AMIS H520 Accounting - Fisher College of Business

AMIS 3600H Accounting Information Systems John Fellingham
Spring 2017 Fisher 406
Office hours: TBA General Description It is said we live in an information age, and the father of the information
age is routinely identified as Claude Shannon. He is rightly given a good
deal of credit for proving the noisy channel theorem which is, by the way,
the subject of chapter 9 in the course textbook. The proof, while not
constructive, establishes the feasibility of virtually error free
transmission through a noisy channel. As such, the theorem provides the
foundation for smart phones and the plethora of information devices which
surround us. But Shannon's most fundamental contribution to the information age is a
tool developed for the analysis of any communication channel: Shannon
conceived of a concept that allowed treating information as a "thing" which
can be measured (that is, compute a number describing the amount of
information) and accumulated, processed, and transferred. This idea placed
information at the center of our understanding of the physical world, as
important as the concepts of mass and energy. Indeed, it is not difficult
to find speculations that information might even be more important, and
that Shannon's contributions to science rival those of Einstein, both in
terms of elegance of the results and the effects on modern life. (See, for
example, some of the readings on this syllabus, in particular Poundstone
and Seife.) Information science, then, has become central to many avenues of scientific
inquiry. So here is a question. Consider a gathering of the finest
information scientists the university has to offer. The question is this:
Does accounting deserve a seat at the table? The course textbook is modest
attempt at an affirmative answer. An important part of the case is the theorem in chapter 8, sometimes
referred to as the fundamental theorem of accounting. The theorem
establishes that accounting statements, in particular, the accounting rate
of return, is an information measure. Indeed, it is essentially the same
measure other information scientists use, a measure based in the concept of
"entropy" as developed by Shannon. The accounting statements provide a
measure of how much the reporting entity knows, not necessarily what it is
that they know. The information interpretation of accounting also allows a
statement about the social welfare implications of accounting. But the fundamental theorem is only a start for the case for including
accounting at the table. After all, a theorem could be mailed in. An
important part of the case is that the double entry system of accounting
provides a powerful and instructive frame for analysis. For example, there
are three sufficient conditions for the fundamental theorem:
1. A condition (which can be connected to accounting activities) on the
number of solutions for state prices;
2. Prices are arbitrage free;
3. And a long run decision frame is utilized. Deriving the conditions for the fundamental theorem is the way the
development proceeds in the textbook, including, most particularly,
chapters 3, 4, and 6. Each condition is illuminated by a central theorem
or concept:
1. The fundamental theorem of linear algebra;
2. The fundamental theorem of finance;
3. And the rules of continuous compounding. Each of these, in turn, is cleanly illustrated and analyzed in an
accounting double entry frame. Indeed, some people, including me, consider
double entry to be the best frame for learning the structure and power of
the theorems. Besides being the three supporting theorems for the fundamental theorem,
they are each important for many other applications:
1. The fundamental theorem of linear algebra is the basis for estimation
and prediction procedures like projections;
2. The fundamental theorem of finance (also the theorem of the separating
hyperplane) is the basis for optimization and equilibrium methods like
linear programming;
3. Continuous compounding methods are the basis of dynamic systems,
exponential growth, and any process where the passage of time is
central. So, as well as providing the foundation for the fundamental theorem, the
double entry frame illuminates foundation ideas in a variety of scientific
disciplines. Furthermore, other applications of the double entry frame are
presented in subsequent chapters. Chapter 9 returns to Shannon's noisy
channel theorem, in particular the mechanics of reducing errors in
communication channels. Linear codes have proven to be effective at error
detection and correction. The accounting double entry system is, after
