Probabilistic Asset as an Economic Category in Valuation or

Analytical Procedures

Alexander V. Shchepot’ev

Consulting group "New Paradigm", Tula, Russia

Keywords: Probabilistic Asset, Informal Asset, Valuation, Management Accounting, Financial Analysis, Equity,

Business Value.

Abstract: In the article, the author explores and concludes that it is advisable to use informal assets in certain economic

areas of science (valuation activity, financial analysis), i.e. assets that do not have all the legislatively

established criteria. The author defines a probabilistic asset as one of the elements of informal assets, which

is studied in detail and described in this paper. A probabilistic asset is determined and assessed on the basis

of future economic benefits, the occurrence of which is not fully controlled by the business entity, but depends

on the occurrence of certain events (taking into account the probability of the occurrence of these events). A

probabilistic asset can arise in emergency, non-standard or atypical situations, when the circumstances have

already led to the current state of affairs, and the targeted actions of an economic entity, although they require

targeted actions (as well as the expenditure of various resources), but the estimated costs are incommensurably

small with the estimated (though probabilistic) additional economic benefits.

1 INTRODUCTION

Asset, liability, liability, equity, net assets. All these

and many other economic terms have become firmly

established in scientific circulation and practice in all

spheres of activity. However, taking into account the

specifics, regulatory regulations and established

practices of a particular field of activity, in some

cases, the same terms denote different economic

phenomena, and the same terms can denote different

(or different) economic entities. This study is devoted

to the definition of the concept of one of the elements

of an informal asset - a probabilistic asset. Asset as an

economic term is used in various scientific areas of

economic science: accounting, audit, taxation,

valuation, financial analysis, etc. Determining the

value indicators of the value of assets and other

economic indicators allows us to solve many

analytical problems (Kozlova, 2018; Lisovskaya,

2012).

Even within the framework of one branch of

science, for example, accounting, there may be

discrepancies in relation to this term. The concept of

"asset" from the point of view of accounting has some

discrepancies related to the accounting system. The

https://orcid.org/ 0000-0003-3451-2947

concept of "asset" for the Russian accounting system

(RAS) and the International financial reporting

system (IFRS) will have differences (Titova, 2011;

Chaya and Chicherina, 2009).

This study is devoted to a detailed analysis of such

an economic phenomenon as a probabilistic asset.

This term can be used in evaluation activities and

other analytical procedures. Evaluation activities, as

well as other analytical areas of the economy, are

extremely important in modern economic conditions

(Fedorova T.A. and Fedorova E.A., 2018).

2 RESEARCH METHODOLOGY

Taking into account the objectives of the application,

the specifics of the scientific direction, regulatory

regulation and established practice in a particular

field of economic activity, the concept of "asset" has

some differences and nuances (The Concept of

accounting in a market economy in Russia, 1997; The

international financial reporting standard (IAS) 36

"Impairment of assets", 2015; The international

financial reporting standard (IAS) 37 "provisions,

160

Shchepotev, A.

Probabilistic Asset as an Economic Category in Valuation or Analytical Procedures.

DOI: 10.5220/0010587601600166

In Proceedings of the International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure (ISSDRI 2021), pages 160-166

ISBN: 978-989-758-519-7

contingent liabilities and contingent assets", 2015;

The Order of Rosstat № 334, 2018).

In normative legal acts and scientific literature,

many concepts of "asset" and its derived meanings are

used, taking into account the specifics of the relevant

conditions.

At the same time, reliable financial statements

serve as a source of information about the real

financial position of an economic entity (Bogatyrev,

2018; Tretyakova O. G. and Tretyakova G. B., 2017).

The variety of different facts of the economic life

of business entities, situations, events, and emerging

circumstances leads to the need to consider economic

principles, concepts, and definitions in a more

expanded framework than is provided for by the

current regulatory legal acts (Revutsky, 2009;

Shchepot’ev, 2020).

Undoubtedly, in relation to assets, in relation to

the rules of accounting, auditing, taxation, it is

necessary to adhere to clear rules that define the

relevant criteria.

Note that according to one of the principles of

accounting (the precautionary principle), the

accounting policies of the organization should be

formed under the following conditions: "an entity

should recognize in accounting are more likely

liabilities and expenses than anticipated assets and

income", i.e. the recognition of the conformity of

economic benefits to all criteria of an asset should be

approached with skepticism.

