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 A L A N M E L V I L L E A L A N M E L V I L L E
International Financial Reporting
A Practical Guide Sixth Edition
International
“Like Beethoven’s sixth, perfectly pitched for the intermediate accounting student!”
Financial Reporting

A Practical Guide
International Financial Reporting
Raymond Holly, Galway-Mayo Institute of Technology (Ireland)

A Practical Guide
“A practical, no-nonsense guide to IFRS, backed up by plenty of worked examples to
illustrate the requirements.” Sixth Edition
Katherine Martin, Nottingham University Business School
Reviews of the previous edition

With more than 120 countries in the world now using international financial reporting standards (IFRS®
Standards), knowledge of the standards issued by the International Accounting Standards Board (IASB®)
is vital to students’ success in financial accounting. Melville’s International Financial Reporting employs a
practical, applied approach in exploring and explaining the key international standards. With a focus on how
to implement the standards, this text delivers a focused, user-friendly introduction to international financial
reporting.

Renowned for clear and concise language, this sixth edition brings the book completely up-to-date with
international standards issued as of 1 January 2017.

M E L V I L L E
Key features
• Unique practical approach
• Class-tested by professional and degree students
• Worked examples with solutions in every chapter
Visit www.pearsoned.co.uk/melville for
• Chapter-end exercises featuring questions
our suite of resources to accompany this
from past exam papers of key professional accountancy
textbook, including a complete solutions
bodies
guide, PowerPoint slides for each chapter
and opportunities for extra practice.

Alan Melville FCA BSc Cert Ed. is a best-selling author. Previously a Senior Lecturer at Nottingham Trent
University, he has many years’ experience of teaching accounting and financial reporting.

Front cover image: © Butch Martin/Getty Images www.pearson-books.com Sixth

Edition

CVR_MELVILLE_06_AW2.indd 1 05/06/2017 10:27

 Contents

Reporting cash flows from Definition of related party and related

operating activities 255 party transaction 348
Disclosures 262 Disclosures required by IAS24 350
Foreign exchange accounting 351
17 Financial reporting in
Reporting foreign currency
hyperinflationary economies 272
transactions 352
Historical cost accounting and
Translation to a presentation currency 354
its weaknesses 273
Strengths of historical cost accounting 278
Alternatives to historical cost Part 4 Analysis of Financial Statements
accounting 279
Hyperinflationary economies 280 22 Ratio analysis 361
The restatement of financial statements 280 Accounting ratios 362
Disclosures required by IAS29 285 Profitability ratios 363
Liquidity ratios 367
Efficiency ratios 369
Part 3 Consolidated Financial Statements Investment ratios 372
Limitations of ratio analysis 379
18 Groups of companies (1) 291
Multivariate ratio analysis 380
Requirement to prepare consolidated
financial statements 292 23 Earnings per share 388
Group statement of financial position Significance of EPS 388
at date of acquisition 293 Calculation of basic EPS 389
Group statement of financial position Shares issued during the accounting
in subsequent years 297 period 391
Partly-owned subsidiaries 300 Bonus issues 393
Preference shares 303 Rights issues 394
Elimination of intra-group balances 305 Calculation of diluted EPS 397
Unrealised profits 306 Presentation and disclosure
Reporting period and accounting requirements 399
policies 307
24 Segmental analysis 404
Disclosure requirements 307
Operating segments 405
19 Groups of companies (2) 316 Reportable segments 405
Group statement of comprehensive Disclosures required by IFRS8 407
income 317
Group statement of changes in equity 317 Part 5 Small and Medium-sized Entities
Subsidiary acquired part way through
an accounting period 323 25 The IFRS for SMEs Standard 417
Small and medium-sized entities 418
20 Associates and joint arrangements 331
Concepts and pervasive principles 419
Associates and significant influence 332
Financial statement presentation 420
The equity method 333
Statement of financial position 421
Application of the equity method 333
Statement of comprehensive income
Joint arrangements 340
and income statement 421
Disclosure requirements 341
Statement of changes in equity and
21 Related parties and changes in Statement of income and retained
foreign exchange rates 347 earnings 422
Related parties 348 Statement of cash flows 422

vii
Contents

25 The IFRS for SMEs Standard (cont.)

Notes to the financial statements 422 Borrowing costs 428
Consolidated and separate financial Share-based payment 428
statements 423 Impairment of assets 428
Accounting policies, estimates and Employee benefits 429
errors 423 Income tax 429
Financial instruments 424 Foreign currency translation and
Inventories 424 Hyperinflation 429
Investments in associates and Events after the end of the reporting
joint ventures 424 period 429
Investment property 425 Related party disclosures 430
Property, plant and equipment 425 Specialised activities 430
Intangible assets other than goodwill 426 Transition to the IFRS for SMEs
Business combinations and goodwill 426 Standard 430
Leases 426
Provisions and contingencies 426 Part 6 Answers
Liabilities and equity 427
Revenue 427 Answers to exercises 433
Government grants 428 Index 497

viii
 Preface

The purpose of this book is to explain International Financial Reporting Standards (IFRS®
Standards) and International Accounting Standards (IAS® Standards) at a level which is
appropriate for students who are undertaking an intermediate course of study in financial
reporting. It is assumed that the reader has already completed an introductory accounting
course and is familiar with the basics of financial accounting. The book has not been
written with any particular syllabus in mind but should be useful to second-year under-
graduates studying for a degree in accounting and finance and to those who are preparing
for the examinations of the professional accounting bodies.
IFRS Standards and IAS Standards (referred to in this book as "international standards")
have gained widespread acceptance around the world and most accounting students are
now required to become familiar with them. The problem is that the standards and their
accompanying documents occupy over 4,000 pages of fine print and much of this content
is highly technical and difficult to understand. What is needed is a textbook which
explains each standard as clearly and concisely as possible and provides students with
plenty of worked examples and exercises. This book tries to satisfy that need.
The standards are of international application but, for the sake of convenience, most of
the monetary amounts referred to in the worked examples and exercises in this book are
denominated in £s. Other than this, the book contains very few UK-specific references and
should be relevant in any country which has adopted international standards.
Each chapter of the book concludes with a set of exercises which test the reader's grasp
of the topics introduced in that chapter. Some of these exercises are drawn from the past
examination papers of professional accounting bodies. Solutions to most of the exercises
are located at the back of the book but solutions to those exercises which are marked with
an asterisk (*) are intended for lecturers' use and are provided on a supporting website.
This sixth edition is in accordance with all international standards or amendments to
standards issued as at 1 January 2017.
Alan Melville
April 2017

