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CRAIG DEEGAN
NANCIAL
ACCOUNNG
9TH EDITION
PART 6 INDUSTRY-SPECIFIC ACCOUNTING ISSUES 813
Chapter 20 Accounting for the extractive industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814
PART 7 OTHER DISCLOSURE ISSUES 853

Chapter 21 Events occurring after the end of the reporting period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 854
Chapter 22 Segment reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869
Chapter 23 Related party disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899
Chapter 24 Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917
PART 8 ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES 947

Chapter 25 Accounting for group structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948
Chapter 26 Further consolidation issues I: accounting for intragroup transactions . . . . . . . . . . . . . . 1005
Chapter 27 Further consolidation issues II: accounting for non-controlling interests . . . . . . . . . . . . . 1055
Chapter 28 Further consolidation issues III: accounting for indirect ownership interests . . . . . . . . . 1103
Chapter 29 Accounting for investments in associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . 1155
PART 9 FOREIGN CURRENCY 1205

Chapter 30 Accounting for foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1206
Chapter 31 Translating the financial statements of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . 1227
PART 10 CORPORATE SOCIAL-RESPONSIBILITY REPORTING 1249

Chapter 32 Accounting for corporate social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1250
vii
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CONTENTS
About the author ��v AACSB statement��xxi

Contents in brief ��vi How to use this book ��xxii
Preface ��xix Digital resources ��xxiv
Acknowledgments ��xx
PART 1
THE AUSTRALIAN ACCOUNTING ENVIRONMENT. . . . . . . . . . . . . . . . . . . 1
CHAPTER 1 An overview of the Australian external reporting environment. . . . . . 2

1.1 Accounting, accountability and the role of financial accounting 3 Learning objectives (LO) 2
1.2 Users’ demand for general purpose financial statements 6 Opening questions 3
Summary 53
1.3 Australian Securities and Investments Commission 7
Key terms 53
1.4 Australian Accounting standards Board 18 Answers to Opening
1.5 Financial Reporting Council 31 questions 53
1.6 Australian Securities Exchange 32 Review questions 54
1.7 International Accounting Standards Board 34 Challenging questions 55
1.8 Accounting standards change across time 38 References 57
1.9 Differential reporting 38
1.10 The use and role of audit reports 41
1.11 What benefits can we expect from all of this international
standardisation? 42
1.12 International cultural differences and the harmonisation of
accounting standards 44
1.13 All of this regulation—is it really necessary? 45
1.14 The reporting of alternative measures of ‘profits’ 48
CHAPTER 2 The Conceptual Framework for Financial Reporting. . . . . . . . . 59

2.1 An introduction to the IASB Conceptual Framework 60 Learning objectives (LO) 59
2.2 Benefits of a conceptual framework 61 Opening questions 60
Summary 93
2.3 An overview of the recently revised Conceptual Framework 61
Key terms 94
2.4 An overview of the building blocks of the Answers to Opening
Conceptual Framework 63 questions 94
2.5 Definition of general purpose financial reporting and a Review questions 95
reporting entity 64 Challenging questions 95
2.6 Users of general purpose financial statements 65 References 97
2.7 Objective of general purpose financial reporting 67
2.8 Qualitative characteristics of useful financial information 68
2.9 Definition and recognition of the elements
of financial statements 74
2.10 Measurement principles 87
2.11 A critical review of conceptual frameworks 90
2.12 The conceptual framework as a normative theory of accounting 93
viii
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PART 2
THEORIES OF ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
CHAPTER 3 Theories of financial accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
3.1 Introduction to theories applicable to financial accounting 101 Learning objectives (LO) 100
3.2 Positive accounting theory 104 Opening questions 101
Summary 148
3.3 Efficiency and opportunistic perspectives of PAT 105
Key terms 149
3.4 Owner–manager contracting 106 Answers to Opening
3.5 Debt contracting 110 questions 149
3.6 Political costs 114 Review questions 150
3.7 Accounting policy choice and ‘creative accounting’ 120 Challenging questions 151
3.8 Some criticisms of Positive Accounting Theory 122 Further reading 155
References 155
3.9 Normative accounting theories 124
3.10 Systems-oriented theories to explain accounting practice 128
3.11 Stakeholder Theory 129
3.12 Legitimacy Theory 133
3.13 Institutional Theory 137
3.14 Theories that seek to explain why regulation is introduced 144
PART 3
ACCOUNTING FOR ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
59
CHAPTER 4 An overview of accounting for assets. . . . . . . . . . . . . . . . . . . . . . . . 160
4.1 Introduction to accounting for assets 161 Learning objectives (LO) 160
4.2 Recognition criteria 162 Opening questions 160
Summary 195
4.3 Measurement of assets 165
Key terms 195
4.4 Further consideration of ‘fair value’ 171 Answers to Opening
4.5 Definition of current assets 178 questions 195
4.6 How to present a statement of financial position 179 Review questions 196
4.7 Accounting for property, plant and equipment—an introduction 182 Challenging questions 197
4.8 Property, plant and equipment acquired with non-cash References 200
consideration 188
4.9 Deferred payments made to acquire an asset 189
4.10 Accounting for borrowing costs incurred when constructing
an item of property, plant and equipment 190
4.11 Assets acquired at no cost 193
CHAPTER 5 Depreciation of property, plant and equipment. . . . . . . . . . . . . . . 201

5.1 Introduction to accounting for the depreciation of property, Learning objectives (LO) 201
plant and equipment 202 Opening questions 202
5.2 Key factors to consider when determining depreciation 204 Summary 216
Key terms 216
5.3 Applying different methods of depreciation 205
Answers to Opening
5.4 Depreciation of separate components 208 Questions 216
5.5 When to start depreciating an asset 209 Review questions 217
5.6 Revision of depreciation rate and depreciation method 210 Challenging questions 218
5.7 Land and buildings 210 References 221
5.8 Modifying existing non-current assets 212
5.9 Disposition of a depreciable asset 212
5.10 Depreciation as a process of allocating the cost of an
asset over its useful life: some related concerns 214
ix
5.11 Disclosure requirements 215
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CONTENTS
CHAPTER 6 Revaluations and impairment testing of non-current assets. . . . . 223

6.1 Introduction to revaluations and impairment testing of Learning objectives (LO) 223
non-current assets 224 Opening questions 224
6.2 Measuring property, plant and equipment at cost or at fair Summary 250
Key terms 250
value—there’s a choice 224
Answers to Opening
6.3 The use of fair values 226 questions 251
6.4 Revaluation increments 226 Review questions 251
6.5 Treatment of balances of accumulated depreciation Challenging questions 253
upon revaluation 228 References 256
6.6 Revaluation decrements 231
6.7 Reversal of revaluation decrements and increments 232
6.8 Accounting for the gain or loss on the disposal or
derecognition of a revalued non-current asset 234
6.9 Recognition of impairment losses 239
6.10 Further consideration of present values 244
6.11 Investment properties 246
6.12 Economic consequences of asset revaluations
and impairments 247
CHAPTER 7 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

