Low probability of an inflow or outflow of economic benefits

Last Updated on 12/02/2020 by 75385885

Low probability of an inflow or outflow of economic benefits

Existence of assets/Liabilities with low probability of related cash flow

5.15 An asset or liability can exist even if the probability of an inflow or outflow of economic benefits is low (see 1. The probability to produce economic benefits is low in Potential to produce economic benefits and 2. Probability of a transfer of economic benefit is low in Transfer of an economic resource).

Magnitude of the possible cash flows Low probability of an inflow or outflow of economic benefits

5.16 If the probability of an inflow or outflow of economic benefits is low, the most relevant information about the asset or liability may be information about the magnitude of the possible inflows or outflows, their possible timing and the factors affecting the probability of their occurrence. The typical location for such information is in the notes.

Providing relevant information may be revealing Low probability of an inflow or outflow of economic benefits

5.17 Even if the probability of an inflow or outflow of economic benefits is low, recognition of the asset or liability may provide relevant information beyond the information described in paragraph 5.16. Whether that is the case may depend on a variety of factors. For example: Low probability of an inflow or outflow of economic benefits

  1. if an asset is acquired or a liability is incurred in an exchange transaction on market terms, its cost generally reflects the probability of an inflow or outflow of economic benefits. Thus, that cost may be relevant information, and is generally readily available. Furthermore, not recognising the asset or liability would result in the recognition of expenses or income at the time of the exchange, which might not be a faithful representation of the transaction (see Board assessment to sustain faithful representation sub (a)).
  2. if an asset or liability arises from an event that is not an exchange transaction, recognition of the asset or liability typically results in recognition of income or expenses. If there is only a low probability that the asset or liability will result in an inflow or outflow of economic benefits, users of financial statements might not regard the recognition of the asset and income, or the liability and expenses, as providing relevant information. Low probability of an inflow or outflow of economic benefits

In summary recognition and derecognition

The recognition criteria do not include a probability or a reliable measurement threshold. Uncertainty about the existence of an asset or liability or a low probability of a flow of economic benefits are circumstances when recognition of a particular asset or liability might not provide relevant information.

Something else -   SME Statement of Cash Flows

Other uses of low probability

Risk management goals and objectives – one of the common objectives is: Low probability of an inflow or outflow of economic benefits

Build and improve capabilities to respond effectively to low probability, critical, catastrophic risks.

IFRS 17 Insurance contracts:Low probability of an inflow or outflow of economic benefits

A potential gap in risk adjustment for non-financial risk derived from currently-used techniques is the ignoring some relevant risks – e.g. in some cases, cost of capital methods may ignore any risk with an extremely low probability and may not be sensitive to these risks, such as catastrophe claims. These risks and their probability of occurrence have to be considered under IFRS 17.

IFRS 9 Impairment of financial instruments – the effects of multiple forward-looking scenarios: Low probability of an inflow or outflow of economic benefits

Probability of occurrence – More extreme scenarios such as stress scenarios may not need to be one of the chosen scenarios used in the ECL calculations, if their very low probability of occurrence means their inclusion within the chosen scenarios would not materially impact the resulting ECL provision on a probability-weighted basis. However, just because a scenario is extreme does not mean it can automatically be excluded from consideration.

IFRS 9 Perspective on financial instruments risk disclosures: Low probability of an inflow or outflow of economic benefits

Reservations about sensitivity analysis under IFRS 9 Financial instruments disclosure requirements are twofold.

  • Users could misinterpret the reported ranges. For example, the ranges may lead users to overstate the perceived riskiness of reporting firms. These concerns can be mitigated by providing qualitative disclosures that enable users to appropriately interpret the low probability of risk, if any, associated with the upper or lower bounds of reported fair values.
  • Users could become confused about whether the ranges depict point-in-time fair value uncertainty or whether they have predictive value and are intended for forward looking purposes. Any quantitative disclosure—including point estimates, range, or distribution of values—should both allow users to make point-in-time judgments and convey some information with predictive value. The use of sensitivity analysis information to assess point-in-time fair value variability and to make forward-looking fair value predictions should not be seen as mutually exclusive. And any question about which of these two objectives is the primary consideration is no reason for not providing sensitivity analysis disclosures to investors. This recommendation is especially important because both the user feedback and empirical evidence unambiguously show that sensitivity analysis disclosures are considered useful, albeit with room for significant improvement.
Something else -   Recognition criteria

 

Last Updated on 12/02/2020 by 75385885

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Something else -   Derecognition

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