ix
 Acknowledgements

I would like to thank the IFRS Foundation for permission to use extracts from various
IASB® standards. This publication contains copyright material of the IFRS Foundation in
respect of which all rights are reserved. Reproduced by Pearson Education Limited with
the permission of the IFRS Foundation. No permission granted to third parties to
reproduce or distribute. For full access to IFRS Standards and the work of the IFRS
Foundation, please visit http://eifrs.ifrs.org.
The International Accounting Standards Board, the IFRS Foundation, the author and the
publishers do not accept responsibility for any loss caused by acting or refraining from
acting in reliance on the material in this publication, whether such loss is caused by
negligence or otherwise.
I would also like to thank the following accounting bodies for granting me permission to
use their past examination questions:
! Association of Chartered Certified Accountants (ACCA)
! Chartered Institute of Public Finance and Accountancy (CIPFA)
! Association of Accounting Technicians (AAT).
I must emphasise that the answers provided to these questions are entirely my own and are
not the responsibility of the accounting body concerned. I would also like to point out that
the questions which are printed in this textbook have been amended in some cases so as to
reflect changes in accounting standards which have occurred since those questions were
originally published by the accounting body concerned.
Please note that, unless material is specifically cited with a source, any company names
used within this text have been created by me and are intended to be fictitious.
Alan Melville
April 2017

x
 List of international standards

A full list of the International Financial Reporting Standards (IFRS® Standards) and the
International Accounting Standards (IAS® Standards) which are in force at the time of
writing this book is given below. Standards missing from the list have been withdrawn.
Alongside each standard is a cross-reference to the relevant chapter of the book.
It is important to realise that new or modified standards are issued fairly often. The
reader who wishes to keep up-to-date is advised to consult the website of the International
Accounting Standards Board (IASB®) at www.ifrs.org.

International Financial Reporting Standards (IFRSs) Chapter

IFRS 1 First-time Adoption of International Financial Reporting Standards 1
IFRS 2 Share-based Payment 14
IFRS 3 Business Combinations 6, 18
IFRS 4 Insurance Contracts –
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 8
IFRS 6 Exploration for and Evaluation of Mineral Resources –
IFRS 7 Financial Instruments: Disclosures 11
IFRS 8 Operating Segments 24
IFRS 9 Financial Instruments 11
IFRS 10 Consolidated Financial Statements 18, 19
IFRS 11 Joint Arrangements 20
IFRS 12 Disclosure of Interests in Other Entities 18, 20
IFRS 13 Fair Value Measurement 5
IFRS 14 Regulatory Deferral Accounts –
IFRS 15 Revenue from Contracts with Customers 13
IFRS 16 Leases 9
IFRS for Small and Medium-sized Entities 25
SMEs
International Accounting Standards (IASs)
IAS 1 Presentation of Financial Statements 3
IAS 2 Inventories 10
IAS 7 Statement of Cash Flows 16
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 4

xi
List of International Standards

IAS 10 Events after the Reporting Period 12

IAS 11 Construction Contracts 10
IAS 12 Income Taxes 15
IAS 16 Property, Plant and Equipment 5
IAS 17 Leases 9
IAS 18 Revenue 13
IAS 19 Employee Benefits 14
IAS 20 Accounting for Government Grants and Disclosure of Government 5
Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates 21
IAS 23 Borrowing Costs 5
IAS 24 Related Party Disclosures 21
IAS 26 Accounting and Reporting by Retirement Benefit Plans –
IAS 27 Separate Financial Statements 18
IAS 28 Investments in Associates and Joint Ventures 20
IAS 29 Financial Reporting in Hyperinflationary Economies 17
IAS 32 Financial Instruments: Presentation 11
IAS 33 Earnings per Share 23
IAS 34 Interim Financial Reporting 3
IAS 36 Impairment of Assets 7
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 12
IAS 38 Intangible Assets 6
IAS 39 Financial Instruments: Recognition and Measurement 11
IAS 40 Investment Property 5
IAS 41 Agriculture –
It should be noted that some of these standards are beyond the scope of this book and are
considered no further here. These are IFRS4, IFRS6, IFRS14, IAS26 and IAS41.
As well as the international standards, two further IASB documents (neither of which is
a standard) are dealt with in this book. These are:
(a) the Conceptual Framework for Financial Reporting (see Chapter 2) which sets out a
number of concepts that underlie financial reporting and which is referred to by the
IASB during the development of new and amended standards
(b) an IFRS Practice Statement entitled Management Commentary (see Chapter 3) which
provides a non-binding framework for the presentation of a management commentary
to accompany a set of financial statements.

xii
Part 1

INTRODUCTION TO FINANCIAL
REPORTING
 Chapter 1

The regulatory framework

Introduction
Financial reporting is the branch of accounting that deals with the preparation of financial
statements. These statements provide information about the financial performance and
financial position of the business to which they relate and may be of value to a wide range
of user groups. More specifically, the term "financial reporting" is most often used to refer
to the preparation of financial statements for a limited company. In this case, the main
users of the statements are the company's shareholders. However, the information which is
contained in financial statements may also be of use to other user groups such as lenders,
employees and the tax authorities (see Chapter 2).
The purpose of this book is to explain the rules which govern the preparation of financial
statements for organisations which comply with international standards. This first chapter
introduces the regulatory framework within which financial statements are prepared. The
next chapter outlines the main features of a conceptual framework setting out the main
concepts which underlie financial reporting.

Objectives
By the end of this chapter, the reader should be able to:
• list the main sources of accounting regulations and explain the need for regulation
• explain the term "generally accepted accounting practice" (GAAP)
• outline the structure and functions of the International Accounting Standards Board
(IASB®) and its associated bodies
• explain the purpose of an accounting standard and list the main steps in the standard-
setting process adopted by the IASB
• outline the structure of an international financial reporting standard or international
accounting standard
• explain the main features of IFRS1 First-time Adoption of International Financial
Reporting Standards.

3
PART 1: Introduction to Financial Reporting

The need for regulation

Small business organisations are usually managed by their owners. This is generally the
case for a sole trader, where the business is run by a single owner-manager, and for
partnerships, where the business is owned and managed by its partners. Similarly, small
private limited companies are often managed by their shareholders, who might all be
members of the same family. In these circumstances, the owner or owners of the business
can glean considerable amounts of financial information from their day-to-day
involvement in managing its affairs and so do not depend solely upon formal financial
statements to provide them with this information.
In contrast, large businesses (which are usually limited companies) are generally owned
by one group of people but are managed by a different group. A large public company is
owned by its shareholders, of whom there may be many thousands, but is managed by a
small group of directors. Although some of the shareholders may also act as directors, it is
likely that the large majority of the shareholders have no direct involvement in managing
the company which they own. Such shareholders are almost entirely reliant upon the
company's financial statements for information regarding the company's financial
performance and position and to help them to determine whether or not the company is
being properly managed. Other external user groups (such as the company's creditors) are
also dependent to a large extent upon the information contained in financial statements
when trying to make economic decisions relating to the company.
If the form and content of financial statements were not regulated, it would be possible
for incompetent or unscrupulous directors to provide shareholders and other users with
financial statements which gave a false or misleading impression of the company's
financial situation. This would inevitably cause users to make poor economic decisions
and so undermine the whole purpose of preparing financial statements. Therefore it is
vital, especially in the case of larger companies, that financial reporting should be subject
to a body of rules and regulations.

Sources of regulation

The rules and regulations which apply to financial reporting may be collectively referred
to as the "regulatory framework". In practice, most of this framework applies only to
companies, but it is important to realise that financial reporting regulations could be made
in relation to any class of business entity. Indeed, the international standards which are the
subject of this book generally refer to "entities" rather than companies. However, it may be
assumed for the remainder of the book that we are dealing primarily with financial
reporting by companies. The regulatory framework which applies to financial reporting by
companies consists of the following main components:
(a) legislation
(b) accounting standards

4
 CHAPTER 1: The Regulatory Framework

(c) stock exchange regulations.

