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considered capable of producing sound accruals of shrinkage
losses.”
In addition, Dr. LaRue considered Target's shrinkage method
and concluded as follows:
In my opinion, the “methodology” employed by Target to
forecast its shrinkage experience and to then allocate
that forecast to each of the departments in each of its
stores for the purpose of accruing these losses in its
books and records fails to evidence the objectivity and
verifiability required to establish the overall process
as a sound method that can be expected to clearly
reflect its income.
That opinion, according to Dr. LaRue, is based on Target's
failure to “directly” consider a department's actual shrinkage
experience in setting that particular department's shrinkage rate
coupled with the inability of “a disinterested party with full
knowledge of all relevant data * * * to independently reconstruct
the forecasted shrinkage derived” by Target's shrinkage method.
Dr. LaRue disagrees with Dr. Seago's conclusion that the
Divisions' shrinkage methods produce reasonably accurate
estimates of losses from shrinkage factors. Dr. LaRue believes
that the tax effects of shrinkage estimation errors are not the
result of errors at the aggregate level because shrinkage is
accrued at the store and department levels, and, therefore,
minimal errors at the aggregate level are misleading. Dr. LaRue
states:
I think he [Dr. Seago] is looking at the wrong
phenomena. I think it doesn't matter a whole lot. It
matters, but it doesn't matter a whole lot whether our
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