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Experimental computer simulation methods are used to demonstrate how a depreciation-type 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 of 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.

Item Type:	Refereed Article
Keywords:	depreciation-type adjustment, accounting earnings, earnings distributions, fixed asset impairment rules
Research Division:	Commerce, Management, Tourism and Services
Research Group:	Accounting, Auditing and Accountability
Research Field:	Accounting, Auditing and Accountability not elsewhere classified
Objective Division:	Expanding Knowledge
Objective Group:	Expanding Knowledge
Objective Field:	Expanding Knowledge in Commerce, Management, Tourism and Services
Author:	Willett, RJ (Professor Roger Willett)
ID Code:	71266
Year Published:	2006
Deposited By:	Research Division
Deposited On:	2011-07-12
Last Modified:	2012-10-10
Downloads:	1 View Download Statistics