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E. Petitioner's Expert Testimony
1. Introduction
Petitioner relies on expert testimony to demonstrate that
(1) the Divisions' shrinkage methods clearly reflect income,
(2) respondent's method does not clearly reflect income, or
(3) the Divisions' shrinkage methods more clearly reflect income
when compared to respondent's method. In particular, petitioner
relies on such testimony to demonstrate a strong correlation
between sales and shrinkage, which correlation underlies the
Divisions' shrinkage accruals and petitioner's contention that
respondent's method does not clearly reflect income. Petitioner
presents principally the expert testimony of W. Eugene Seago,
Ph.D. Dr. Seago is a certified public accountant and a professor
of accounting at Virginia Polytechnic Institute and State
University.
2. Correlation Between Sales and Shrinkage
Statistical correlation (R) is a measure of the degree to
which two variable quantities tend to change with respect to each
other. R is expressed in a range between positive one and
negative one. A correlation of positive one indicates that the
two quantities change in exact proportion and in the same
3(...continued)
believe that it cannot show arbitrariness based on respondent's
failure to make an adjustment to opening inventory, and we reject
petitioner's attempt to distort respondent's method.
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