7.1 Introduction to inventory 258 Learning objectives (LO) 257
7.2 The general basis of inventory measurement 259 Opening questions 257
Summary 276
7.3 Inventory cost-flow assumptions 267
Key terms 277
7.4 Reversal of previous inventory write-downs 275 Answers to Opening
7.5 Disclosure requirements 275 questions 277
Review questions 277
Challenging questions 279
References 282
CHAPTER 8 Accounting for intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

8.1 Introduction to accounting for intangible assets 284 Learning objectives (LO) 283
8.2 Which intangible assets can be recognised and included in the Opening questions 283
statement of financial position? 287 Summary 314
Key terms 315
8.3 What is the initial basis of measurement of intangible assets? 288
Answers to Opening
8.4 General amortisation requirements for intangible assets 290 questions 315
8.5 Revaluation of intangible assets 292 Review questions 316
8.6 Required disclosures in relation to intangible assets 294 Challenging questions 319
8.7 Research and development 295 References 325
8.8 Accounting for goodwill 303
8.9 Does the way we account for intangible assets provide
useful financial accounting information? 313
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CONTENTS
CHAPTER 9 Accounting for heritage assets and biological assets. . . . . . . . . . 327

9.1 Introduction to accounting for heritage assets and Learning objectives (LO) 327
biological assets 328 Opening questions 328
9.2 Some arguments for and against recognising heritage Summary 365
Key terms 365
assets in financial terms 330
Answers to Opening
9.3 Do heritage assets provide future economic benefits? 335 questions 365
9.4 Who controls heritage assets? 337 Review questions 366
9.5 Faithful representation: are the benefits measurable Challenging questions 367
with reasonable accuracy? 338 References 370
9.6 Is the information ‘relevant’? The actual demand for
financial information about heritage assets 339
9.7 Measuring heritage assets in financial terms 341
9.8 An introduction to accounting for biological assets:
what is a biological asset? 349
9.9 The unique nature of biological assets 352
9.10 How should biological assets be classified, presented and
measured in financial statements? 352
9.11 When and how should revenue associated with biological
assets be recognised? 358
9.12 Accounting for agricultural produce 360
9.13 Non-financial disclosures 360
9.14 Opposition to AASB 1037 and AASB 141 364
PART 4
ACCOUNTING FOR LIABILITIES AND OWNERS’ EQUITY. . . . . . . . . . 373
CHAPTER 10 An overview of accounting for liabilities. . . . . . . . . . . . . . . . . . . . 374

10.1 The definition of liabilities 375 Learning objectives (LO) 374
10.2 The recognition criteria for liabilities 377 Opening questions 375
10.3 Classification of liabilities as ‘current’ or ‘non-current’ 379 Summary 400
10.4 Liability provisions 380 Key terms 400
Answers to Opening
10.5 Onerous contracts 383
questions 400
10.6 Accounting for bonds (debentures) 385
10.7 Contingent liabilities 390 Challenging questions 404
10.8 Contingent assets 394 References 407
10.9 Some implications of reporting liabilities 395
10.10 Debt equity debate 397
10.11 Hybrid securities 399
CHAPTER 11 Accounting for leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409

11.1 An overview of recent developments in the accounting Learning objectives (LO) 409
requirements pertaining to accounting for leases 410 Opening questions 410
11.2 The core principle and scope of AASB 16 415 Summary 453
Key terms 455
11.3 What is a lease pursuant to AASB 16? 417
Answers to Opening
11.4 When to recognise a lease 420 questions 455
11.5 Accounting for the service component of a contract Review questions 456
that includes a lease 420 Challenging questions 458
11.6 The meaning of ‘lease term’ 421 References 462
11.7 Accounting for leases by lessees 422
11.8 Accounting for leases by lessors 436
11.9 Implications for accounting-based contracts 451 xi
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CONTENTS
CHAPTER 12 Accounting for employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . 463

12.1 Overview of employee benefits 464 Learning objectives (LO) 463
12.2 Categories of employee benefits 466 Opening questions 464
Summary 489
12.3 Accounting for employee benefits in the form of salaries
Key terms 489
and wages 468
Answers to Opening
12.4 Annual leave 469 questions 489
12.5 Sick leave 470 Review questions 490
12.6 Long-service leave 471 Challenging questions 491
12.7 Superannuation contributions 476 Reference 494
12.8 Employees’ accrued employee benefits and
corporate collapses 488
CHAPTER 13 Share capital and reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495

13.1 Introduction to accounting for share capital and reserves 496 Learning objectives (LO) 495
13.2 Creating reserves 498 Opening questions 496
13.3 Different classes of shares 499 Summary 521
13.4 Accounting for the issue of share capital 500 Key terms 522
Answers to Opening
13.5 Forfeited shares 507
questions 522
13.6 Rights issues and share options 511
13.7 Share splits and bonus issues 513 Challenging questions 524
13.8 Accounting for distributions 514 Reference 525
13.9 ‘Buyback’ of ordinary shares, and redemption of
preference shares 518
13.10 Required disclosures for share capital and reserves 520
CHAPTER 14 Accounting for financial instruments. . . . . . . . . . . . . . . . . . . . . . . . 527

14.1 Introduction to accounting for financial instruments 528 Learning objectives (LO) 527
14.2 The definitions of financial assets, financial liabilities and Opening questions 528
equity instruments, and the difference between primary Summary 590
financial instruments and derivative financial instruments 530 Key terms 590
Answers to Opening
14.3 Debt versus equity components of financial instruments 536
questions 591
14.4 Set-off of financial assets and financial liabilities 540
14.5 Recognition and measurement of financial instruments on Challenging questions 594
acquisition 542 References 598
14.6 Measurement of financial assets following initial recognition 543
14.7 Initial recognition of financial liabilities 558
14.8 Subsequent measurements of financial liabilities 559
14.9 Derivative financial instruments and their use as
hedging instruments 560
14.10 Accounting for derivatives used within a hedging
arrangement 561
14.11 Futures contracts 572
14.12 Options 578
14.13 Swaps 579
14.14 Compound financial instruments 585
14.15 Disclosure requirements pertaining to financial instruments 588
xii
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CONTENTS
CHAPTER 15 Revenue recognition issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599

