Following Thomas (1969, 1974) the depreciation adjustment charged against accounting earnings is nowadays commonly presumed to be entirely arbitrary when it is viewed from a measurement perspective. This paper develops a statistical interpretation of accounting measurement to show that the depreciation calculation need not necessarily be viewed as incorrigible in Thomas's sense. A probability modelling approach is adopted to illustrate how the depreciation adjustment can be used to smooth accounting earnings over time. Depreciation is thus shown to have potentially useful estimation properties. The results have obvious policy implications regarding the objectives that depreciation and other accounting allocations might serve. They also have a bearing on fundamental questions regarding the nature of accounting measurement.

Item Type:	Refereed Article
Research Division:	Commerce, Management, Tourism and Services
Research Group:	Accounting, auditing and accountability
Research Field:	Accounting theory and standards
Objective Division:	Economic Framework
Objective Group:	Measurement standards and calibration services
Objective Field:	Service industries standards and calibrations
UTAS Author:	Willett, RJ (Professor Roger Willett)
ID Code:	100543
Year Published:	1997
Deposited By:	TSBE
Deposited On:	2015-05-19
Last Modified:	2015-06-09
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