Each of these is explained below.

Legislation
Most of the developed countries of the world have enacted legislation which governs
financial reporting by limited companies. This legislation does of course differ from one
country to another. In the UK, for example, the Companies Act 2006 contains rules
relating to matters such as:
• the accounting records which companies must keep
• the requirement to prepare annual accounts (i.e. financial statements)
• the requirement that these accounts must give a "true and fair view"
• the requirement that the accounts must be prepared in accordance with either
international standards or national standards
• the circumstances in which group accounts must be prepared (see Chapter 18)
• the circumstances in which an audit is required
• the company's duty to circulate its accounts to shareholders and to make the accounts
available for public inspection.
Some of these rules have arisen as a result of European Union (EU) Directives† and this is
also true of the legislation in other member states of the EU.
† In view of the Referendum result on 23 June 2016, it seems safe to say that EU influence over UK
company law will eventually cease to exist.

Accounting standards
Whilst legislation generally sets out the broad rules with which companies must comply
when preparing financial statements, detailed rules governing the accounting treatment of
transactions and other items shown in those statements are laid down in accounting
standards. Many of the developed countries of the world have their own standard-setting
bodies, each of which is responsible for devising and publishing accounting standards for
use in the country concerned. In the UK this is the Financial Reporting Council (FRC).
The USA has a Financial Accounting Standards Board (FASB) and there are standard-
setters in other countries such as Germany, Japan, Australia etc.
However, the increasing globalisation of business has fuelled the search for a single set
of accounting standards. These standards would apply throughout the world and would
greatly improve the consistency of financial reporting. To this end, the International
Accounting Standards Board (IASB®) has developed and is continuing to develop a set of
international standards which it hopes will attain global acceptance. These standards are
already used in a great many countries of the world (see later in this chapter).
Most of the remainder of this book is concerned with the international standards and an
introduction to the work of the IASB is given later in this chapter.

5
PART 1: Introduction to Financial Reporting

Stock exchange regulations

A company whose shares are listed (or "quoted") on a recognised stock exchange must
comply with the regulations of that stock exchange, some of which may relate to the
company's financial statements. A stock exchange may, for example, require its member
companies to produce financial statements more frequently than required by law (e.g. to
publish interim financial reports at quarterly or half-yearly intervals) or to provide a more
detailed analysis of some of the items in its financial statements than is required by law or
by accounting standards.

Generally accepted accounting practice

The term "generally accepted accounting practice" (GAAP) refers to the complete set of
regulations (from all sources) which apply within a certain jurisdiction, together with any
general accounting principles or conventions which are usually applied in that jurisdiction
even though they may not be enshrined in regulations. Since accounting rules and
regulations currently differ from one country to another, it is correct to use terms such as
"UK GAAP", "US GAAP" and so forth. At present, there is no globally accepted set of
accounting regulations and principles but the IASB is working towards that end and is
trying to achieve convergence between the various regulations which are in force through-
out the world (see later in this chapter). The term "international GAAP" is used to refer to
the standards issued by the IASB and the principles on which those standards are based.
A distinction is sometimes drawn between big GAAP and little GAAP, as follows:
(a) The term "big GAAP" refers to the accounting regulations which apply to large
companies (generally listed companies). The financial affairs of these companies can
be very complex and therefore the regulations concerned need to be correspondingly
complex. Some of the international standards described in this book appear to have
been written mainly with large companies in mind.
(b) The term "little GAAP" refers to the simpler accounting regulations which apply to
smaller companies. In the UK, for example, smaller companies may choose to adopt
the Financial Reporting Standard for Smaller Entities issued by the UK Financial
Reporting Council, rather than complying with UK accounting standards in full.
At the international level, the IASB has issued the IFRS for SMEs® Standard. This
is essentially a simplified version of the full international standards and is intended
for use by small and medium-sized entities (mainly unlisted companies). A brief
summary of the SMEs standard is given in Chapter 25 of this book.

6
 CHAPTER 1: The Regulatory Framework

The International Accounting Standards Board

International standards are developed and published by the International Accounting

Standards Board (IASB) which was formed in 2001 as a replacement for the International
Accounting Standards Committee (IASC). Standards published by the IASB are known as
International Financial Reporting Standards (IFRS® Standards). Standards published by
the IASC are known as International Accounting Standards (IAS® Standards). Many of the
IAS Standards are still in force, since they were adopted by the IASB on its inception. At
present, the list of extant standards comprises sixteen IFRS Standards and twenty-eight
IAS Standards. A full list of these standards is given at the front of this book.
The IASB consists of fourteen members, of whom up to three may be part-time. The
members of the IASB are chosen for their professional competence and their relevant
experience and are selected in such a way that a broad geographical balance is maintained
on the Board. The current IASB Chairman is Hans Hoogervorst. The previous Chairman
was Sir David Tweedie, who occupied the position for ten years and was formerly
Chairman of the UK standard-setting organisation.
The IASB is responsible to the trustees of the IFRS Foundation, as is shown in the
following diagram:

IFRS Foundation

IFRS Advisory International IFRS Interpretations

Council Accounting Standards Committee
Board

The IFRS Foundation

The constitution of the IFRS Foundation states that its objectives are as follows:
(a) to develop, in the public interest, a single set of high-quality, understandable,
enforceable and globally accepted financial reporting standards based upon clearly
articulated principles. These standards should require high quality, transparent and
comparable information in financial statements and other financial reporting to help
investors, other participants in the world's capital markets and other users of financial
information to make economic decisions;
(b) to promote the use and rigorous application of those standards;

7
PART 1: Introduction to Financial Reporting

(c) in fulfilling the objectives associated with (a) and (b), to take account of, as
appropriate, the needs of a range of sizes and types of entities in diverse economic
settings;
(d) to promote and facilitate adoption of the IFRS Standards, being the Standards and
IFRIC® Interpretations (see below) issued by the IASB, through the convergence of
national accounting standards and IFRS standards.
The IASB's Preface to International Financial Reporting Standards states that these are
also the objectives of the IASB.
The activities of the IFRS Foundation are directed by twenty-two Trustees who are
appointed subject to approval by a Monitoring Board (see below) and who are drawn from
a diversity of geographical and professional backgrounds. The Trustees are responsible for
appointing the members of the IASB and the other bodies shown in the above diagram and
for establishing and maintaining the necessary funding for their work. The Trustees are
also responsible for reviewing the effectiveness of the IASB. Financial support for the
IFRS Foundation's activities is received from a variety of sources, including:
(a) national financing regimes based upon a country's Gross Domestic Product (GDP)
(b) income from publications and related activities
(c) major international accounting firms.
The Monitoring Board comprises high-level representatives of public authorities such as
the European Commission and the US Securities and Exchange Commission. The Trustees
are required to make an annual written report to the Monitoring Board.