15.1 The definition and recognition of income 600 Learning objectives (LO) 599
15.2 Income as ‘revenues’ and ‘gains’ 603 Opening questions 600
15.3 Background to the release of the accounting standard Summary 634
on revenue recognition (AASB 15) 603 Key terms 635
Answers to Opening
15.4 Scope of AASB 15 604
questions 635
15.5 An overview of the five-step model for determining the
recognition of revenue from contracts with customers 605 Challenging questions 637
15.6 Step 1—identify the contract(s) with customers 605 References 640
15.7 Step 2—identify the performance obligation(s) in the contract 606
15.8 Step 3—determine the transaction price of the contract 608
15.9 Step 4—allocate a transaction price to each
performance obligation 613
15.10 Step 5—recognise revenue as each performance
obligation is satisfied 615
15.11 Unearned revenue 617
15.12 Accounting for sales with associated conditions–further
considerations 617
15.13 Construction contracts–further consideration 622
15.14 Interest and dividends 631
15.15 Allowance for doubtful debts 631
CHAPTER 16 The statement of profit or loss and other comprehensive

income, and the statement of changes in equity. . . . . . . . . . . . . 641
16.1 Introduction to the statement of profit or loss and other Learning objectives (LO) 641
comprehensive income 642 Opening questions 642
16.2 Information about significant judgements made when Summary 678
compiling financial statements 643 Key terms 678
Answers to Opening
16.3 The meaning of ‘total comprehensive income’ 645
questions 679
16.4 Components of other comprehensive income 646
16.5 Format of the statement of profit or loss and other Challenging questions 681
comprehensive income 647 References 685
16.6 Reclassification adjustments 653
16.7 Separate disclosure of ‘material items’ 656
16.8 Changes in accounting estimates can impact profit
or loss and other comprehensive income 658
16.9 Other disclosures specifically required with respect
to particular items of income and expense 661
16.10 Accounting for prior period errors 662
16.11 Changes in accounting policy 665
16.12 Statement of changes in equity 672
16.13 The reporting of alternative (non-complying) measures
of ‘profits’ 674
16.14 Profit as a guide to an organisation’s success 675
xiii
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CONTENTS
CHAPTER 17 Accounting for share-based payments. . . . . . . . . . . . . . . . . . . . . 687

17.1 Introduction to accounting for share-based payments 688 Learning objectives (LO) 687
17.2 Background to the release of AASB 2 689 Opening questions 688
Summary 719
17.3 Equity-settled share-based payment transactions 692
Key terms 719
17.4 Cash-settled share-based payment transactions 706 Answers to Opening questions 720
17.5 Share-based payment transactions with cash alternatives 711 Review questions 720
17.6 Possible economic implications of AASB 2 714 Challenging questions 721
17.7 Disclosure requirements 715 Reference 722
CHAPTER 18 Accounting for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723

18.1 Introduction to accounting for income taxes 724 Learning objectives (LO) 723
18.2 The balance sheet approach to accounting for taxation 725 Opening questions 724
18.3 Temporary differences lead to ‘deferred tax assets’ and/or Summary 761
‘deferred tax liabilities’ and directly influence ‘income Key terms 761
Answers to Opening
tax expense’ 727
questions 761
18.4 Calculating the tax base of assets and liabilities 733
18.5 Unused tax losses 740 Challenging questions 764
18.6 Revaluation of non-current assets 743 References 767
18.7 Offsetting deferred tax liabilities and deferred tax assets 753
18.8 Change of tax rates 753
18.9 Disclosures pertaining to tax expense and related assets
and liabilities 755
18.10 Evaluation of the assets and liabilities created by AASB 112 760
PART 5
ACCOUNTING FOR THE DISCLOSURE OF CASH FLOWS. . . . . . . . . 769
CHAPTER 19 The statement of cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770

19.1 Comparison with other financial statements 771 Learning objectives (LO) 770
19.2 The difference between cash flows and profits 772 Opening questions 770
Summary 801
19.3 Defining ‘cash’ and ‘cash equivalents’ 774
Key terms 802
19.4 Classification of cash flows 775 Answers to Opening
19.5 Format of statement of cash flows 777 questions 802
19.6 Notes to accompany the statement of cash flows 780 Review questions 803
19.7 Calculating cash inflows and outflows 781 Challenging questions 805
19.8 The use of cash flow data by different stakeholders and References 811
within various contractual arrangements 799
xiv
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CONTENTS
PART 6
INDUSTRY-SPECIFIC ACCOUNTING ISSUES. . . . . . . . . . . . . . . . . . . . . 813
CHAPTER 20 Accounting for the extractive industries. . . . . . . . . . . . . . . . . . . . . 814

20.1 Overview of the extractive industries, and introductory comments Learning objectives (LO) 814
about accounting for exploration and evaluation expenditures 815 Opening questions 815
20.2 Alternative methods to account for exploration and evaluation Summary 846
expenditure 818 Key terms 847
Answers to Opening
20.3 Basis for measurement of exploration and
questions 847
evaluation expenditures 822
20.4 Subsequent impairment and amortisation of costs Challenging questions 849
carried forward 823 References 851
20.5 Accounting for restoration costs 825
20.6 Determining sales revenue 828
20.7 Determining the measurement of inventory 829
20.9 Does the area-of-interest method provide a realistic value
for an entity’s reserves? 839
20.10 Research on accounting regulation pertaining to
exploration and evaluation expenditure 839
20.11 Consideration of the social and environmental performance
of organisations within the extractive industries 842
20.12 The development of a new accounting standard for
extractive activities 843
PART 7
OTHER DISCLOSURE ISSUES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853
CHAPTER 21 Events occurring after the end of the reporting period. . . . . . . 854
21.1 What is an ‘event after the reporting period’? 855 Learning objectives (LO) 854
21.2 Why disclose information about events that have occurred Opening questions 854
after the end of the reporting period? 856 Summary 863
Key terms 864
21.3 Types of events after the reporting period 857
Answers to Opening
21.4 Events that necessitate adjustments to the financial questions 864
statements (adjusting events after the reporting period) 858 Review questions 865
21.5 Events that necessitate disclosure but no adjustment Challenging questions 866
(non-adjusting events) 860
CHAPTER 22 Segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869

22.1 Advantages and disadvantages of segment reporting 870 Learning objectives (LO) 869
22.2 An introduction to AASB 8 874 Opening questions 869
Summary 890
22.3 Defining an operating segment 876
Key terms 891
22.4 Defining a reportable segment 878 Answers to Opening
22.5 Measurement of segment items 882 questions 891
22.6 Required disclosures 883 Review questions 892
22.7 Is there a case for competitive harm? 886 Challenging questions 894
References 897
xv
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CONTENTS
CHAPTER 23 Related party disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899

23.1 Introduction to related party disclosures 900 Learning objectives (LO) 899
23.2 Implications of related party transactions 901 Opening questions 899
Summary 913
23.3 The rationale for requiring related party disclosures 902
Key terms 913
23.4 Categories of related party 904 Answers to Opening
23.5 Disclosure requirements for related parties 907 questions 913
References 915
CHAPTER 24 Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917