However, in some cases (compliance with the

principle of reasonableness, based on common sense,

backed by scientific studies, subject to current

practice, with appropriate justification) it is wise to

get out of the regulatory limits, and to apply the

legislation is not approved terminology. Such

transformations and expansions of the boundaries of

certain economic phenomena are caused by the

development of economic thought in modern

conditions. As already noted, for management

accounting, valuation and other analytical

procedures, you can use property, property rights that

do not fully meet all the criteria of the asset. For such

situations, the author suggests using the concept of

"informal asset".

Informal assets – economic benefits that do not

fully meet all the requirements for the concept of

"asset". The concept of "informal asset" has fairly

broad boundaries, including the terms "conditional

asset", which is not subject to reflection and

evaluation in accounting, as well as such economic

categories as "hidden asset", "imaginary asset",

"property (property rights) that do not have title

documents and / or appropriate state registration)",

"economic analog of an asset", "probabilistic asset"

and other actual, expected and probabilistic economic

benefits that do not have all the characteristics of an

asset.

Informal assets are defined in terms of existing

accounting rules and are not subject to accounting and

financial (accounting) reporting, but there is

reasonable assurance that such property, property

rights and economic benefits (informal assets, in

terms of existing accounting rules) have sufficient

characteristics within the relevant economic science,

discipline or direction to be recognized as an asset and

can be used for valuation procedures, management

accounting, financial analysis, business planning and

other analytical procedures not regulated by

accounting rules.

Based on the presented definition, informal assets

can be represented from the following positions:

 contingent assets (certain types of contingent

assets may have the characteristics of informal

assets);

 hidden assets;

 imaginary of the asset;

 property (property rights), which are legal

documents and / or relevant state registration

(for example: unauthorized construction, land

plots, which do not have all required legal

documents, as well as any other property that

do not have all documents of title; note that

getting (re -) all documents of title may incur

significant charges (the size of which is

commensurate substantial part of the value of

the property), or the receipt of registration

(licensing) documentation impossible (the

property was built fatal violations, illegal

building to be demolished, etc.));

 an economic analogue of an asset (for example,

an economic analogue of a deferred tax asset;

an economic analogue of goodwill (actually

held by an entity, but not confirmed or

documented by the fact of a purchase and sale

transaction for this entity);

 probabilistic asset;

 other actual, expected and probable economic

benefits that do not have all the characteristics

of an asset (the list is not closed and exhaustive,

informal assets may have a different form).

All the above-mentioned elements of informal

assets are divided into the corresponding groups

somewhat conditionally, the presented elements do

not have a closed list and can be expanded with

similar items.

Probabilistic Asset as an Economic Category in Valuation or Analytical Procedures

161

3 THE RESULTS OF THE STUDY

Within the framework of this article, a probabilistic

asset is considered in detail as one of the elements of

an informal asset. Taking into account the conducted

research, the author suggests introducing such a

concept as a "probabilistic asset"into the economic

terminology and widely using it in the relevant fields

(directions) of economic science. Let us immediately

note that a probabilistic asset (in the existing legal

framework, the established scientific turnover on

accounting, auditing and taxation) is not an asset that

has all the qualifying characteristics of an asset, but

such assets (probabilistic) can be used in valuation

activities (when evaluating a business), in financial

analysis, in forecasting, in bankruptcy procedures, in

building a financial model, etc.

Let's consider the term "probabilistic asset"

directly.

Probabilistic asset - economic benefits that can

appear with a certain probability of occurrence in the

future as a result of purposeful actions of the

organization, taking into account the occurrence

(non-occurrence) of one or more future uncertain

events that are not controlled by the organization. A

probabilistic asset does not meet all the criteria for an

asset or a contingent asset for accounting purposes,

but within the relevant economic science, discipline

or direction, it has sufficient features to be recognized

as an asset and can be used for valuation procedures,

management accounting, financial analysis, business

planning and other analytical procedures that are not

regulated by accounting rules. Probabilistic asset to

be determined, including at low (significantly less

than 50 %) probability of occurrence, and the use of

economic-mathematical tools identify the likelihood

of a favourable economic effect of the availability of

economic benefits (for example: the right of

redemption of state or municipal property at a

reduced cost; the right to receive subsidies from the

budget of the previously incurred costs; right to the

imposition of vicarious liability and the recovery of

damages from Executive body or owner, co-owner of

the organization or a third party; assets arising from

contesting in court previously completed

transactions, etc.).

