Did you know that accountants have different meanings to the simple word ‘probable’?

Let’s look at what the Oxford English Dictionary thinks of the word.’ This presumably is what the non-accountant believes it should be.

Accountants use the word ‘probable’ most of the time for an accounting event in the future.

The Oxford English Dictionary, define probable, in the context of this accounting event, as something which can ‘be reasonably expected to happen’, [1] and then they mess it up by adding ‘likely’. They define likely ‘as having a high chance of occurring’ [2] so we end up with an accounting event which is BOTH reasonably expected to happen and as having a high chance of occurring.

That is not possible for an accountant. Probable is either ‘reasonably expected to happen’ OR ‘a high chance of occurring’, not BOTH.

One would expect accountants to choose one or other of these two definitions for their future accounting event. BUT NO that would be too simple. They got together and invented their own definition.

But even that was not what happened. They disagreed on what the new definition should be. There were two camps, and the two camps agreed to disagree. They went off into their own accounting worlds and set up new and different definitions.

Not possible you will say, accountants cannot be as devious and complicated as that. But that is the situation today.

One camp was American and the other was more or less the rest of the world. They both wrote their own accounting standards and included the different definitions of the word probable.

The American camp under US GAAP wrote ASC 450 and the rest of the world wrote IAS 37. ‘Probable’ under US GAAP is ‘likely to occur,’ under IFRS it is ‘more likely than not.’ One is just likely, the other is more than likely, so they are not the same. As we now know likely means ‘as having a high chance of occurring’.

Let’s assume that ‘likely to occur’ has a more than 51% chance of occurring. (I am bringing in chance here because we are talking about probable as in probability) And that ‘having a high chance of occurring’ starts at say 75% chance of occurring. So there is a band of probability between say 51% and 74% which is probable to the IFRS but not to US GAAP.

What does this tell us?

 Accountants use the same word but with different meanings depending on where the accounts are prepared. Both their meanings are different to what we find in the Oxford English Dictionary. This is ludicrous, dangerous and misleading because it relates to important matters often material to the financial statements.

[1] Oxford English Dictionary: Probable a. Having an appearance of truth; that may in view of present evidence be reasonably expected to happen or be the case; likely. Now the usual sense. [2] Oxford English Dictionary: Likely Probable. 2. a. In predicative use with anticipatory it as subject and that-clause as complement: having a high chance of occurring; probable. Also in it is likely or as (it) is likely, used parenthetically.