24.1 Introduction to earnings per share 918 Learning objectives (LO) 917
24.2 Computation of basic earnings per share 919 Opening questions 917
Summary 940
24.3 Diluted earnings per share 930
Key terms 941
24.4 Linking earnings per share to other indicators 936 Answers to Opening
questions 941
References 946
PART 8
ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES. . . . . 947
CHAPTER 25 Accounting for group structures. . . . . . . . . . . . . . . . . . . . . . . . . . . 948

25.1 The meaning of ‘consolidated financial statements’, and Learning objectives (LO) 948
the rationale for consolidating the financial statements Opening questions 949
of different legal entities 949 Summary 993
25.2 History of Australian accounting standards that govern Key terms 994
the preparation of consolidated financial statements 951 Answers to Opening
questions 994
25.3 ‘Investment entities’: exception to consolidation 955
25.4 Alternative consolidation concepts 956
25.5 The concept of control 957 Reference 1004
25.6 Direct and indirect control 962
25.7 Accounting for business combinations 964
25.8 Gain on bargain purchase 973
25.9 Subsidiary’s assets not recorded at fair values 975
25.10 Previously unrecognised identifiable intangible assets 981
25.11 Consolidation after date of acquisition 984
25.13 Control, joint control and significant influence 992
CHAPTER 26 Further consolidation issues I: accounting for

intragroup transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1005
26.1 Introduction to accounting for intragroup transactions 1006 Learning objectives (LO) 1005
26.2 Dividend payments from pre- and post-acquisition earnings 1006 Opening questions 1005
Summary 1044
26.3 Intragroup sale of inventory 1014
Key terms 1045
26.4 Sale of non-current assets within the group 1026 Answers to Opening
questions 1045
xvi
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CONTENTS
CHAPTER 27 Further consolidation issues II: accounting for

non-controlling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1055
27.1 Introduction to accounting for non-controlling interests 1056 Learning objectives (LO) 1055
27.2 Non-controlling interests to be disclosed in the consolidated Opening questions 1055
financial statements 1057 Summary 1095
Key term 1095
27.3 Calculating non-controlling interests 1060
Answers to Opening
27.4 Adjustments for intragroup transactions 1067 questions 1095
CHAPTER 28 Further consolidation issues III: accounting for indirect

ownership interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1103
28.1 Introduction to accounting for indirect ownership interests 1104 Learning objectives (LO) 1103
28.2 Calculating the parent entity interest, and the non-controlling Opening questions 1103
interest, in the presence of indirect interests 1107 Summary 1148
Key terms 1148
28.3 Sequential and non-sequential acquisitions 1134
Answers to Opening
questions 1148
CHAPTER 29 Accounting for investments in associates

and joint ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1155
29.1 Introduction to the equity method of accounting 1156 Learning objectives (LO) 1155
29.2 Significant influence 1158 Opening questions 1156
Summary 1195
29.3 Application of the equity method of accounting 1160
Key terms 1195
29.4 The equity method of accounting in the presence of Answers to Opening
inter-entity transactions 1172 Questions 1195
29.5 Application of the equity method of accounting when losses Review questions 1196
have been incurred by an associate 1179 Challenging questions 1197
29.6 Disclosure requirements 1181 References 1203
29.7 Introduction to accounting for interests in joint arrangements 1182
29.8 Joint ventures 1183
29.9 Joint operations 1184
PART 9
FOREIGN CURRENCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1205
CHAPTER 30 Accounting for foreign currency transactions. . . . . . . . . . . . . . 1206

30.1 Introduction to accounting for foreign currency transactions 1207 Learning objectives (LO) 1206
30.2 Accounting entry at the date of the original transaction 1209 Opening questions 1206
Summary 1221
30.3 Adjustments at the end of the reporting period 1211
Key terms 1221
30.4 Determination of the presentation currency 1212 Answers to Opening
30.5 The translation of longer-term receivables, payables questions 1221
and cash deposits 1214 Review questions 1222
30.6 Qualifying assets 1216 Challenging questions 1224
30.7 Hedging transactions 1218
30.8 Foreign currency swaps 1220
xvii
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CONTENTS
CHAPTER 31 Translating the financial statements of foreign operations. . . . . . 1227

31.1 Introduction to translating the financial statements of foreign Learning objectives (LO) 1227
operations 1228 Opening questions 1227
31.2 Reporting foreign currency transactions in the Summary 1245
Key terms 1245
functional currency 1228
Answers to Opening
31.3 Translating the accounts of foreign operations Questions 1245
into the presentation currency 1235 Review questions 1246
31.4 Consolidation subsequent to translation 1242 Challenging questions 1246
PART 10
CORPORATE SOCIAL-RESPONSIBILITY REPORTING. . . . . . . . . . . . 1249
CHAPTER 32 Accounting for corporate social responsibility. . . . . . . . . . . . . . 1250

32.1 Introduction to social-responsibility reporting 1251 Learning objectives (LO) 1250
32.2 Sustainability 1254 Opening questions 1251
32.3 What are the responsibilities of business (to whom and Summary 1323
for what)? 1255 Key terms 1324
Answers to Opening
32.4 Evidence of public social and environmental reporting 1260
Questions 1324
32.5 The application of an ‘accountability model’ 1261
32.6 Why report? 1262 Challenging questions 1327
32.7 To whom will the organisation report? 1275 References 1329
32.8 What information shall be reported? 1276
32.9 How (and where) will the information be presented? 1278
32.10 United Nations’ Sustainable Development Goals 1301
32.11 Accounting for externalities and ‘full cost accounting’ 1306
32.12 Counter (shadow) accounts 1311
32.13 The critical problem of climate change 1313
32.14 Personal social responsibility 1322
Concluding remarks 1323
Appendix A Present value of $1 in n periods = 1/(1 + k)n, Appendix C Calculating present values�� 1338
where k is the discount rate�� 1334 Glossary �� 1341
Appendix B Present value of an annuity of $1 Index �� 1353
per period for n periods �� 1336
xviii
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PREFACE
This is the ninth edition of a book that was originally readers to critically evaluate the various rules and
published in 1995. Since the first edition was guidelines. The aim is to develop accountants who
published we have seen extensive changes in are able to apply particular accounting requirements,
relation to the practice and regulation of general as well as being able to contribute to the ongoing
purpose financial reporting. These changes continue improvement of accounting requirements. The view
to occur and this book has always attempted to taken is that it is important for students not only to
carefully explain the nature of the changes as well understand the rules of financial accounting, but also
as the potential economic and social consequences to understand the limitations inherent in many of the
that might result from such changes. existing accounting requirements. For this reason,
In the period of time between when the eighth reference is made to research studies that consider the
edition of this book was published, and the writing of merit, implications, and costs and benefits of the various
this ninth edition was completed (in October 2019) accounting requirements. Furthermore, newspaper
there have been some rather significant changes articles discussing different aspects of the accounting
in regulation and guidance pertaining to external requirements are included for consideration and
reporting. These changes have been incorporated discussion. This all adds up to give this book a ‘real-
within this ninth edition. For example, there were some world’ perspective. The permission of copyright holders
significant changes to the Conceptual Framework for to reproduce this material is gratefully acknowledged.
Financial Reporting and a number of new accounting Social-responsibility reporting continues to be an
standards have come into effect (such as AASB important area of accounting, and one that is rapidly
15 Revenue from Contracts with Customers and developing. Its importance is further highlighted by the
AASB 16 Leases). There have also been a number growing evidence of climate change, species extinction
of significant developments in the area of social and and large-scale poverty, hunger and social inequities in
environmental (and sustainability) reporting, and these many countries. While this book predominantly considers
are addressed in Chapter 32. financial accounting and reporting, Chapter 32 focuses
Each chapter of this ninth edition contains clear on social-responsibility reporting and provides the most
learning objectives, as well as a number of opening up-to-date and comprehensive material available on this
questions, which students are encouraged to answer important topic, with additional material on the important
before reading the chapter. Solutions to each topic of climate change—from both an accounting and
opening question are provided at the end of the a scientific perspective—as well as commentaries on
chapter and students are asked to consider how their various alternative reporting frameworks.
answers changed as a result of reading the chapter. Writing a text like this is an extremely time-
Throughout the chapters there are also numerous consuming exercise and it has been very gratifying
boxes identifying why students need to know that the effort involved has been rewarded by so many
particular material. The book provides material that institutions across Australia (and also some outside
will enable the reader to gain a thorough grasp of the Australia) electing to prescribe previous editions of this
contents and of the practical application of the majority book as part of their accounting programs. Given the
of financial accounting requirements currently in place success of all previous editions, every effort has been
in Australia. In the discussion of these requirements, made to ensure that this
numerous worked examples, with detailed solutions, ninth edition is equally
are provided throughout the text. A glossary of key valuable to students and
terms is provided towards the back of the book. teachers, and that it has
As well as addressing how to apply the various been substantially and
accounting requirements, this text also encourages thoroughly revised.
xix
dee67382_fm_i-xxvi.indd xix 10/24/19 04:13 PM