Probabilistic asset may occur in emergency, non-

standard or atypical situations, when the

circumstances have led to the existing state of Affairs,

and purposeful activities of an economic entity

though and require concerted action (as well as

spending various resources), but the estimated costs

disproportionately small with intended (albeit

probabilistic) additional economic benefits.

A probabilistic asset has some similar features to

a conditional asset, the definition of which is fixed in

regulatory documents, but differs from it.

The concepts of "contingent asset" under RAS

and IFRS have similar features. A contingent asset is

defined as a possible asset that arises as a result of

past events in its business life, the existence of which

will be determined by the occurrence or non-

occurrence of one or more future expected events

beyond the control of the business entity.

A contingent asset under RAS and IFRS is not

subject to valuation and is not reflected in the

financial (accounting) statements as an asset of the

organization.

A contingent asset is a legally established

economic category (in relation to accounting, audit,

etc.). And such economic categories as an informal

asset, a probabilistic asset are not legally fixed, are

determined by scientific research and can (can, but

are not required) to be used in analytical procedures,

based on established and applied practice. Unlike a

contingent asset, a probabilistic asset is subject to

valuation.

A probabilistic asset is not determined or

measured for accounting (or tax) purposes, and its

identification, determination, and evaluation are

necessary for valuation procedures, management

accounting, financial analysis, and other analytical

procedures.

Note that during the life cycle of an organization,

transformational processes can occur with its assets:

individual assets lose all the characteristics of an

asset, and individual informal assets are transformed

into assets that have all the qualification

characteristics of an asset (Shchepot’ev, 2020).

Consider the individual elements of economic

benefits that can be defined as a probabilistic asset:

 the right to preferential purchase of property

(real estate, land plot);

 the right to receive state subsidies

(compensation) for expenses incurred;



the right to receive tax benefits (specifically for

this business entity) under the current

legislation;

 the right to recover lost profits, losses from

counterparties or third parties;

 the existence of grounds for challenging

previously executed transactions in court,

including the occurrence of such grounds in the

course of bankruptcy proceedings;

 the existence of grounds for bringing the

executive body or the owner of the organization

to subsidiary and / or joint liability, including

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162

the occurrence of such grounds in the course of

bankruptcy proceedings;

 other probabilistic assets.

he specified list of probabilistic assets is not

exhaustive and closed. These estimated economic

benefits only illustrate the described economic

category in the form of a probabilistic asset.

4 DISCUSSIONS

Let's consider the given positions of a probabilistic

asset in more detail.

The right to preferential purchase of property (real

estate, land). In this case, the probabilistic asset can

be determined by at least two expected scenarios for

the development of favorable financial events: an

increase in the amount of cash in the amount of

additional profit received from the relatively rapid

resale of real estate purchased at a preferential (below

market value) cost, or an increase in the value of net

assets (at the company's market value) due to the

excess of the market value of the property compared

to the resources spent.

The right to receive state subsidies

(compensation) for expenses incurred. Certain areas

of activity in the state enjoy appropriate support, for

example, small business, agriculture, innovation, etc.

Within the framework of the relevant target programs

of the authorities (at various levels), compensation for

expenses incurred by the economic entity is provided,

for example, compensation for part of the lease

payments for the purchase of new agricultural

equipment for agricultural companies, compensation

for part of the costs of credit interest used in the

activities of the subject of innovation, etc. By the time

of the analysis (evaluation, research), the business

entity has already made the corresponding expenses,

produced and sold its products, and has already made

a profit. But with the use of the principles of the state

program of support of separate categories of business

entities, business entities, in a timely manner, in

compliance with all statutory requirements, plans to

prepare the documents and submit to receive

subsidies for the payment already made (and included

in the financial result) expenses, allowing him to

obtain additional irrevocable funds and increase

financial performance. The presence of such an

intention in an economic entity, compliance with the

requirements of the state program is reasonable to

consider as a probabilistic asset (of course, taking into

account the probability of achieving a positive

financial result).

The right to receive tax benefits (specifically for

this business entity) under the current legislation. In

this aspect, economic benefits can be considered in

the form of an expected reduction in the tax burden if

the economic entity meets certain indicators. For

example, under the current legislation, urgent

property tax benefits may be provided if an economic

entity successfully invests a significant amount of

money in the modernization or increase of production

(for example, 50 million rubles per year). In this case,

according to the norms of regional legislation, when

submitting the relevant documents confirming the

relevant facts, the organization may have tax benefits

for this new property for a number of years. The

business entity plans to use this benefit, meets the

necessary requirements. The probabilistic asset will

be determined in the form of saved (saved) funds for

the payment of property tax for the relevant period

(taking into account the probability of achieving this

favorable financial event).

