| This dissertation, an historical case study, investigates how the Bell Telephone System blended knowledge of depreciation and probability theory both to develop a managerial accounting policy and to serve as a means for controlling debate before government regulators in the early twentieth century. This research shows that by combining statistics and accounting, the Bell System created a system for estimating capital cost expiration that was firmly grounded in mathematical science. The firm developed methodologies that used averaging techniques as a way to determine trends in asset life that were obscured by random fluctuations in actual retirements. The resultant smoothing of annual expenses also helped reduce the perception of risk, thus providing an economic benefit to the firm. At the same time, complexity derived from the application of probability theory gave the telephone company significant advantages in regulatory debates with adversaries trained primarily in accounting and law. In addition, the advanced mathematics also functioned as a knowledge barrier which inhibited potential encroachments by regulators on corporate prerogatives.;This study extends the body of literature on managerial accounting by documenting an early use of statistical tools to understand firm resources. This study also expands our understanding of the acquisition and use of knowledge within the firm. Some of the most interesting findings look at the contextual nature of knowledge. Thus, in the pro-business atmosphere of the 1920's, the firm was left alone to develop its knowledge base and design applications that were in its own best interests. With the crisis of the Depression, the relationship between the firm and business changed, and regulators demanded examination of the equity issues related to AT&T's depreciation practices. This resulted in changes to the rate base calculations, but the basic depreciation policies of the Bell System remained unchanged. |
