IFRS 9 6.3.3 If a hedged item is a forecast transaction (or a component thereof), that transaction must be highly probable.

Other IFRS 9 paragraphs that use highly probable are: IFRS 9 6.3.4, 6.3.5, 6.3.6, 6.5.2, 6.5.12, B6.3.3, B6.3.5, B6.5.27(b), B6.6.9, B6.6.10

– Constraining estimates of variable consideration

IFRS 15 56 An entity shall include in the transaction price some or all of an amount of variable consideration estimated in accordance with paragraph 53 only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

IFRS 15 57 In assessing whether it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur once the uncertainty related to the variable consideration is subsequently resolved, an entity shall consider both the likelihood and the magnitude of the revenue reversal.

Factors that could increase the likelihood or the magnitude of a revenue reversal include, but are not limited to, any of the following:

  1. the amount of consideration is highly susceptible to factors outside the entity’s influence. Those factors may include volatility in a market, the judgement or actions of third parties, weather conditions and a high risk of obsolescence of the promised good or service.
  2. the uncertainty about the amount of consideration is not expected to be resolved for a long period of time.
  3. the entity’s experience (or other evidence) with similar types of contracts is limited, or that experience (or other evidence) has limited predictive value.
  4. the entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances.
  5. the contract has a large number and broad range of possible consideration amounts.

– Definitions relating to hedge accounting

IAS 39 9 A hedged item is an asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that (a) exposes the entity to risk of changes in fair value or future cash flows and (b) is designated as being hedged (paragraphs 78–84 and Appendix A paragraphs AG98–AG101 elaborate on the definition of hedged items).


Just to get a feeling about these different probabilities a more mathematical look at this subject.

This is a chart showing an experiment with 23 Nato officers asking what they understood by different terms expressing probability such as “almost certainly”, “we doubt” and “almost no chance”.

The visualisation, which surfaced on Reddit, was inspired by the work of pioneering intelligence analyst Sherman Kent.

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The officers were asked to assign a percentage of probability to what they understood by the different phrases. The dots on the chart are their answers, while the grey shaded areas are roughly the ranges that Kent said should cover the probability of each description.

As you can see there is considerable discrepancy between how the different officers answered. This was a key issue to Kent’s work. In a seminal 1964 piece outlining the issue, he talked of an “early brush with ambiguity”.

The analysis started with a report about the probability of an invasion of Yugoslavia in 1951. It concluded: “Although it is impossible to determine which course the Kremlin is likely to adopt, we believe that the extent of satellite military and propaganda preparations indicates that an attack on Yugoslavia in 1951 should be considered a serious possibility.”

A few days after the estimate appeared, I was in informal conversation with the policy planning staff’s chairman. We spoke of Yugoslavia and the estimate. Suddenly he said: “By the way, what did you people mean by the expression ‘serious possibility’?

What kind of odds did you have in mind?” I told him that my personal estimate was on the dark side, namely, that the odds were around 65 to 35 in favour of an attack. He was somewhat jolted by this; he and his colleagues had read “serious possibility” to mean odds very considerably lower.

In a military intelligence environment these semantic misunderstandings based on wording could have a serious impact; namely, action being taken or not based on overestimations or underestimations of the content of intelligence reports.

To deal with this, Kent and a colleague created different gradations of probability. To each they assigned a percentage range:

Certainty: 100%
Almost certain: 93% (give or take about 6%)
Probable: 75% (give or take about 12%)
Chances about even: 50%
Probably not: 30% (give or take about 10%)
Almost certainly not: 7% (give or take about 5%)



General model of measurement of insurance contracts

Highly probable

Highly probable

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