Kieso, Donald E.
M.S. (Master of Science)
Department of Accountancy
This thesis was an investigation into the applicability and usefulness of the relatively new measurement technique, "range accounting," as yet little studied and not yet put into use by accountants. The following are the questions that this study attempted to answer: 1. How does the concept of uncertainty relate to accounting information? 2. What additional information is provided through range accounting? 3. What are the problems of implementing range accounting? 4. What conclusions can be drawn from this investigation? This study was based not only on accountancy but also mathematics. The range and its related probability are mathematical in nature, but were related to accounting figures. Therefore, library research was done in accountancy and in mathematics. This study is, therefore, a fusion of mathematics and accounting. The concept of uncertainty is fundamental in accounting because most figures which accountants determine are uncertain. These figures are used by insiders and outsiders; it is important that all users are aware of the uncertainty of the figures on the financial statements. Presently, very little indication of the uncertainty is given. It is a conclusion of this study that financial statements with ranges and related probabilities provide a greater amount of information about the character, especially the uncertain character, of the figures presented therein. The width of the range and the related probability disclose the degree of uncertainty. An independent measurement system may have to be developed to derive the ranges and their related probabilities. Using two accounting methods to estimate endpoints is not acceptable because the objective of an accounting method is to estimate the true value. The objective of the needed measurement system is to estimate the endpoints of the range and the related probability. These objectives are in conflict and, therefore, if accounting methods are used, the range and its related probability is meaningless. Assuming historical cost, the characteristics which produce uncertainty in accounts are error, embezzlement and fraud, accounting methods, and non-cash transactions (assuming the dollar is used as the measuring unit). Little or no disclosure is presented relative to the uncertainty caused by these characteristics. Range accounting provides an indication of the uncertainty because all these characteristics combine to determine the width of the range and the absolute amount of the related probability. Besides these characteristics the historical cost basis produces uncertainty of its own when the fair market value deviates from cost (carrying value). Also the dollar as a unit adds to the uncertainty because of unadjusted price level fluctuations. it was not the purpose of this study to discuss the differing uncertainty in measurement bases. The limitations of range accounting center around quantifying the uncertainty and derivation of the range and its related probability. The mathematics involved in quantifying the uncertainty and deriving the range must be developed further. Financial analysts and accountants may have to have enough knowledge of mathematics to understand the derivation of the range and to use range accounting. Also, an adequate level of confidence in relation to the range will have to be attained before range accounting can be adopted. Hopefully, range accounting will enable users of financial statements to make better decisions based on the information accountants provide them.
Keys, David Earl, "Evaluation and formulation of range accounting" (1970). Graduate Research Theses & Dissertations. 2926.
Northern Illinois University
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