all, the oldest and most famous linear code. The flip side of error correction is encryption. For error correction the
objective is to get as much information (Shannon measured) through the
channel as possible. For encryption the objective is to minimize the
amount of information in the channel (chapter 10). Once again accountants
have experience and judgment to bring to the table, as they are routinely
charged with the responsibility of maintaining data integrity and keeping
it out of the hands of the bad guys: a high profile example is the
safeguarding of the academy award ballots. Several theorems are useful including ones due to Fermat, Euler, and
Euclid, as well as the fundamental theorem of arithmetic. Coding and
encryption technology lead naturally to quantum information and quantum
computation. Quantum encryption is apparently on the frontier of
encryption technology (chapter 11). And quantum processes are another
linear system. A final topic in chapter 12 employs quantum axioms to analyze the
information environment, especially in a production setting. We are
particularly interested in an environment in which information is used
efficiently, and a distinct synergy arises. Nature's use of information is
remarkably (perhaps even unbelievably) efficient, and seems an appropriate
setting in which to confront synergy issues. Accounting measurement, even
when it is not the primary source of the information, interacts with the
information environment, and can enhance, or corrode, synergy. Textbook All of the exercises and the suggested readings are from the textbook
entitled Accounting: An Information Science available on the course
website:
http://fisher.osu.edu/~fellingham_1/523/index.html and
u.osu.edu/fellingham.1/homepage. The textbook (as of this writing) consist of 13 chapters:
1. Accounting as an information science
2. Alternative representations of the double entry system
3. Accounting as a communication channel
4. Theorem of the separating hyperplane
5. Accounting and equilibrium: valuation in the row space
6. Accounting stocks and flows
7. Information stocks and flows
8. The fundamental theorem of accounting
9. Error detecting and error correcting codes
10. Secret codes
11. Quantum cryptography
12. Production, synergy, and accounting
13. Brief concluding remarks
A Sample of recommended reading (optional) Fortune's Formula by William Poundstone
The Smartest Guys in the Room by Bethany McLean and Peter Elkind
Probability Theory: The Logic of Science by Ed Jaynes
Information Science by David Luenberger
Information Theory by Thomas Cover and Joy Thomas
A Mathematician's Apology by G. H. Hardy
Alan Turing: The Enigma by Andrew Hodges
Decoding the Universe by Charles Seife
Essentials of Programming in Mathematica by Paul Wellin The Jaynes, Luenberger, and Cover and Thomas books are in the nature of
reference material, containing rigorous developments of many of the
information related theorems we will encounter. The book by McLean and
Elkind is a rendering of the Enron saga, a business story in which
information is a central player. Poundstone and Seife are well-done
accounts of some of the personalities and ideas involved in the development
of information theory. The book by Hodges is about Alan Turing, an
incredibly important contributor to the development of information theory
and computers. It is, I believe, listed as the basis for the relatively
recent movie entitled The Imitation Game. The Hardy book has some number
theory, important in coding and encryption. But mostly it is an
appreciation of the beauty and elegance in some mathematical theorems.
(Elegance is another argument for including the very elegant double entry
accounting system at the information sciences table.) Course Requirements and Grading Grades will be assigned based on cumulative performance in the course,
using the following weights for the components: Making a positive contribution
to the learning environment 25%
Comprehensive final exam 75%
Examination The final exam is comprehensive, closed book, and closed note. Calculators
are allowed; personal computers and other electronic devices are not. The
final will be given at the time determined by the University.
Preliminary schedule for AMIS 3600 Spring 2017: |Topics |Readings |Problems |
|Introductory remarks | | |
|Directed graph and |Ch. 1 |Exercises1.1, 1.2, 1.3 |
|linear representations |Ch. 2.1 - 2.4 |Example 2.1 |
|of accounting | | |
|Accounting as a |Ch. 3.1 - 3.2 | |
|communication channel | |Examples 3.1, 3.2 |
|Computing yrow |Ch. 3.2 - 3.5 |Examples 3.2, 3.3, 3.4, |
| | |3.5 |
|Fundamental theorem of |Ch. 3.8 | |
|linear algebra | | |
|Multiple loops |Ch 3.9 | |
|