Expected Values in Financial Reporting.

Abstract The article discusses the motive of financial reporting in providing information useful for assessing amounts, timing and uncertainty of an enterprise's prospective net cash inflows. Estimates, assumptions, or judgments provide the basis for decisions about recording many uncertain items in financial statements. Only future events can confirm whether those decisions are materially correct. Yet, those recorded items appear in financial statements as single numbers that belie their uncertain and multidimensional nature. An enterprise transfers receivables having a face amount of 1, 000 to an unrelated third party for 1, 000 and retains an obligation to compensate that party for the failure of the debtors to pay when due. The haphazard treatment that accounting gives uncertain and multidimensional items has resulted in what may be perceived as inconsistencies in practice. It is believed that those inconsistencies will persist and worsen until accounting establishes coherent principles for uncertain and multi-dimensional amounts. The use of expected values may provide a useful way to deal with those problems.