ACKNOWLEDGMENTS
There are many people who must be thanked for Lee Moermon, University of Wollongong; Gary
their contribution to the ninth edition of this book. Monroe, Australian National University; Richard
First, thanks must go to the following reviewers of Morris, University of New South Wales; Anja
the current edition: Morton, Southern Cross University, Lismore
campus; Karen Ness, James Cook University;
Jahangir Ali, La Trobe University; Peter Baxter, Cameron Nichol, RMIT University; Gary Plugarth,
University of the Sunshine Coast; Collette University of New South Wales; Lisa Powell,
Chesters, University of Western Australia; Scott University of South Australia; Jim Psaros,
Copeland, University of South Australia; Omar University of Newcastle; Michaela Rankin,
Faroque, University of New England; Chelsea Liu, Monash University; Andrew Read, University of
University of Adelaide; Meiting Lu, Macquarie Canberra; Dan Scheiwe, Queensland University
University; Wei Lu, Monash University; Lara of Technology; Mark Silvester, University of
Meng, Curtin University; Balachandran Muniandy, Southern Queensland; Stella Sofocleous,
La Trobe University; YH Tham, Curtin University. Victoria University of Technology; Jenny Stewart,
Griffith University; Seng The, Australian National
This book has also been improved during the University; Len Therry, Edith Cowan University;
course of the first eight editions by the feedback Matthew Tilling, University of Western Australia;
received from many people and I would like to Irene Tutticci, University of Queensland; Mark
acknowledge the contribution that they have Vallely, University of Southern Queensland;
previously made. These people include: Trevor Wilmshurst, University of Tasmania;
Victoria Wise, University of Tasmania; Ann-Marie
Maria Balatbat, University of New South Wales; Wyatt, University of Technology Sydney.
Peter Baxter, University of the Sunshine Coast;
Poonam Bir, Monash University; Phil Cobbin, Thanks also go to many of my colleagues
University of Melbourne; Lome Cummings, at RMIT University for their friendship and
Macquarie University; Matt Dyki, Charles Sturt encouragement. The McGraw-Hill (Australia) team,
University, Wagga Wagga campus; Natalie including Simone Bella, Caroline Hunter, Claire
Gallery, Queensland University of Technology; Linsdell, Alison Moore, Paul Leslie, Bethany Ng,
John Goodwin, RMIT University; Deborah Janke, Genevieve MacDermott, Debbie Gallagher,
University of Southern Queensland; Maurice Gurdish Gill, Rosemary Gervasi and Katie Miller,
Jenner, University of Southern Queensland; also deserve a great deal of thanks for helping in
Graham Jones, Flinders University; Peter the preparation of this book.
Keet, RMIT University; Janet Lee, Australian And last, but certainly not least, thanks again go
National University; Steven Lesser, Charles Sturt to my 20-year-old daughter Cassandra for all the
University, Wagga Wagga campus; Stephen Lim, love and support she gives me in whatever I seem
University of Technology Sydney; Janice Loftus, to be doing and for continually helping me to put
University of Sydney; Wei Lu, Monash University; everything into perspective. As I have said before,
Diane Mayorga, University of New South Wales; she is indeed my finest work (and my most valuable
Kellie McCombie, University of Wollongong; ‘asset’) and represents that aspect of my life of which
Malcolm Miller, University of New South Wales; I am most proud. She is now ‘seven editions’ old.
xx
dee67382_fm_i-xxvi.indd xx 10/24/19 04:13 PM

AACSB STATEMENT
McGraw-Hill is a proud corporate member of AACSB International. Understanding the importance

and value of AACSB accreditation, Financial Accounting recognises the curricula guidelines detailed
in the AACSB standards for business accreditation by connecting selected questions in the resource
and the testbank to the six general knowledge and skill guidelines found in the AACSB standards.
The statements contained in Financial Accounting are provided only as a guide for the users
of this textbook. The AACSB leaves content coverage and assessment within the purview of
individual school, the mission of the school, and the faculty. While Financial Accounting and the
teaching package make no claim of any specific AACSB qualification or evaluation, within Financial
Accounting we have identified chapters as containing content and labelled selected activities
according to the six general knowledge and skills areas.
xxi
dee67382_fm_i-xxvi.indd xxi 10/24/19 04:13 PM