The IFRS Advisory Council

The IFRS Advisory Council provides a forum for participation by organisations and
individuals with an interest in international financial reporting. The Advisory Council
comprises thirty or more members drawn from diverse geographical and professional
backgrounds and has the following objectives:
(a) to offer advice to the IASB with regard to its agenda and priorities
(b) to inform the IASB of Council members' views on standard-setting projects
(c) to offer other advice to the IASB or to the Trustees.
The Chairman of the Advisory Council cannot be a member of the IASB or its staff.

The IFRS Interpretations Committee

The main role of the IFRS Interpretations Committee is to interpret the application of
international standards (issuing "IFRIC Interpretations") and to provide timely guidance
on financial reporting matters which are not specifically addressed in the standards. The
Interpretations Committee has fourteen voting members and a non-voting Chair.

8
 CHAPTER 1: The Regulatory Framework

The standard-setting process

The IASB develops standards by means of a "due process" which involves accountants,
users of financial statements, the business community, stock exchanges, regulatory
authorities, academics and other interested individuals and organisations throughout the
world. The main steps in this process (which are listed in the Preface to International
Financial Reporting Standards) are as follows:
• identification and review of all the issues associated with the topic concerned
• consideration of the way in which the IASB Conceptual Framework (see Chapter 2)
applies to these issues
• a study of national accounting requirements in relation to the topic and an exchange of
views with national standard-setters
• consultation with the Trustees and the Advisory Council about the advisability of
adding this topic to the IASB's agenda
• publication of a discussion document for public comment
• consideration of comments received within the stated comment period
• publication of an exposure draft for public comment
• consideration of comments received within the stated comment period
• approval and publication of the standard.
Publication of an international standard requires approval by at least nine of the fourteen
members of the IASB.
The Preface states that the international standards are designed to apply to the general
purpose financial statements and other financial reporting of profit-oriented entities,
whether these are organised in corporate form or in other forms. For this reason, the
standards refer to "entities" rather than companies. The word "entity" is also used in this
book, although in practice the international standards apply principally to companies.

The structure of an international standard

An IFRS Standard or an IAS Standard consists of a set of numbered paragraphs and is
typically made up of some or all of the following sections:
• introduction
• objectives and scope of the standard
• definitions of terms used in the standard (these may be in an Appendix)
• the body of the standard
• effective date and transitional provisions
• approval by the IASB and any dissenting opinions by IASB members.
A standard may be accompanied by a Basis for Conclusions, which is not part of the
standard itself but which sets out the considerations which were taken into account when
the standard was devised. There may also be application or implementation guidance and
illustrative examples.

9
PART 1: Introduction to Financial Reporting

The purpose of accounting standards

The main purpose of accounting standards (whether national or international) is to reduce

or eliminate variations in accounting practice and to introduce a degree of uniformity into
financial reporting. In particular, accounting standards usually set out requirements with
regard to the recognition, measurement, presentation and disclosure of transactions and
other items in financial statements. The main advantages of this standardisation are as
follows:
(a) Faithful representation. If the preparers of financial statements are obliged to
comply with a set of accounting standards, then it is more likely that the information
given in the statements will provide a faithful representation of the financial
performance and financial position of the organisation concerned. Accounting
standards help to ensure that financial reporting is free from bias and that "creative
accounting" practices are outlawed.
(b) Comparability. It is important that users should be able to compare the financial
statements of an organisation over time so as to identify trends in its financial
performance and position. It is also important that users should be able to compare
the financial statements of different organisations and assess their relative strengths
and weaknesses. Such comparisons will not be meaningful unless all of the financial
statements concerned have been drawn up on a consistent basis. This is much more
likely to be the case if accounting standards have been observed.
A more detailed explanation of these and certain other "qualitative characteristics" of the
information that is provided in financial statements is given in the IASB Conceptual
Framework (see Chapter 2).
It is the view of the IASB that standards should ensure that like items are accounted for
in a like way and that unlike items are accounted for in different ways. Therefore the IFRS
Standards issued by the IASB do not generally permit a choice of accounting treatment.
Some of the IAS Standards which were adopted by the IASB on its inception do allow a
choice of accounting treatment but the IASB has reconsidered (and will continue to recon-
sider) the items for which a choice of treatment is permitted, with a view to reducing the
number of choices available or eliminating choice altogether.
It could, of course, be argued that accounting standards should allow some degree of
flexibility and that compliance with the single accounting treatment permitted by a
standard might sometimes be inappropriate. The IASB takes the view that this situation is
very unlikely to occur. However, international standard IAS1 (see Chapter 3) allows an
entity to depart from the requirements of a standard in the "extremely rare circumstances"
in which compliance would prevent the financial statements from faithfully representing
transactions and other items.

10
 CHAPTER 1: The Regulatory Framework

Worldwide use of international standards

As stated above, the goal of the IFRS Foundation is to develop a set of global accounting
standards, promote their use and bring about convergence between national standards and
international standards. This goal has not yet been achieved in full but the worldwide
influence of international standards has increased significantly since the IASB was formed
and this process seems likely to continue.
At present, over 120 countries require all or most domestic listed companies to comply
with IFRS Standards†. The countries concerned include all EU member states together
with countries such as Australia, Brazil, Canada, Russia and South Africa. The use of
IFRS Standards is permitted (but not required) in several other countries. Furthermore:
(a) India's national standards are largely converged with IFRS Standards. Most listed
companies and large unlisted companies are required to comply with these standards.
(b) Japan permits most listed companies to use IFRS Standards.
(c) China has substantially converged its national standards with IFRS Standards.
(d) Hong Kong has fully converged its national standards with IFRS Standards.
(e) The USA has stated its commitment to global financial reporting standards. Foreign
companies listed on US stock exchanges are already permitted to use IFRS Standards.
The US Financial Accounting Standards Board (FASB) has been working with the
IASB on a number of convergence projects. However, it is not yet clear whether or
not the USA will eventually adopt IFRS Standards.
† Note that, in this context, the term "IFRS Standards" refers to the international standards in their
entirety, including IFRS Standards, IAS Standards and IFRIC Interpretations.
Perhaps understandably, international standards have made rather less impact in relation to
unlisted companies, which tend to have straightforward financial affairs and to operate in
one country only. Nonetheless, the use of international standards for such companies is
mandatory in some countries and is permitted in others (e.g. the UK). The development by
the IASB of an IFRS for SMEs Standard (see Chapter 25) may encourage more countries
to require compliance with international standards for unlisted companies.

First-time adoption of international standards

In 2003, the IASB issued IFRS1 First-time Adoption of International Financial Reporting
Standards. A revised version was issued in 2008. The objective of IFRS1 is to ensure that
an entity's first financial statements which comply with international standards should
contain high-quality information that:
• is transparent for users and comparable for all periods presented
• provides a suitable starting point for accounting under international standards
• can be generated at a cost that does not exceed the benefits to users.

