Paragraph 6.93 of the Conceptual Framework contains a brief high-level discussion of three different central estimates of a set of estimated future cash flows:
- the expected value (statistical mean)
- the maximum amount that is more likely than not to occur (similar to statistical median)
- the most likely outcome (statistical mode)
Papers considered by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) in the week of 14-18 February 2011 discussed all three of these central estimates in much more detail. The papers are:
- an overview paper introducing the other papers. https://www.ifrs.org/content/dam/ifrs/meetings/2011/february/iasb/cc-0211b02obs.pdf
- Comparison of different measurements.
The main paper. This:
- analyses in detail the properties of the three central measures now mentioned in the Conceptual Framework and discusses when each one might be more suitable.
- discusses briefly three other measures sometimes mentioned in accounting literature: minimum or maximum amount in a range of possible outcomes; the midpoint in a range of possible outcomes; and possible outcome nearest to expected value.
- explains why the term ‘best estimate’ is poorly defined.
- Measures for uncertain cash flows.
This one page summary table lists the characteristics of all 6 measures discussed in the main paper.
- A PowerPoint slide deck summarising the main paper.
- Additional comments on expected cash flows.
This short paper contains comments on expected value, risk adjustments and some practical issues.
If you would like to understand what information each of the central estimates provides, and when each one might be most useful, I strongly recommend that you read these excellent papers.