- 32 -
explained by the fact that they chose to correlate different
variables. Each, however, has gone another step (beyond
correlation) and ventures an opinion as to the predictability of
shrinkage based on sales. Not surprisingly, they have reached
different opinions. While we cannot fully reconcile those
different opinions, Dr. Bates, principally by way of his rebuttal
report, has persuaded us that the low correlations found by Dr.
Roberts are not inconsistent with Dr. Bates’ opinion as to the
accuracy of sales as a predictor of shrinkage at the business
level. More importantly, Dr. Roberts has not persuaded us that
the low department level correlations found by him are
determinative of the question of clear reflection of taxable
income. Moreover, Dr. Roberts has failed to rebut Dr. Bates’
opinion that losses from shrinkage factors occur during the
physical-to-yearend period or to undermine Dr. Bates’ shrinkage
accrual accuracy analysis.
At this point, it is sufficient to say that we attach
credence to Dr. Bates’ analysis and are convinced that, at the
business level, sales have value as a predictor of shrinkage. We
will consider the weight to be accorded to Dr. Bates' conclusions
infra.
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