11
PART 1: Introduction to Financial Reporting

The main features of IFRS1 are as follows:

(a) An entity's "first IFRS† financial statements" are defined as the first financial state-
ments in which the entity adopts international standards and makes an explicit and
unreserved statement of compliance with those standards.
† This standard uses the term "IFRS" to refer to the international standards in their entirety,
including IFRS Standards, IAS Standards and IFRIC Interpretations.
(b) The "first IFRS reporting period" is defined as the reporting period covered by the
first IFRS financial statements.
(c) The "date of transition" to international standards is defined as the beginning of the
earliest period for which an entity presents comparative information in its first IFRS
financial statements. Most financial statements cover a period of one year and give
comparative information for the previous year. So the date of transition is normally
the date which falls two years before the end of the first IFRS reporting period.
(d) When first adopting international standards, an entity must prepare an "opening IFRS
statement of financial position" as at the date of transition. This is the starting point
for accounting in accordance with international standards. The opening IFRS state-
ment of financial position must comply with international standards and should:
(i) recognise all assets and liabilities whose recognition is required by international
standards, but not recognise items as assets or liabilities if this is not permitted
by international standards
(ii) reclassify items which were recognised as one type of asset or liability under
previous GAAP but which are classified as a different type of asset or liability
under international standards
(iii) apply international standards in measuring all recognised assets and liabilities.
Note that the term "statement of financial position" has now replaced the term
"balance sheet" throughout the international standards (see Chapter 3).
(e) The same accounting policies must be used in the entity's opening IFRS statement of
financial position and in all periods presented in the first IFRS financial statements
(i.e. the first IFRS reporting period and the comparative period(s)). In general, these
accounting policies must comply with all international standards in effect at the end
of the first IFRS reporting period, even if some of those standards were not in effect
at the date of transition or during some or all of the periods for which information is
being presented.
(f) The first IFRS financial statements must include the following reconciliations:
(i) a reconciliation of equity (share capital and reserves for a company) as reported
under previous GAAP with equity re-calculated under international standards,
for the date of transition and for the end of the last period in which the entity
reported under previous GAAP

12
Another random document with
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 PLATE XXXIV

Normal Knee-joint. (Child, seven years Tuberculosis of Knee, with Partial

old.) Dislocation. (Child, seven years old.)

With a better appreciation of the pathology of the condition

numerous methods were devised by which the germs should be
attacked in loco. Thus various antiseptics have been injected in
varying strengths, either into joint cavities or around them.
Lannelongue devised a “sclerotic method,” by which zinc chloride
solutions were injected into the peri-articular tissues, to so condense
and harden them as to imprison and destroy their contained germs.
The method, however, is an extremely painful one and has not found
general favor. For a long time iodoform was employed for the same
purpose, in emulsions of 10 per cent. and 20 per cent. strength, in
sterilized glycerin or olive oil. It affords a curious paradox that the
iodoform itself must be sterilized before being thus used. This
emulsion has been injected into the peri-articular tissues or into joint
cavities, which, when containing appreciable amounts of fluid, should
be first emptied and washed out; all of which can be done through
the same small trocar used for introduction of the iodoform. The
verdict of surgeons today is rather against the employment of
iodoform, since they have learned to not rely upon it because of
disappointment so often following its use.
Bier, in 1891, advised the so-called congestion treatment of
tuberculous joints, basing it upon the fact that tuberculosis does not
develop in lungs which are the seat of venous stasis from valvular
heart disease. He proposed to produce an artificial stasis, in the joint
structures and about them, by which living germs should be
destroyed and their disease products encapsulated, claiming that as
the result of the hyperemia thus produced the alexins are thus
brought into more complete contact with the bacilli. The method is
applicable to the limbs below the shoulder and hip. It consists in the
application of an Esmarch bandage above the affected joint, applied
with sufficient firmness to obstruct the returning blood, but not to
interfere with the arterial supply. If there be room the limb is also
bandaged below the joint with an ordinary cotton roller. This
congestion is kept up at daily intervals for increasing periods,
beginning with perhaps half an hour and continuing until it is in
operation at least half of the time. Meantime other methods of
treatment are not interdicted. In the earlier stages of tuberculous joint
disease this method has given very encouraging and pleasing
results. (See Fig. 208.)
Tuberculous hydrops may be treated by aspiration and elastic
compression. Should fluid distend the joint it should be opened and
thoroughly cleaned, then closed and perhaps drained.
The treatment of pyarthrosis and of peri-articular cold abscess has
long been a mooted subject. The orthopedic surgeons still adhere to
mildly or absolutely non-operative measures, whereas the general
surgeon prefers to adopt more radical methods. Each case should
be judged on its own merits, and these should include a careful
estimation of the general condition of the patient. Should evidences
of septic intoxication be present or the ordinary general signs of the
presence of pus, then these collections should be opened and
cleaned out. If hectic can be excluded, then other considerations will
indicate what is best. At all events there will be seen many cases
where a delay in operation will be advisable, in order to permit of
improvement of the general condition by measures above described.
To merely open up a tuberculous focus and leave at least two fresh
raw surfaces exposed to contamination is rather to invite the spread
of the disease than to correctly meet the indication. Every old focus
will be lined or surrounded with a more or less dense membrane
formerly called pyogenic, but now more correct knowledge shows it
to be pyophylactic. (See p. 113.) To leave this in situ is to leave
germ-laden walls, while to dissect it thoroughly is to make a larger,
fresh raw surface and to open up innumerable absorbent vessels.
Thus, whether it be removed in whole or in part, or allowed to
remain, some sufficiently strong caustic material should be promptly
employed, by which both destruction of living residual germs and
closure of the mouths of the absorbents shall be effected. This has
been set forth more fully when dealing with cold abscesses in
general, but is of so much importance that it may be reiterated here.
Whether the actual cautery, pure carbolic acid, strong zinc chloride
solution, or some other agent be used should depend upon
circumstances, but every portion of the surface which it is proposed
to leave more or less exposed to the possibility of infection should be
thus protected. In proportion to the intensity of the caustic action
there will be separation of more or less cauterized and sloughing
material, for whose escape provision should be made; but it will be
separated by the granulation process, aided by an active
phagocytosis, and when removed will leave a granulating surface
which is but slightly absorbent. These facts pertain to small incisions
for drainage as well as to extensive arthrectomies.
The operative treatment, then, of tuberculous arthritis varies from
tapping, with or without drainage, to complete arthrectomy or
amputation. When the joints of the foot or ankle are extensively
diseased, and the patient, as usually happens, is in poor condition, it
may appear that amputation will afford the most complete relief, and
that a stump with an artificial member will be of much more use to
the individual than a mutilated, tender, and disabled foot.
 Fig. 208

Calcified mass in old “cold abscess” about hip-joint. (Buffalo Clinic. Skiagram by
Dr. Plummer.)

To incision with or without drainage is given the name arthrotomy.