HOW TO USE THIS BOOK
CHAPTER 1: An overview of the Australian external reporting environment 3
OPENING QUESTIONS
Below are a number of questions that we want you to consider before reading the material in this chapter. We
will ask the same questions again at the end of the chapter and provide respective solutions. The solutions will
appear just before the end of chapter review questions but please do not look at the answers until you have
read the chapter. Each chapter of this book will have ‘Opening questions’ so that you can assess, or consider,
Learning objectives AASB standards referred to in this chapter
41
whether your views have changed, and therefore, your knowledge has been advanced, as a result of reading
Each chapter starts with a list of the chapter’s learning and

the material provided within the chapter.
IFRS/IAS
1. What equivalents
is ‘general purpose financial reporting’? LO 1.1, 1.2 NEW!
2. What is the role of the Australian Accounting Standards Board (AASB) with respect to general purpose financial
objectives.
C HAP TERThese flag what you should know when In each chapter you will find a mini table highlighting the
reporting within Australia? LO 1.4
3. Does the AASB have legal power to enforce accounting standards within Australia? LO 1.4
you have worked through the chapter. Make these the AASB standards referred to in the chapter with the IFRS/
4. What is the relevance of the International Accounting Standards Board (IASB) to general purpose financial
C HAP TER reporting within Australia? LO 1.7
An overview
foundation for your examof accounting
revision by using them to test IAS equivalents, to give you a broader understanding of
5. What power does the IASB have to enforce the accounting standards that it develops, and which are in use
internationally? LO 1.7
yourself. The end-of-chapter assignments also link back to how Australian standards link to the international scene.
for
these
An overview
assets
learning objectives.
of the
Australian external reporting AASB STANDARDS REFERRED TO IN THIS CHAPTER AND IFRS/IAS EQUIVALENTS
environment
LEARNING OBJECTIVES (LO) AASB no. Title IFRS/IAS equivalent
101 Presentation of Financial Statements IAS 1
4.1 Understand and be able to apply the definition of an asset.
4.2 Understand and be able to apply asset recognition criteria. 108 Accounting Policies, Changes in Accounting Estimates and Errors IAS 8
4.3 Understand how assets are measured, and that different measurement bases can be applicable to 1048 Interpretation of Standards —
LEARNING OBJECTIVES (LO)
different classes of assets. 1049 Whole of Government and General Government Sector Financial Reporting —
4.4 Know the meaning of ‘fair value’ and the reason that a ‘fair-value hierarchy’ has been introduced into the
1.1 Understand the meaning of ‘financial accounting’ and its relationship to the broader areas of ‘accounting’ and 1053 Application of Tiers of Australian Accounting Standards —
accounting standards. Also, be aware of some concerns that are attributed to the use of fair values.
‘accountability’.
4.5 Know how to differentiate between current and non-current assets.
1.2 Be able to explain who is likely to be a user of general purpose financial statements.
4.6 Be aware of how a balance sheet shall be presented.
1.3 Understand the role of the Australian Securities and Investments Commission with respect to general purpose financial
4.7 Have knowledge about how to account for property, plant and equipment, including how to account for
reporting within Australia, and be aware of the requirements within the Corporations Act that require the preparation of
related safety and
a Directors’
individual items of
1.4 Understand the
environmental
Declaration,
property,
expenditures,
Directors’
plant
role of the
Report, and arepairs
and equipment.
Australian
and by
Declaration maintenance, and how
the Chief Executive to allocate
Officer and Chiefcosts to Officer.
Financial
Accounting Standards Board with respect to general purpose financial
Chapter introduction
1.1 Accounting, accountability and the role of financial accounting
4.8 Be aware of accounting issues that arise when property, plant and equipment is acquired with assets
other
reporting within Australia.
than cash. the role of the Financial Reporting Council with respect to general purpose financial reporting within Australia.
1.5 Understand Each
In this bookchapter begins
we focus on financial with
accounting, and an excellent
particularly overview
financial accounting undertaken byoflarger-sized
the LO 1.1
4.9 Understand how the
1.6 Understand to determine the cost of
role of the Australian an assetExchange
Securities when the payments
with for
respect to the asset
general are financial
purpose deferred.reporting within organisations (which we will generally refer to as ‘reporting entities’) that are required to apply accounting standards.
4.10 Know Australia.
how to account for interest costs associated with the acquisition, or construction, of an item of material to be
But before we launch covered
into doing some ‘financialthat places
accounting’, it toinbriefly
it is useful the broader
consider how financial accounting
1.7 Be able
property, plantto and
explain the general functions of the International Accounting Standards Board and its relevance to
equipment. relates to the broader area of ‘accounting’, and how accounting in turn relates to the notion of ‘accountability’.
Australian
4.11 Be able to accountgeneral purpose
for an assetfinancial
that hasreporting.
been acquired at no direct cost. context of how
Financial accounting topics
represents in ofvarious
only a part the broader area chapters
of ‘accounting’. Sointerrelate.
what is ‘accounting’? Simply
1.8 Understand that accounting standards change across time, meaning that profits calculated in past years may not be
stated, accounting can be defined as the provisionCHAPTER of information about aspects of the performance of an entity to a
2: The Conceptual Framework for Financial Reporting 77
directly comparable with current profit calculations.
1.9 Be able to explain the idea of ‘differential reporting’.
particular group of people with an interest, or stake, in the organisation—we can call these parties stakeholders. But
what ‘aspects of performance’ should ‘accounting’ address and what ‘accounts’ are stakeholders entitled to? This
Videos Before 1.10 Understand
reading
for your1.11
the watch
this chapter, role of the
the auditor, and the video
accompanying auditor’s report,Deegan
of Craig with respect to general
explaining whypurpose financial
this topic
NEW!
reporting.
is important
Be aware of some of the perceived benefits pertaining to the international standardisation of financial reporting as
studies.
Worked examples
really depends upon judgements we make about the organisation’s responsibilities and accountabilities. For example,
Assets acquired at no cost
espoused by the International Accounting Standards Board. if we were to accept that an entity has a responsibility (and an accountability) for its social and environmental impacts,
A short video by Craig Deegan explains why topics are

1.12 Be aware of some research which suggests that the pursuit of international standardisation in general purpose financial
reporting ignores many important impediments, such as international differences in ‘culture’.
A wide range of detailed scenarios and solutions, some
To
As
satisfy
then we, astheaccountants,
the Conceptual
organisation’s
definition ofshould
Framework
social
an ‘asset’, it isa duty
accept not a to
notes (paragraph
and environmental
prerequisite
provide ‘anthat the asset
account’
4.18), although there
performance—perhaps by way
(orbe acquired
a report)
is typically:
to atstakeholders
a cost to theinreporting
respect ofentity.
of releasing a publicly available corporate
the
being discussed and why you need to know particular

