Is Accounting an Information Science?

Abstract

The central result is an equality connecting accounting numbers with information. Ln(1 income/assets)=rf I(X;Y), rf is the risk free rate, ln is the natural logarithm, Y is the outcome of interest, X is the information signal about Y, and I(X;Y) is a Shannon information measure. The equality is derived using economic income accounting; it is shown to hold, under appropriate conditions, for declining balance and straight line depreciation methods. Some social welfare implications are explored.

Keywords: information, entropy, accounting rate of return

JEL Classification: D8, M4