The right to recover lost profits, losses from

counterparties or third parties. In this context, claims

directly arising from a contractual relationship are not

considered as a probabilistic asset (although in some

cases they may have the characteristics of a

probabilistic asset). For the studied economic

category, the alleged claim that is planned to be

obtained in court, which arose in the form of a loss of

profit due to a competitor's violation of antitrust laws,

is more suitable. Suppose that unfair (illegal under

antitrust law) actions of a competitor (this fact is

established by state regulatory authorities) led to a

reduction in the profit of the analyzed company in the

amount of 1,000,000 monetary units. The company

has documented this fact, there is evidence, there is

an intention to file a lawsuit to recover lost profits

from an unscrupulous competitor. Such a fact can be

considered as a probabilistic asset.

The existence of grounds for challenging

previously executed transactions in court, including

the occurrence of such grounds in the course of

bankruptcy proceedings. In the course of a business

entity not in the bankruptcy process economic

feasibility to challenge the transaction (and achieve

bringing the parties to the transaction to the original

position) occurs only in the case that the transaction

has been carried out on market terms (the transaction

amount, payment term, etc.). In the case of non-

market relations can be determined probabilistic asset

that may occur in the event of termination (in judicial

or pre-trial order) transactions for which there are

grounds for challenging (Kobozeva, 2010).

The existence of grounds for challenging

previously executed transactions in court may have

Probabilistic Asset as an Economic Category in Valuation or Analytical Procedures

163

slightly different consequences than in the normal

course of business. The existence of grounds for

challenging transactions in the course of bankruptcy

proceedings (even under comparable market

conditions of the transaction) may be justified and

economically justified. For example, the alienation of

property at market value, but with priority repayment

of debts to one creditor to the detriment of other

creditors, may be the basis for challenging

transactions.

And in this case, there is a probabilistic asset, and

as a result, a proportionate obligation (Shchepot’ev,

2020). As a result of challenging the transaction, the

business entity will receive both an additional asset

and an additional liability, and the amount of its own

funds will not change. However, the resulting asset

(as a result, it will eventually be transformed into

cash) can be used to ensure the bankruptcy process

itself (extraordinary payments) or used to extinguish

the accounts payable (obligations) of creditors of an

earlier stage (economically and legally less protected

group of creditors). For example, the received funds

(when challenging transactions) may be used to pay

off salary debts, but not to legal entities; to pay off

debts to unaffiliated creditors, to the detriment of

affiliated creditors or owners, since the relationship

with the affiliated persons could be aimed at

withdrawing assets or causing damage to the

organization.

In bankruptcy proceedings, challenging

transactions (regardless of the market value of the

transaction) has a clear economic meaning. That is

why the expected receipt of an asset (even with the

condition of additional obligations) in the course of

challenging transactions can and should be

considered as a probabilistic asset, taking into

account the probability of obtaining the

corresponding asset in the course of legal proceedings

and actions to execute a judicial act (Shchepot’ev,

2020). Moreover, the occurrence of a probabilistic

asset can lead to the occurrence of a probabilistic

liability (Shchepot’ev, 2020).

The existence of grounds for bringing the

executive body or the owner of the organization to

subsidiary and / or joint liability, including the

occurrence of such grounds in the course of

bankruptcy proceedings. In the course of economic

activity, there are cases when the owner, who has

control functions, makes a decision in relation to a

dependent (or subsidiary) company that is directly

beneficial to him, but has brought losses to the

company and other co-owners. The actions of the

executive body may also lead to losses. In such

situations, the company may have the right to hold the

executive body or the owner of the company

accountable.

The presence of such grounds and the intention to

carry out such actions can be considered as a

probabilistic asset. It should be noted that the

probability in this case is to determine not only with

regard to the alleged receipt of a proper (well-

established in the appellate and cassation instances) a

judicial act, but also with the financial capacity of the

Executive body or owner for damages, i.e. taking into

account the probability of the actual execution of

fully or partially judicial act to repay the damage from

the actions of the Executive body or owner.

Probabilistic assets, in most cases of their

occurrence, are caused by the relevant circumstances

and the implementation of targeted actions on the part

of the economic entity.