When the joint is widely opened and portions removed with the sharp
spoon or otherwise, it is known as arthrectomy. When bone is
removed irregularly the measure is called atypical resection. When
entire bone ends are removed the operation becomes an exsection
or resection. The ordinary arthrectomy is not sufficient when foci are
present in the epiphyses. Here at least atypical resection is called
for. Arthrectomy may properly include a wide exposure of articular
surfaces and the removal of the thickened and diseased synovia,
with its fringes, or with the cartilages, by which cancellous structure
is more or less widely exposed. When arthrectomy is undertaken it
should be thoroughly made and by a large incision, since the more
completely the joint cavity can be inspected and attacked the better
are the interests of the patient subserved. All fresh or cold abscess
cavities which connect with the joint or lie in contact with it should
also be attacked at the same time, and those which do not
communicate with it should be separately drained. While drainage by
tube or other means will usually suffice, there are cases where the
disease is so extensive that it will pay to pack the cavity with balsam
gauze for a few days, placing secondary sutures by which the
incision can be closed after its removal. In the shoulder and hip, for
instance, such a method will give satisfactory results.
The advantage of avoidance of resection is the non-interference
with the epiphyses and their junctions, thus permitting the growth of
the bone to continue. Therefore complete and typical excisions
should be practised as seldom as possible, especially in growing
children. They may be practised to advantage even in advanced
age, and the writer has seen satisfactory results after complete
excision of tuberculous joints in senile cases. When operating upon
a tuberculous tarsal joint the surgeon is likely to find one or more of
the tarsal bones so much involved in the tuberculous disease that he
is compelled to scrape it out and thus leave a cavity almost the size
of the bone itself. Should he have to do this to a series of the bones
it would be better to make a formal resection of the tarsus or possibly
an amputation. The cavity should be left open with a sufficiently large
incision so that it may be easily packed. A cavity of this kind left
unpacked will fill up with clot, which will disintegrate and the result
will be much less satisfactory. In the former case there is an open
cavity which fills with granulations, but this can be kept accessible
under observation and with more effect and comfort. This is equally
true of those cavities where both arthrectomy and bone curettage
have been practised.
 MOVABLE BODIES IN THE JOINTS.
Several different terms have been applied to loose and movable
bodies, even in the various joints, depending on their size,
arrangement, and appearance. Thus we have the rice-grain or
melon-seed bodies (corpora oryzoidea), which have already been
described and are now supposed to indicate a form of tuberculous
synovitis which has undergone a partial if not complete subsidence.
Again we have larger masses occurring singly or in very small
number, especially in the knee, to which the Germans have given the
significant name of joint mice. Also in the knee, owing to its peculiar
construction, another form of movable body is met with, i. e., a
displaced and more or less motile semilunar cartilage. This condition
was first described by Hey, and especially studied by Allingham, who
made it a prominent feature of what he described as “internal
derangement of the knee.” Lastly, in those joints in which synovial
fringes occur, the knee especially, it is held that portions may
become detached by having been infiltrated and cast off or broken
loose, and thus form a fourth variety of floating body. The joints most
often affected are the knee and the elbow. In many instances there is
a history of injury, especially when the mass is of considerable size.
The theory of an “osteochondritis dissecans” has also been invoked
to account for the resemblance between some of these bodies and
the articular cartilages. Some pathologists have held that they may
result from the organization of clots, which are subsequently rounded
off and shaped by attrition (Fig. 209). These bodies then may consist
of condensed fibrinous material, of cartilage, of true bone, or of
hyperplastic and fatty synovial tassels. To these may be added rare
instances of mucoid connective tissue.
 Fig. 209

Floating bodies—“joint mice”—from knee-joint. (Lexer.)

Symptoms.—Rice-grain bodies may be suspected in cases of

chronic tuberculosis and often in arthritis deformans,
while in many instances they may be felt gliding beneath or between
the joint structures. A perfectly loose floating body will produce
symptoms which are quite distinctive. They consist of sudden and
intense pain, with such muscle spasm as to fix the joint and prevent
its use, thus “locking it.” Occurring at the knee the individual is
instantly disabled, but usually learns by some peculiar manipulation,
with or without assistance, to “unlock” the joint, and after a few
moments to resume its use. Such a complaint as this should always
suggest the condition. Patients who have had it for a long time learn
how to avoid it as well as how to relieve it, and will often discover
and be able to indicate to the surgeon the existence of a movable
body, and even to describe its usual resting place.
Partial or complete dislocation of a semilunar cartilage in the knee
is usually the result of traumatism, a distinct history of which can
generally be obtained. It may not have been discovered at the time,
owing to swelling or tenderness, but will produce its peculiar
symptoms later, i. e., after use of the joint is resumed. Here, again,
so long as it remain in proper position, it interferes but little; with a
misstep or sudden movement, however, the patient is seized with
sudden and painful disability. Here the movable cartilage may be felt
projecting near its proper location. In such cases as these it is
movable only to a certain extent and makes no free excursion about
the joint. When not detected it may be suspected from the
description which the patient gives of his seizures.
Diagnosis.—So far as diagnosis is concerned, when a movable
body can be felt all doubt is set at rest. When it cannot
be discovered its existence may be inferred with an accuracy
proportionate to the patient’s description of his difficulties.
Treatment.—The treatment of rice-grain bodies is essentially that
of the chronic hydrarthrosis and probably tuberculous
condition which have led to their formation. It will consist usually in
arthrotomy, with thorough irrigation; often in some form of
arthrectomy. With the larger floating bodies, the “joint mice,” the most
radical measures are the best. In most of these instances there will
be some degree at least of hydrarthrosis. The joint cavity being
distended and relaxed, the indication for arthrotomy is the more
urgent, since it will permit also of irrigation or of dry sponging, with
the same benefit with which analogous intraperitoneal conditions are
treated by the same measures. The joint may be opened by a
sufficiently ample incision, through which the foreign body or bodies
may be removed. The operator should not be satisfied with mere
removal of one, but should make a thorough search for others which
may have escaped previous detection.
Perhaps no operative measure in surgery better illustrates the
advantages of asepsis. This operation, which now can be done with
impunity, was in the pre-antiseptic era one which had a discouraging
fatality, death resulting from septic infection in about 40 per cent. of
cases.

FOREIGN BODIES IN THE KNEE-JOINT.

