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Introduction

Accounting has always been known as the process of recognizing and chronicling financial transactions associated with a business or organization. As John Christensen mentioned, "the accounting system is based upon old technology dating back to Pacioli in 1494. This technology continues to be used, and the market has proved to be useful. It is a double entry system that simultaneously keeps track of the financial stocks and flows of the company, with the comparative advantage that it is hard to manipulate" (2010). Accountants are the recordkeepers in maintaining this system based on the financial data provided.

However, the accounting system is not factoring in all the relevant information for economic decisions. The system is extremely limited to information that could be reliably measured. John Christensen wrote his 2010 article, Accounting Errors and Errors of Accounting, to help provide a visual representation of how the accountants should pay more attention to errors. He utilized Bayes' Theorem to provide examples on how accounting errors could provide misinformation or not enough information. This article argues that due to the world being nonlinear and the accounting system being a linear model, errors must be evaluated by accountants to ensure that all relevant information is provided for any economic decision for a business.

Summary of Article

John Christensen states that accounting serves many purposes in the multi=person world, and as such a conflict among uses and errors will be inevitable. He frames accounting as being an information system in which errors are not just merely annoyances but rather critical signals. They are carriers of information that help update beliefs, as explained by the Bayes' Theorem. Bayes' Theorem, named after the 18^th-century British mathematician Thomas Bayes, is "a mathematical formula for determining conditional probability. Conditional probability is the likelihood of an outcome occurring based on a previous outcome in similar circumstances. Thus, Bayes' Theorem provides a way to revise or update an existing prediction or theory given new evidence" (Hayes, 2025). In the accounting and finance world, Bayes' Theorem is utilized as a measurement of risk evaluation. This formula teaches an individual how people's beliefs are updated once the latest information is received.

Christensen also discusses activity-based costing (ABC) accounting and that "one of the important insights to be gained from the activity-based accounting system is that the accounting system is improved when the accounting structure reflects the structure of production. In this way, ABC is better able to produce product costs that are in line with the underlying economic cost" (2010). The ABC style is structured in a two-stage linear cost allocation, where in turn accounting cost is under a linear assumption. Cost accounting employs a linear approach that states that the relationship between two values is linear, meaning that a specific change to one amount will change the cost to the other (i.e., cost of materials and price of a product made from the materials). However, when the cost function is deemed nonlinear, then an endogenous error in the accounting system will be the outcome.

The world is always changing and as such operates nonlinearly. Nonlinearity is "a common phenomenon when assessing cause and effect associations. It is a statistical term that describes an association between two variables in which scenarios involving estimating models and testing hypotheses to conduct empirical inquiries" (2023). To put it plainly, "unlike accounting, the world is hardly ever linear, and the analysis of accounting has to take that reality into consideration" (2010). Real-world economic marvels are often nonlinear, whereas accounting frameworks are linear. As such, errors may occur since accountants have to use linear calculations and methods to comprehend non-linear data, which can result in accounting errors. The assumed linearity in accounting brings with it structural errors. But because accounting is such a regulated and structured system, accountants are subjected to keep using linear methods. The result of this means that errors will still be persistent, and the system designer can oppose this through understanding the error structure.

Analysis

John Christensen argues that accounting should just not look to present a clean, mean value. Errors will convey important signals. Errors should be recognized as carriers of information and are essential for updating the beliefs under Bayes' Theorem. The errors highlight that the variance in accounting, not just the mean or average, is meaningful. The author frames accounting as an information system in which errors are not just nuisances but critical signals and carriers of information that assist in helping update beliefs per the Bayes' Theorem. Errors, rather than being deviations to eradicate, propose intuitions into underlying complexity and subjectivity of economic reality represented in financial statements.

Accountants conventionally focus on the mean, or value, of accounting numbers. For example, it could be the average revenue or average cost. Christensen contends that the variance, or dispersion, is just as important for understanding uncertainty and reliability as the mean. The variance is the spread or scattering of accounting measures. By analyzing both an average and the spread of numbers, accountants will have a better comprehension of the data they are presenting since it offers answers to nonlinear data.

Christensen also brings forth the idea of auto-correlation. Auto-correlation is where historical information predicts future information. Historical information only becomes relevant when there is auto-correlation, like if current values are statistically related to past errors. Based on this, historical accounting could be informative and not just repetitive. The historical data will then be relevant accounting data in decision-making.

This article also introduces the concept that there is a prevalence of endogenous errors. This is a stark contrast from the belief that errors are always exogenous (like clerical mistakes or fraud). Christensen believes that errors ascending from within the accounting system are more prevalent than those that are commonly recognized. One reason for this is again harping on the idea of linearity versus nonlinearity. There is a mismatch between linear accounting outlines and the nonlinear world. Another reason for the endogenous errors is from the interaction between accounting and other information channels. Accounting often plays a supplementary role and is not the primary or sole representation of economic reality. As such, accountants must reconcile reports with other information sources, which means that errors are partly a function of how accountants interact with broader data.

Strengths, Weaknesses, and Recommendations

This article, like all journal articles, contains several strengths and weaknesses. One strength is that Christensen creates an innovative perspective in his writing. He contests the standardizing view that accounting errors are always undesirable. He advises that errors can be informative and enhance our understanding of accounting and the world.

The editorial also invokes Bayesian reasoning and emphasizes variance, thus can reframe accounting quality in terms of probabilistic and information-theoretic. Christensen highlights the prevalence of internal, systematic errors in his work. He also adds a level of realism that is often overlooked in traditional accounting dialogue.

One weakness of this article is that as being a theory-driven commentary, Christensen's perceptions are theoretically lush but lack pragmatic validation. He does not provide any data to support his beliefs. The author neglects to include case studies that demonstrate how accounting errors could be informative in practice.

The Bayesian approach and the focus on variance instead of mean could be abstract and counterintuitive to experts rooted in more deterministic bases. This makes the article much more complex and is not easily comprehendible to an average reader. In addition, financial reporting stresses accuracy and comparability. The notation that errors are inherently informative clashes with regulatory and audit standards.

The biggest I can recommend to Christensen is that he looks to include data or case studies in his future work. While his article is informative, he lacks evidence to support his beliefs. Having some sort of personal study or even other reviews from other professionals could provide better insight into Christensen's work. Being able to back your claims with proof is critical in argumentative works like Christensen's. I believe Christensen's article would be more convincing if he provided sources to help back his opinions as it would provide the substance that his article is currently lacking.

Conclusion

I believe that while accounting is always going to be regimented and regulated, the evaluation process could stand to see an upgrade. Accounting is an information system that seems to be stuck utilizing linear methodology to explain the financial health of companies in a non-linear world. John Christensen's Accounting Errors and Errors of Accountingreframes the typical tale: instead of chasing "error-free" accounting, his perspective advises users and professionals to recognize and understand errors. They should look to embrace errors as a source of insight about uncertainty, complexity, and system limitations. Christensen's article disrupts the conventional way of thinking by having readers utilize provocative lens to reconsider the nature of accounting as a system of uncertain, yet informative signals.

I recommend this article if anyone is interested in looking at accounting in a different manner. John Christensen's article can challenge the reader into reevaluating accounting as being stuck in a linear type of reporting. This style of reporting is not acclimated to the non-linear world, and such errors will occur. It is how we view these errors Christensen wrote about. I found this article to be an interesting read, but one to review at least a couple of times to fully comprehend what he wrote. It does lack in providing concrete evidence to support his beliefs, but overall this article is a good starting point at to why the accounting framework may need to be reassessed in the future to help account for a world that continues to be evolving and adapting to economic and social changes.