For the transformation of a probabilistic asset into

property, property rights that have all the

characteristics of a real asset, the actions of the

relevant authorized bodies (the executive body or

other management bodies) are necessary. It is not

enough to have the right to buy back the property at a

reduced price, this right must be used in a timely

manner. It is not enough to have the right to recover

lost profits, losses caused, or to bring someone to

subsidiary or joint liability. It is necessary to take

purposeful actions. But in this aspect (taking into

account the circumstances), the occurrence of a

probabilistic asset does not relate to the normal

business activity of the company. A probabilistic

asset will not be defined as an additional increase in

assets due to the profit received in the ordinary course

of business due to the normal amount of profit

inherent in this type of activity. For example, the

resulting increase in cash during normal trading

activities (purchase and sale of goods) will not be

defined as a probabilistic asset, since such activities

are determined by the rate of profit in trading. As

already noted, the probabilistic asset may occur in

emergency, non-standard or atypical situations, when

the circumstances have led to the existing state of

Affairs, and purposeful activities of an economic

entity though and require concerted action (as well as

spending various resources), but the estimated costs

disproportionately small with intended (albeit

probabilistic) additional economic benefits.

The estimated asset gain from real estate agency

real estate trading will not be a probabilistic asset at

its core. But the expected growth of assets from real

estate, purchased at a discounted price significantly

below market size (grace redemption involves the

purchase at a price significantly below market), can

be regarded as probabilistic asset, because the right to

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preferential purchase is not appears to be widespread,

systematic and due to the current in this situation,

circumstances (for example: availability for this

moment a long lease relations).\

The right of claim against the debtor, recovered in

court, will not be a probabilistic asset. The accounts

receivable itself meets all the requirements for the

asset, the collection of accounts receivable has its

own well-established standards of profitability. But

the right to bring the former (suspended) director to

subsidiary and / or joint liability for previously caused

losses can be determined (at the stage of identifying

the grounds for bringing the former director to

responsibility for the losses caused) can be

determined as a probabilistic asset (with the

corresponding probability of real economic benefits

for the company).

The described elements of economic benefits that

can be defined as a probabilistic asset are not

exhaustive. The author showed only the main

positions of the probabilistic asset, the reasons and

conditions for the occurrence of probabilistic assets

are broader and more diverse.

A probabilistic asset does not meet all the criteria

for an asset, but can be defined as an informal asset.

For the purposes of valuation, analytical, and

management procedures, such an informal asset can

be identified and evaluated using mathematical tools

to determine the probability of a favorable economic

effect from the ownership of the corresponding

probabilistic asset.

If there are two or more doubts about the

occurrence of a favorable financial event for the

occurrence of an asset, then such a probabilistic asset

should be evaluated taking into account the

corresponding probabilities of a favorable economic

outcome, even if such a probability (probability in

aggregate) is significantly lower than 50%. Note that

to determine the probabilities, you can use

mathematical models based on the experience of the

past (if there is such experience), by the method of

expert assessments (specialists of the corresponding

profile determine the corresponding probability) or

other tools known to science.

5 CONCLUSIONS

Note that a probabilistic asset, as a rule, before its

transformation into property or property rights that

meet the criteria of a real one (which has all the

formally stipulated criteria) an asset that has the

characteristics of an asset, the alienation of which

from an economic entity for a reasonable cost is

impossible under the current legislation.

It is impossible to transfer to another economic

entity the right to preferential repurchase of property,

the right to receive state subsidies (compensation) for

expenses incurred, the right to existing tax benefits

(specifically for this entity), the right to recover lost

profits and other similar probabilistic assets.

As a result of the purposeful actions of the

economic entity, the probabilistic asset in the

foreseeable future, with a certain degree of

probability, will turn into property or property rights.

It should be noted that the proposed tools for

determining and evaluating the expected economic

benefits in the form of a probabilistic asset should not

become a tool for unreasonably increasing the value

of an existing business entity for the purposes of

determining its value, financial analysis or making

management decisions.

The use of such an economic category as a

probabilistic asset is quite reasonable and justified in

modern economic conditions in certain areas of

activity: valuation activities, management

accounting, financial analysis, etc. The use of such

tools in analytical procedures will help to obtain more

accurate results when evaluating a business, will

allow for more accurate business planning, the

construction of economic models, more balanced

management decisions, etc.

According to the author, taking into account the

modern principles of the approach to financial

information, the use of informal assets in analytical

procedures, in particular, the probabilistic asset, will

be justified and appropriate.

The author expresses the hope that scientific

research on the presented topic will continue and

develop and will contribute to the development of

economic thought.

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