“Joint mice” are of sufficient frequency and significance to justify
brief separate consideration. According to Connell these may be
grouped as follows:
 Those composed of foreign material, fatty tissue, fibrous
tissue, etc.;
Those composed of bone, cartilage, or of a mixture of the two.
Among the many explanations offered are the following:
Dry arthritis, with overgrowth of the margins of the cartilages;
Bony growths, separation from their attachments;
Infarct of the articular cartilage, with final separation;
Plate of bone formed outside of the joint and then invaginated;
Calcification or chondrification of enlarged synovial fringes;
Irritation and growth of embryonal cartilage or bone cells in
the synovial fringes;
Concretions whose nuclei are clots, torn fringes, or some
foreign body;
Some portion of the articular cartilages broken off by injury, or
damage and subsequent separation.
Injury figures largely in the opinion of most of the authorities, it
being well established that an injured portion of articular surface may
become subsequently detached by a fatty necrosis, spoken of by
König as osteochondritis dissecans, or by Paget as “quiet necrosis.”
Others imagine that these floating bodies are rarely of traumatic
origin.
Symptoms are usually marked and significant. There is sudden
sharp and shooting pain, sometimes so severe as to cause
faintness. Along with this there is “locking” i. e., fixation of the joint,
usually in the flexed position, probably due to the entanglement of
the floating body between the articular surfaces or between the bone
and the capsule.
It is the smaller rather than the larger bodies which give the most
acute symptoms. This “locking” may last for only a few moments or
for a number of hours and may or may not be followed by acute
effusion. When with the above symptoms the presence in the joint of
a movable mass can be made out diagnosis is complete. Some
patients discover the movable body in their own joints before they go
to the surgeon.
When the diagnosis is established the removal of the offending
material is imperative. In the pre-antiseptic era this was an extremely
hazardous operation. It is now one involving only theoretical risks.
 Fig. 210 These bodies are sometimes
extremely movable and slip
about within the joint in a manner
to almost defy removal even after
the joint cavity is open. If such a
body can be felt and fixed by
digital pressure, or by the
method of “stockading”
suggested by Andrews some
years ago, i. e., fixation by
forcing sterilized pins into the
tissues around it so that it cannot
escape, it is then an easy matter
to cut down upon it and remove
it. Otherwise incision may require
to be sufficiently ample to permit
insertion of a finger and the
general exploration of the joint
before it is encountered. These
bodies sometimes exist in small
numbers, and it may be possible
to remove several through a
single opening. If the joint be
opened and explored it should
be done thoroughly in order that
nothing may escape. After
removal the capsule is closed
with buried sutures, the balance
of the wound closed as usual,
and the limb then dressed upon
a splint with absolute fixation for
several days, in order to ensure
physiological rest (Fig. 209).
Ankylosis of hip with contracture of
knee, following post-scarlatinal arthritis. ANKYLOSIS.
 The term ankylosis implies angular deformity, but is used to
designate partial or complete fixation of joints, such fixation being
usually accompanied by more or less deformity or displacement. It is
a name for a condition and not for a disease, but is always produced
by the latter or by injury. The term itself implies nothing as to the
nature, extent, or appearance of the exciting cause. The actual
cause may have been disease of the joint, of the tissues around it, or
may have been the result of injury rather than of infectious or other
active disease.
For convenience we speak of fibrous, false, or pseudo-ankylosis,
and of that which is bony or actual. A more accurate use of terms
would lead us to refer to the former as contracture rather than true
ankylosis.
Contractures are the result of acute, usually septic intra-articular
and peri-articular processes, where muscle spasm is a pronounced
factor and where the intensity of the process has more or less
weakened the joint structures. The profession is hardly in the mood
to accept acute rheumatism as an infectious process. If true or not
the acute rheumatic affections are frequently followed by fibrous
ankylosis with contractures. Disfigurements of this kind are often
produced as the result of the surface lesions of severe burns or
ulcerations, followed by cicatricial contraction and the formation of
dense bands and scar tissue. This is a condition which can always
be foreseen and which should be guarded against with very great
care. (See Treatment of Burns.) Contractures also occur as the
result of certain diseases of the spinal cord, either as the result of
active contraction of one set of muscles, or of paralysis, by which the
opposing muscles are deprived of resistance and thus draw the limb
out of shape.
True ankylosis is sometimes fibrous, sometimes osseous, and
occasionally both combined. The older the case the more probable is
actual osseous union of joint surfaces. Bony ankylosis implies a
sharply destructive type of arthritis, which may have been originally
of pyogenic, gonorrheal, or tuberculous character, or else indicates a
series of very slow ossific and calcific changes, such as are
connected with the osteo-arthritis already described. Many of these
cases are to be referred to lesions of the cord, and many of them are
of polyarticular character. Fig. 195, illustrating one of the cases of so-
called “ossified men” under the writer’s observation, will portray a
series of lesions of this kind, most of the vertebral as well as the
other joints being involved in an absolute osseous union.

Fig. 211 Fig. 212

Bony ankylosis of hip. (Ransohoff.) Bony ankylosis of knee. (Ransohoff.)

Fig. 213
 Bony ankylosis of hip with deformity. (Ransohoff.)

When a joint is stiff bony ankylosis may be inferred. So long as

there is any motion possible it is essentially of the fibrous type. The
condition is one easy of recognition, and is seen in all degrees of
completeness. In many instances joint fixation is accompanied by
adhesions of tendons and tendon sheaths, while as time passes all
the structures around a joint thus fixed become less movable and
more stiffened. Even the patella may become firmly attached to the
bony surface upon which it normally rests, and thus interfere with
motion of the knee almost as much as though the femur and the tibia
were alone involved. Occasionally one of the acute exanthems is
followed by contractures of a joint, with or without actual joint lesions,
by which when neglected distressing deformities are produced; such,
for instance, as partial flexion and fixation of the knees, or such
stiffening of the hips as to prevent the thighs from being separated.
While in such cases stiffening cannot always be prevented, deformity
at least can be if suitable measures instituted sufficiently early.
Figs. 211 and 212, from Ransohoff, illustrate osseous union in the
hip and the knee, while Fig. 213 illustrates the deformity which may
be produced by contractures and ankylosis at the hip.
The following tabular presentation of the types of ankylosis will
perhaps convey the greatest amount of information in small space:
Capsular
Peri- Tendinous
-
articular Extracapsular - Tendovaginal
Ankylosis, true and false - Muscular
Synovial
Articular - Cartilaginous
Osseous

Murphy has prepared the following table of the types of arthritis

which lead to some of these varieties, and which may be classed as
follows:
(a) Primary hematogenous fibrous arthritis
(b) Dry fibrous arthritis. Non-traumatic
With fracture into joint
(c) Traumatic fibrous arthritis -
Without fracture (contusion)
Cryptogenetic
Typhoid
Scarlatina
Hematogenous - Metastatic -
Pyemia
Arthritis - Gonorrhea
(d)
- Traumatic
Suppurative
Tuberculous
Osteitis - Osteomyelitic
Extension - (infective)
Peri-arthritis (phlegmon)
Panarthritis
(e) Ossifying arthritis (primary)
(f) Static adhesive