1.13 Understand that the practice of general purpose financial reporting is quite heavily regulated within Australia, and
OPENINGbe QUESTIONS
fairly straightforward and some more complex, are
social responsibility report. If, by contrast, we consider that the only responsibility an organisation
a close association between incurring expenditure and acquiring assets, the two do not necessarily coincide. has is to maximise
When
aware of some of the arguments for and against the regulation of financial accounting. its financial returnsexpenditure,
an entity incurs (profits), then
thiswe
maymight believe
provide that the
evidence thatonly account
the entity haswe need tofuture
acquired provide is a financial
economic benefits,account.
but it
information.
1.14
Before Understand
reading that organisations
this chapter,
reports
return to these that do at
questions
please consider
notthe
comply with
end of
will often
how include
theaccounting
you wouldand answer
standards.
chapter, where
highlightthemeasures of financial
following
we suggest some answers.
performance
four questions. within their annual
We will provided throughout the text and are a great learning aid,
isWe
notalso need toevidence
conclusive considerthat
thethe
breadth of stakeholders
entity has who should
obtained an asset. Further,betheprovided
absence with an ‘account’—for
of related expenditure does example,
not
should it be restricted to shareholders and/or creditors, or doAssets
employees, local communities and other
thatstakeholders
a governmentalso
1.
2.
Is there a requirement that all assets shall be measured on the same basis (for example, at fair value)? LO 4.3
What is the meaning of ‘fair value’? LO 4.4
helping to reinforce how the theory is applied in practice
have
preclude
hasa right
granted
an item from
to be provided
to the
meeting the definition
withofparticular
entity free
of an asset.
charge orinformation
that anotherabout
party an
can include,
hasorganisation?
for example, rights
donated to the entity. Therefore, the key point here
Gray, Adams and Owen (2014) developed an accountability model that explains how organisations should deal
3.
4.
What is the ‘fair-value hierarchy’ as it relates to the application of fair value to measuring assets? LO 4.4
Before reading this chapter, watch the accompanying video of Craig Deegan explaining why this topic is important
If an asset is constructed with the use of borrowed funds, how are the related interest costs to be treated? LO 4.10 and its relevance to actual situations.
is that the presence or absence of expenditure is not a defining factor in determining the existence of an ‘asset’.
with stakeholders and proposes that since a firm’s activities affect the wellbeing of a wide range of stakeholders, the
for your studies. firmWorked Example
is morally 2.3 provides
responsible, insights into
and therefore how to apply
accountable, the definition
to these of assets.
stakeholders. In more practical terms, Gray et al.
160 (1997, p. 334) provide a broader notion of accountability:
WORKED EXAMPLE 2.3: Applying the definition of assets

NEW!
2
Opening questions
dee67382_ch04_159-200.indd 160 10/17/19 08:09 AM
CHAPTER 2: The Conceptual Framework for Financial Reporting
A reporting entity has been involved with the following transactions and events:
75
At the start of each chapter there are several questions

