Conceptual Framework for Financial Reporting

Cash-flow-based measurement techniques
Sometimes, a measure cannot be observed directly. In some such cases, one
way to estimate the measure is by using cash-flow-based measurement
techniques. Such techniques are not measurement bases. They are techniques
used in applying a measurement basis. Hence, when using such a technique, it
is necessary to identify which measurement basis is used and the extent to
which the technique reflects the factors applicable to that measurement basis.
For example, if the measurement basis is fair value, the applicable factors are
those described in paragraph 6.14.
Cash-flow-based measurement techniques can be used in applying a modified
measurement basis, for example, fulfilment value modified to exclude the
effect of the possibility that the entity may fail to fulfil a liability (own credit
risk). Modifying measurement bases may sometimes result in information
that is more relevant to the users of financial statements or that may be less
costly to produce or to understand. However, modified measurement bases
may also be more difficult for users of financial statements to understand.
Outcome uncertainty (see paragraph 6.61(a)) arises from uncertainties about
the amount or timing of future cash flows. Those uncertainties are important
characteristics of assets and liabilities. When measuring an asset or liability by
reference to estimates of uncertain future cash flows, one factor to consider is
possible variations in the estimated amount or timing of those cash flows (see
paragraph 6.14(b)). Those variations are considered in selecting a single
amount from within the range of possible cash flows. The amount selected is
itself sometimes the amount of a possible outcome, but this is not always the
case. The amount that provides the most relevant information is usually one
from within the central part of the range (a central estimate). Different central
estimates provide different information. For example:
(a)
the expected value (the probability-weighted average, also known as
the statistical mean) reflects the entire range of outcomes and gives
more weight to the outcomes that are more likely. The expected value
is not intended to predict the ultimate inflow or outflow of cash or
other economic benefits arising from that asset or liability.
(b)
the maximum amount that is more likely than not to occur (similar to
the statistical median) indicates that the probability of a subsequent
loss is no more than 50% and that the probability of a subsequent gain
is no more than 50%.
(c)
the most likely outcome (the statistical mode) is the single most likely
ultimate inflow or outflow arising from an asset or liability.
6.90
6.91
6.92
6.93
Conceptual Framework
A82
© IFRS Foundation

---

A central estimate depends on estimates of future cash flows and possible
variations in their amounts or timing. It does not capture the price for bearing
the uncertainty that the ultimate outcome may differ from that central
estimate (that is, the factor described in paragraph 6.14(d)).
No central estimate gives complete information about the range of possible
outcomes. Hence users may need information about the range of possible
outcomes.
6.94
6.95
Conceptual Framework
© IFRS Foundation
A83

---

C
ONTENTS
from paragraph