Treatment.—The best method of treatment should be determined

by the original character of the exciting cause, the
duration of the condition, the amount of deformity present, and the
degree of joint fixation. That which will be possible if done early will
be useless if not resorted to until the case is old and chronic. In
every acute or subacute condition which may threaten ankylosis
every possible precaution should be taken to prevent it. If ankylosis
be inevitable it should occur with the limb in the most suitable
position. At the elbow, for example, this will be the right-angle
position; at the knee, one with the leg almost completely extended.
In the lower extremity traction with weight and pulley will serve a
useful purpose in many instances, either to overcome a threatening
condition or to improve one actually existant. Mechanical measures
(i. e., use of various splints or forms of orthopedic apparatus) will
sometimes be of great use. These may be arranged for the purpose
of providing absolute rest, with fixation in a desirable position rather
than in one which is undesirable, or they may be made with such
devices as shall permit of frequent change of position.
The mildest operative measure which can be practised in these
cases is manipulation, either gentle and frequent, combined with
massage, or more violent and painful, such as requires anesthesia
for its performance. The question of when to resort to these
manipulations is one calling for the soundest judgment, as on one
side the surgeon faces the possibility of setting up a renewed and
more or less acute disturbance, and on the other of seeing a joint
gradually stiffen, perhaps in a bad position. There is also a third
difficulty, i. e., the necessity for continuing motion in order to prevent
the re-formation of adhesions, and this in spite of the fact that it may
be intensely painful to the patient. Fortunately, however, the use of
nitrous oxide anesthesia usually permits this to be done as often as
may be necessary with a minimum of discomfort.
Firm, fibrous ankylosis will be attacked with great hesitation by the
experienced surgeon. Even though he may succeed in restoring the
limb to a better position, he may feel quite positive that the patient
cannot undergo the pain of the subsequent frequent handling. With
bony ankyloses he may feel that nothing short of radical measures
will suffice. Here it is rarely a question of restoring motility but rather
of overcoming deformity. At the knee a wedge-shaped portion of the
joint may be removed, its angle corresponding to the angle of
deformity, and thus a crooked leg may be restored to the straight
position; in fact, with a raised heel under such a limb it may be made
almost as useful as ever. At the hip one may do a subcutaneous
osteotomy, dividing the femoral neck either with chisel or with a small
and protected saw, and then bringing the limb down into the normal
position of extension, allowing the bone to repair itself, and effecting
improvement only in position, or, by constantly moving it, securing a
false joint; or a more formal exsection may be made and by
removing the head of the femur and clearing out the acetabulum a
degree of motion may be established at this point. At the wrist,
elbow, and shoulder-joint resections will usually give good results if
the operation be performed before the muscles have almost
disappeared by atrophic processes.
 Danger attaches to the performance of the so-called bloodless
operations, in that there is a possibility of laceration of nerve trunks
or of large vessels which may have become fixed in the condensed
tissues and be torn with them. There is more danger of this perhaps
at the knee than in other joints, and ruptures of the popliteal vessels
and nerves have been repeatedly reported. The first attempt in
breaking up such a joint should be to increase the degree of flexion.
If by efforts in this direction the tissues can be first released, then
there is less danger of their yielding when extension is made.
Another danger which threatens in all resistant cases, and especially
in elderly people, is fracture of bones. The writer has seen the upper
end of the tibia as well as the neck of the humerus yield under these
circumstances. In the latter event one should endeavor to prevent
bony union, and thus to gain a false joint in place of the original.
In regard to the nature of the operative attacks upon the above
types, the following is copied from Murphy:[33]
1. Tendon elongation (tendoplasty).
A. Extracapsular disease - 2. Tendovaginitis (exsection of sheath).
3. Cicatrices (removal).

1. Adhesive synovitis (exsection of capsule).

B. Intracapsular -
2. Replacement by aponeurosis or muscle.

1. Disconnect bones.
2. Remove neighboring bony processes or
prominences.
C. Osseous - 3. Liberate soft parts.
4. Prevent subsequent bony contact.
5. Interpose tissue to form hygroma or fibrous
surface.

D. Joints suitable for - 1. Mandibular.

operation. 2. Hip.
3. Shoulder.
 4. Elbow.
5. Knee.

1. Flap formation (skin flap with fascia, or

muscular).
2. Exposure of ankylosed area.
3. Osseous separation.
E. Technique - 4. Transplantation and fixation of interposition
flap.
5. Replacement of bone.
6. Fixation of parts.
7. Drainage.

1. Passive motion
F. Subsequent treatment - 2. Active motion.
3. Forced traction.

[33] Journal American Medical Association, May 20, 1905, p. 1573.

To the various expedients which may be adopted for making

stiffened joints more useful may be given, in a general way, the term
arthroplasty. A variety of mechanical contrivances have been
resorted to in the past, operators hoping to be able to secure, for
instance, a movable knee instead of one which is stiff. Artificial joints,
made of celluloid, ivory, etc., have been used for experimental
purposes, but while occasionally they have given good results in
animals, they have rarely been satisfactory in man. For the
prevention of re-adhesion, plates of celluloid, thin metal, gutta-
percha, rubber, etc., have been used. These are either wrapped
around a bone end or are used for lining a bone cavity, and rapidly
accumulating experience is showing that this may be done with great
benefit.
Thoroughness of operative work is one of the important
contributing agents to the securement of wide range of motion,
especially in complete removal of synovial membrane, capsule, and
ligaments. Soft parts should be liberated thoroughly. Of the materials
which can be interposed between bone ends in order to prevent
reunion, muscular aponeurosis, with a certain amount of fatty tissue,
makes the best material for interposition. When aponeurosis cannot
be secured, then muscle should be tried, with some fat, as the
former flattens out and undergoes structural changes, with
conversion into fibrous tissue.
It should be represented to the patient as a legitimate scientific
experiment, and in such a way that no matter what may happen no
blame can be attached to the operator. In general it may always be
stated that the older the lesion the less satisfactory will be any
measure of treatment except possibly resection and arthroplasty.

ARTHRODESIS.
This term applies to the intentional production of ankylosis in a
joint previously healthy or nearly so, with the intention of stiffening a
useless limb and thus enhancing its usefulness. The measure
applies mainly to those cases of infantile paralysis, with loss of
control of the knee or ankle, or both, when by stiffening the limb it
can be made to serve the purpose of a crutch. It is the last resort in
this direction when there is no possibility for tendon grafting. Long
confinement of a limb in a fixed dressing will lead to considerable
stiffening of the joint, yet a joint so immobilized lacks that firmness of
support called for in cases above mentioned. Therefore when it is
desired to perform arthrodesis the joint is usually opened and more
or less of its articular surface removed, the intent being to produce
the effect in the shortest time and in the best way. It can be better
attained by a removal of articular surfaces with the saw and the
apposition of fresh bone surfaces to each other, their retention being
ensured either by sutures (tendon or wire) or accurate fixation in
plaster of Paris. Under these circumstances drainage should not be
necessary, and limbs can be completely enclosed in a fixed
dressing.

MAJOR OPERATIONS ON JOINTS.

 Aside from arthrotomy and partial or complete arthrectomy, as
above mentioned, the latter, including removal of synovia or
cartilage, and perhaps curetting of bone foci, the formal resections or
excisions of joints remain to be considered. The latter is the
preferable term, as it is meant to include removal of the component
parts that enter into the construction of joints, while the term
resection implies rather the removal merely of portions of bone.
Joint excisions are practised especially for the following purposes:
(a) To atone for the result of old unreduced dislocations; (b) in certain
compound dislocations, with or without fracture; (c) in certain
comminuted fractures where there is no prospect of recovery with
useful joints; (d) in the destructive forms of acute arthritis where the
entire joint is disorganized and the bone ends carious; (e) in
tuberculous arthritis or panarthritis, with or without suppurative
complications; (f) in occasional instances of disabling osteo-arthritis;
(g) for relief of ankylosis, either for improvement of position (knee) or
restoration of motion; (h) occasionally after gunshot injuries.
Excisions required by the exigencies of traumatisms should be
promptly done. If the case be complicated with septic infection the
prognosis is much less favorable. For convenience of description
excisions may be classified as primary, intermediary, and secondary.
According to the joint involved, as at the knee, the purpose
underlying the operation is to effect an absolutely rigid bony
ankylosis.
The development and perfection of the general method of joint
excisions is a matter of but little more than a century. Previous to that
time amputation was almost the only resort when destruction had
occurred. The most prominent surgeons in the early development of
the measure were Park, of Liverpool, and Moreau, of France. During
the latter part of the past century Ollier, of Lyons, greatly improved
the technique by demonstrating the importance of the periosteum
and by introducing the so-called subperiosteal methods. This is of
great value in uninfected cases. It is a mistake, however, to
endeavor to save periosteum which has become involved in the
tuberculous process; in fact, in the presence of tuberculous disease
we cannot be too radical in the removal of all affected tissue.