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Related Experiment Videos

The FASB explores accounting for future cash flows.

R W Luecke1, D T Meeting

  • 1CSA International, Toronto, Canada. randall.luecke@csa-international.org

Healthcare Financial Management : Journal of the Healthcare Financial Management Association
|March 22, 2001
PubMed
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The Financial Accounting Standards Board (FASB) updated Statement No. 7 to guide accounting for future cash flows using present value. It recommends expected cash flows over estimated ones to better reflect uncertainty.

Area of Science:

  • Accounting
  • Financial Reporting
  • Valuation

Background:

  • The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Concepts No. 7.
  • This statement addresses the use of cash-flow information and present value in accounting measurements.
  • It provides guidance when fair value information is unavailable.

Purpose of the Study:

  • To outline the FASB's views on utilizing cash-flow information and present value in accounting.
  • To introduce new concepts for calculating an asset's present value.
  • To determine when the interest method of allocation is appropriate.

Main Methods:

  • The FASB proposes a present-value method incorporating uncertainty.
  • It suggests using expected cash flows instead of estimated cash flows.

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  • This involves considering all expectations about possible future cash flows.

    • Main Results:

    • A revised approach to present value calculation is presented.
    • The method accounts for varying degrees of uncertainty in cash flows.
    • Expected cash flows are recommended for more accurate present value assessments.

    Conclusions:

    • Statement No. 7 offers updated guidance on present value in accounting.
    • The use of expected cash flows enhances the reflection of risk and uncertainty.
    • This approach improves accounting measurements when fair values are not available.