Interpretations of Probability Expressions by New Zealand Standard Setters.

This study examines the interpretation of probability (uncertainty) expressions by standard setters in New Zealand (N.Z.) by determining the probabilities assigned by these standard setters to expressions that are used in accounting standards and by assessing the consensus among standard setters about the interpretation of these expressions. Since N.Z. standard setters similar to standard setters in other countries such as the FASB in the U.S., are from diverse backgrounds it could be argued that the findings in this study would be applicable to standard setters with such attributes. The findings indicate that the standard setters interpret many different probability phrases used in accounting standards as if they denote similar probability levels. Further, many probability expressions lack communication efficiency in that there is a lack of consensus among standard setters about their interpretations. Together, these findings suggest that many probability expressions used in accounting standards may be redundant and that standard setters may have difficulty assigning numerical probability levels to many of them because of the lack of agreement. To facilitate greater consistency in the application of accounting standards and, consequently, greater comparability in financial reporting, it may be useful to reduce the number of expressions used in accounting standards, retaining expressions which adequately cover the entire probability range and for which there IS a reasonable degree of agreement.