The impact of depreciation-type adjustments on the distribution of accounting earnings

Abstract

In this paper, experimental, computer simulation methods are used to demonstrate how a depreciationtype adjustment influences the distributional form of accounting earnings. The results confirm conjectures that earnings distributions generally. with or without depreciation adjustments. tend towards a normal form as a function of increasing 'activity' levels. They also indicate that depreciation is likely to accelerate the transition towards a normal form as activity levels increase and to transform a non-normal form to one that is significantly closer to the normal at relatively low activity levels. The impact of the fixed asset 'impairment' rules is also investigated. The results reported in the paper have implications for standard-setting, risk analysis and inference using accounting earnings and related numbers, including ratios based upon earnings.

Recent Developments of Statistical Approaches in Aspects of Accounting: a Review

“…It goes far beyond the scope of this report to review all the experimental results. Nonetheless, Hillier & Willett (2001) summarised the limiting and nonlimiting distributional properties of accounting earnings numbers under independence and stationary assumptions investigated by Hillier.…”

“…To do so, it is necessary to determine a decision parameter, e.g., long-term profitability (revenues less expenses, over time), and then to define a criterion, e.g., least-squares error criterion, with respect to which the decision parameter is analysed. With this respect, the SACT literature divides into three areas: firstly, pure statistical analysis (Lane & Willett, 1997, both of which are further developments of Willett (1991b); secondly, results from simulations (Willett, 1991b;Hillier, 1998;and Hillier & Willett, 2001); and third, various papers which conceptualise the idea of a virtual firm (Gibbins & Willett, 1997;Gibbins, Hillier & Willett, 1998), a model of real companies. We shall report critically on the statistical contents of the first and third areas and postpone the discussion of the second area to a future time as the results presented there have a limited information content, resulting from simplistic assumptions.…”

Uticaj amortizacije na poslovanje privrednih društava u Republici Srbiji

“…istorijski trošak umanjen za akumuliranu amortizaciju) ili prema modelu revalorizacije (tj. fer vrednosti) 5 . Prema modelu revalorizacije, odnos između knjigovodstvene vrednosti, akumulirane amortizacije i troškova amortizacije se razlikuje kada se knjigovodstvena vrednost značajno razlikuje od istorijskog troška 6 .…”

Variance Analysis in Manufacturing Companies

“…Th e analysis of variance is done each month during 'the closing period' and it enables a company's management to analyse all anomalies in the company, to prepare action plans for the following periods in order to fi x the anomalies (here we refer to negative anomalies, as positive anomalies imply the improvement of the results) and to avoid potential negative eff ects on the company's results. Th e analysis of variance proceeds from a company's budget, which is used to explain the current result through various variances (Hillier, 2006). As we have already mentioned, a month, a period or a whole year can be compared, having in mind that the analysis of variance at the end of the year cannot be used as a correction tool, but only as a fi nal explanation for the deviation from the planned result.…”