Table Of ContentMODERN ACCOUNTING
By the same author
SOCIETAL ACCOUNTING
A ONE-YEAR ACCOUNTING COURSE
MODERN
ACCOUNTING
Accounting as the
Information System for
Technological Change
TREVOR GAMBLING
M
@Trevor Gambling 1975
Softcover reprint of the hardcover 1st edition 1975 978-0-333-16707-6
All rights reserved. No part of this publication may be
reproduced or transmitted, in any form or by any means,
without permission
First published 1975 by
THE MACMILLAN PRESS LTD
London and Basingstoke
Associated companies in New York
Dublin Melbourne Johannesburg and Madras
SBN 333 16707 4
ISBN 978-1-349-02267-0 ISBN 978-1-349-02265-6 (eBook)
DOI 10.1007/978-1-349-02265-6
Contents
Preface vii
1 Change and Accounting Theory 1
1.1 The nature of change 1
1.2 Change and the economist 3
1.3 The static assumptions of traditional accounting
theory 5
1.4 Economic accounting 7
1.5 A systems approach to accounting 18
1.6 Notes 21
2 Model Building and Planning 23
2.1 Isomorphism and homomorphism 23
2.2 The 'model' and the system 24
2.3 The technological model 27
2.4 The gozintograph and its matrices 29
2.5 The inversion of very large matrices 34
2.6 Circuit formation 40
2.7 The econometric model 46
2.8 The physical model 50
2.9 Selection of a method 54
2.10 Notes 55
3 The Model in Action 61
3.1 The normal cost of multi-process production 61
3.2 Accounting within the model 67
3.3 The [T]-matrix as an L.P. problem 70
3.4 An heuristic solution 72
3.5 Aggregation of the technological matrix 77
3.6 Decomposition of the technological matrix 83
3.7 Some problems of non-linearity 85
3.8 Notes 88
VI Contents
4 A Taxonomy of the Information System 93
4.1 Quis custodiet ipsos custodes? 93
4.2 The informational assumptions of the model 95
4.3 The contents of the information system 98
4.4 An excursion into the behavioural theory of the
firm 104
4.5 Smoothing and forecasting 109
4.6 The negotiation of the budget 111
4.7 The behaviour of negotiated transfer costs 116
4.8 Notes 118
5 The Building of Complex Statements 125
5.1 The extension of the matrix [oN] 125
5.2 The financial accounting system 127
5.3 The lower-order complex statements 130
5.4 Some aspects of data housekeeping 142
5.5 The quantification of the information model 144
5.6 Higher-order complex statements 151
5.7 Notes 153
6 The Probability and Reliability of Complex
Statements 155
6.1 The accuracy of the basic data 155
6.2 Applied statistical decision theory 156
6.3 Probability and reliability 159
6.4 The reliability of complex statements 162
6.5 The nature of observations 167
6.6 The probability of complex statements 169
6.7 Notes 174
7 Feedback and the Information System 178
7.1 The feedback of variances 178
7.2 The analysis of variances 179
7.3 The response of the information system to
feedback 186
7.4 Conclusion: the meaning of 'reality' 190
7.5 Notes 193
Bibliography 197
Index 205
Preface
This book is based, fairly loosely, on the author's unpublished
doctoral thesis (42), presented at the University of Birmingham,
England. For some years before and after its presentation the
material formed the basis for a number of courses at post
graduate and final-year undergraduate levels, both for account
ing specialists and some engineers. As a result of these field
trials, the emphasis in this book is rather different from that in
the thesis, or in the discussion papers which preceded it.
It should not cause surprise that a book on accounting should
discuss material normally considered as a part of 'operational
research'. The topics normally discussed as operational re
search are the application of scientific principles to decision
making, and include model building, a variety of mathematical
techniques and heuristic methods. Moreover although of itself
separate from computer science and systems work, all this
methodology has come into being because of the availability of
advanced computational equipment. Accounting texts do not
often reflect the influence of these developments; they tend
either towards fairly abstract, philosophical treatments, or more
usually to a detailed procedural approach which was designed
originally for manual operation and fails to cover a variety of
problems which are peculiar to large-scale enterprises. These
problems arise from the complexity of the interrelationships
between different parts of the enterprise, and the change that is
taking place at various points within the system. Accounting
must concern itself with large-scale mathematical model build
ing if it is to be able to accommodate enterprises of this type.
The book, in short, sees accounting as an exercise in com
mercial systems engineering. The opening chapter tries to say
something about the nature of ,c hange' as it affects the account
ing system of an enterprise; it goes on to discuss how conven
tional accounting theory has sought to encompass change, and
viii Preface
to suggest a theory of economic accounting which seems better
adapted to cope with the problems of size, complexity and
changeability. The next chapter emphasises that the accounting
system is itself a model of the enterprise it serves, and contrasts
various techniques of model building. One technique, called
'technological model building', is selected as being suited espe
cially to providing a satisfactory model for this purpose, and
its methodology is described in some detail.
The book next shows how the basic model is used as a 'cost
model', primarily as a substitute for various methods of process
cost accounting. Thus far the work covered can be considered
as an extension of the conventional material of advanced
accounting. However the model is a comprehensive one, which
can be adapted readily to a variety of programming techniques
aimed at the ascertainment of optimal budgets. Here again the
large size of system being modelled presents difficulties over the
use of conventional programming methods, and it is necessary
to consider how the basic model can be aggregated into more
compact forms or 'decomposed' into a number of more manage
able problems. This book does not cover mathematical pro
gramming itself; however it does describe a method of calcu
lating an approximate solution to problems of this type using an
heuristic method.
So far the book has considered the accounting system as a
model of the physical processes ofm anufacture and distribution;
the methodology contains a number of novel, or at least little
known features, but the concepts themselves are not new.
Moreover the techniques have all been used in practice. The
remainder of the book is more theoretical in its content. It
seems possible to apply the large-scale modelling techniques
developed in the first part of the work to the information
system itself. Again, this idea is not new, but earlier writers who
have considered it were hampered by having to use a less fully
developed modelling methodology.
It seems possible to argue that one effect of the development
of highly automated integrated data-processing systems is the
elimination of a large amount of human intervention in the
preparation of data, which could be described as an 'editing'
function. At first sight, this editing function would seem to be
no more than an accept/reject assessment of the reliability of
Preface ix
the results obtained. However, it will be argued in Chapter 4-
that the real nature of the function is rather more complex than
this.
Essentially uncertain basic data are permitted to flow into
the system and become part of increasingly complex hier
archies of information statements; it is important to recognise
where the editing activity occurs in the system, and either re
produce it electronically or provide for human intervention in
the process. This requires the construction of a model of the
information system which shows clearly the ancestry of the
various statements produced; since the information system itself
is a model of the underlying technological reality, the model of
the information system must also be capable of encompassing
very large systems and of responding to change.
Apart from the location of editing operations, it is in any case
useful to know the basic ancestry of the complex information
statements, if only to be able to evaluate their reliability. The
book closes with a discussion of possible methods of measuring
the reliability of such statements, and the effect of such evalua
tions on the 'feedback' of cost variances into the information
system.
Some parts of the material have been the subject of papers in
Abacus, Accountancy, The Accounting Review, The Chartered Accoun
tant in Australia, and Management Accounting (New York); the
papers are partially reproduced or closely paraphrased in the
text.