dee67382_ch01_001-058.indd 2 10/17/19 07:49 AM
(a) The entity acquired some land at a cost of $1 million. However, after acquiring the land it became known
Different
that the
dee67382_ch01_001-058.indd 3approaches
land was can be applied
highly to determining
contaminated profits
and was (income
very lesstoexpenses)
unlikely be usable,andorthis
behas
abledirect
to beimplications
sold. 10/17/19 07:49 AM
for (b)
how we define the elementscustomer
of financial accounting. Two
thesuch approaches are commonly referred to asorganisation
the asset/
that you should consider before reading the chapter, A satisfied long-term decided to give organisation a delivery truck for
liability approach and the revenue/expense approach. The asset/liability approach links profit to changes that have
expects to use the truck within the business.
free. The
occurred in the assets and liabilities of the reporting entity, whereas the revenue/expense approach tends to rely on
with solutions provided at the end of the chapter. You (c) The organisation has been given the right by the local government to use a nearby river to transport
concepts such as the matching principle, which is very much focused on actual transactions and which gives limited
some of its products to nearby markets.
consideration to changes in the values of assets and liabilities. The Conceptual Framework adopts the asset/liability
can use these questions to assess whether your views REQUIREDTherefore,
approach. Whichwithin
of the the Conceptual
above Framework,
transactions the task
and events of defining
would generate the elements
a resource of financial statements
that satisfies must
the definition
ofstart
an with definitions of assets and liabilities, as the definitions of all the other elements flow from these definitions.
have changed, and therefore your knowledge has been asset?
This should become apparent as we consider each of the elements of financial accounting in what follows. In relation
to the ‘asset and
SOLUTION Asliability
we know, view’
theofdefinition
profit determination,
of an asset thehasFASB
three and
keyIASB (2005, pp.In7relation
components. and 8) state:
to the land described
advanced, as a result of reading the material provided
94 PART 1: The Australian accounting environment above, while the organisation might control the land as a result of a past transaction or event, it appears that
In both [FASB and IASB] frameworks,
the land does not have the potential to the definitions
generate of the elements
economic benefits.areTherefore,
consistent with an ‘asset
it does not seemand liability
to satisfy the
within
60 the
PART 1: The chapter.
Australian accounting environment
view’, in which income is a measure of the increase in the net resources of the enterprise during a period, defined
definition of an asset.
primarily in terms of increases in assets and decreases in liabilities. That definition of income is grounded in
A number of qualitative characteristics were identified as being important in terms of financial information. Two The delivery truck does appear to satisfy the definition of an asset. It is controlled as a result of a past event
a theory prevalent in economics: that an entity’s income can be objectively determined from the change in its
fundamental qualitative characteristics were explained as being relevance and representational faithfulness. A further and itwealth
does plus
havewhattheitpotential to generate economic benefits for the organisation. It does not directly matter that
four ‘enhancing’ qualitative characteristics were identified, and these are comparability, verifiability, timeliness and consumed during a period (Hicks, pp. 178–9, 1946). That view is carried out in definitions of
the truck was not
liabilities, acquired
equity, at a cost
and income to the
that are basedorganisation.
on the definition of assets, that is, that give ‘conceptual primacy’ to
OPENING QUESTIONS
understandability. The concept of materiality was also introduced and we learned that materiality is a threshold
The
concept, which in turn assists a reporting entity to decide whether particular information needs to be separately assets. That view is contrasted river
right to use the nearby with ais‘revenue
not an asset of the view’,
and expense organisation
in which as the organisation
income does
is the difference not have
between ‘control’
outputs
Before reading this chapter, please consider how you would answer the following seven questions. We will over from
the river—it
and inputsjusttohas
theaccess to it. earning
enterprise’s The river would during
activities not appear in the
a period, financial
defined statements
primarily in terms of of
therevenues
organisation.
disclosed.
return to these questions at the end of the chapter, where we suggest some answers. (appropriately recognized) and expenses (either appropriately matched to them or systematically and rationally
The chapter discussed the five elements of accounting: assets, liabilities, income, expenses and equity. We learned
1. What is definitions
that the the difference in role
of income betweenrelied
and expenses a conceptual
directly uponframework forgiven
the definitions financial reporting
to assets and accounting
and liabilities. We also allocated to reporting periods in a way that avoids distortion of income). (© Financial Accounting Foundation, 401
learned thatLO
standards? the2.1, 2.2 criteria of the respective elements of accounting rely upon professional judgements about
recognition Recognition of an asset
Merritt 7, Norwalk, CT 06856, USA, used with permission.)
relevance
2. What
3. WhatWe
and representational
benefits are generatedfaithfulness.
concludedcharacteristics
qualitative
as a result of having a conceptual framework for financial reporting? LO 2.2
the chapter withwill
a critical
usefulanalysis of conceptual
financial accounting frameworks.
information be expected to possess? LO 2.8
Figures
As we Ashave
existence
wealready
should learned,
of an
‘financial
know, theinelements
addition that
asset and therefore
position’—are
to defining
include itand
assets, liabilities within
an asset,
appear within
theThe
equity.
the we
financial
also need
balance to consider
sheet—and
statements.
elements
whichwhen
relatewe should
to an recognise the
organisation’s
that appear within the income statement—and
4. What are the five different ‘elements’ of financial accounting? LO 2.9 The Conceptual Framework provides general recognition criteria for all of the five elements of financial accounting
which relate to an organisation’s ‘financial performance’—are income and expenses. These elements, and their role,
5. What are the three main components of the definition of assets? LO 2.9 Figures
(assets,
are represented provide
liabilities, inincome, a graphical
expenses
Figure 2.3. and equity). Paragraphrepresentation
5.6 states: that shows
KEY TERMS We will consider each of the five elements in turn, but notice, once again, as the discussion proceeds, how the
6.
7.
Are all assets required to be measured using the same basis of measurement? LO 2.10
What role does ‘materiality’ have with respect to deciding whether particular financial information should be how events
Only items
definitions of that meet and
expenses and actions
the definition
income depend asset,are
of andirectly thelinked.
aonliability or equity
definitions are to
given recognised
assets andinliabilities.
the statement of financial
position. Similarly, only items that meet the definition of income and expenses are recognised in the statement of
asset 75 equity 87 income 86
disclosed? LO 2.8 financial performance. However, not all items that meet the definition of one of those elements are recognised.
Conceptual Framework 60 expenses 85 liability 81
control (assets) 76 future economic benefits 76 reporting entity 64
AASB STANDARDS REFERRED TO IN THIS CHAPTER AND IFRS/IAS EQUIVALENTS Therefore, the first step in the recognition of a particular item in the financial statements (and therefore in our
Figure 2.3
AASB no. Title IFRS/IAS equivalent financial accounting Assets
system) is determining that the item meets the definition of an element of accounting—which The elements
ANSWERS
108 TO OPENING
Accounting QUESTIONS
Policies, Changes in Accounting Estimates and Errors IAS 8
is what we have just discussed. However, as the above The paragraph indicates, further criteria (other thanof meeting
balance sheet
which provides information about
financial the
accounting
definition of an element of financial accounting)
Liabilities are required to be satisfied before an item shall be recognised for
the financial position of an organisation
138 Intangible Assets IAS 38 financial accounting purposes. at a point in time
At the beginning of the chapter we asked the following seven questions. As a result of reading this chapter we should now
1053 Application
be able to provide of Tiers of
informed answers to Australian Accounting Standards
these questions. — When the Conceptual
Equity Framework was revised and re-released in 2018, it specifically required that accountants
must consider the fundamental qualitative characteristics of relevance and faithful representation (which were
1. What is the difference in role between a conceptual framework for financial reporting and accounting standards?
LO 2.1, 2.2
discussed earlier) when deciding if an item should be recognised within the financial statements. This was a change
2.1A An introduction
conceptual to the
framework provides IASB
a general Conceptual
framework Framework
for general purpose financial reporting and does not deal from the previous recognition criteria, which focused on assessing the probability of future economic benefits, as well
LO 2.1 with individual, or specific types of, transactions or events. Accounting standards, by contrast, deal with specific as whether the item could
Incomebe measured reliably. Specifically,
The income thestatement
Conceptual Framework now requires that an asset
which provides information about
types of As noted
assets in Chapter
or liabilities 1, in 2005,
or transactions Australia
or events. startedstandards
Accounting using the
takeaccounting
precedencestandards issued by the
over the conceptual the financial performance of an organisation
International
framework. When there is Accounting Standards
no specifically Board (IASB).
relevant accounting Asreference
standard, such, there was
should be also
madeatorelated requirement
the conceptual Expenses for a period of time
Conceptual Framework that we use the Conceptual Framework developed by the IASB. That is, because International
framework.
A framework that
Financial
2. What benefits
describes the objective Reporting
are generated as aStandards (IFRSs)
result of having have been
a conceptual developed
framework in accordance
for financial with
reporting? LO 2.2 the IASB
Conceptual
of, and the concepts for,Section 2.2 Framework
of this chapter identified for Financial Reporting, and as Australia adopted IFRSs, then Australia
the benefits.
general purpose financial
must also adopt the IASB Conceptual Framework. This meant we had to move away
3. What qualitative characteristics will useful financial accounting information be expected to possess? LO 2.8
from using the dee67382_ch02_059-098.indd 77 10/18/19 07:05 AM
reporting.
First, theconceptual framework
information should that and
be relevant we faithfully
had developed
representwithin Australia.
the underlying Other or
transaction countries
event thatthat have adopted
it purports to
Definition and recognition of assets asset
xxii represent.IFRSs have similarly
To enhance adopted
the relevance the IASB Conceptual
and representational Framework
faithfulness, and should
the information abandoned
also betheir domestically
comparable, According to the Conceptual Framework, an asset is defined as: Defined in the Conceptual
Framework as ‘a present
developed frameworks. The
verifiable, timely andpurpose of the Conceptual Framework can be summarised as follows:
understandable. economic resource
a present economic resource controlled by the entity as a result of past events.
(a) assist
4. the
What IASB to develop
are the accounting
five different standards
‘elements’ thataccounting?
of financial are based on LO consistent
2.9 concepts controlled by the entity as
a result of past events’.
(b) assist They
preparers of financial
are assets, statements
liabilities, income, to develop
expenses consistent accounting policies when no accounting
and equity. The above definition of an asset refers to an economic resource. An ‘economic resource’ is
standard applies to a particular transaction or other event, or when an accounting standard allows a choice of defined in the Conceptual Framework as:
5. What are the three main components of the definition of assets? LO 2.9
accounting policy entity controls the resource; the control exists as a result of a past transaction or event; and the
The reporting a right that has the potential to produce economic benefits.
(c) assist all partieshas
resource tothe
understand
potential toand interpret
produce accounting
economic benefitsstandards.
for the reporting entity.
It is6.generally accepted
Are all assets that ittoisbeunwise,
required measured andusing
perhaps illogical,
the same basisto
of develop accounting
measurement? LO 2.10 standards unless there is first
some agreement on key,
No, assets canfundamental
be measured issues, such as:measurement
using different the objectives of general
bases. purpose financial
The measurement reporting;
basis used the
should be qualitative
chosen
characteristics that useful
according financial
to whether it bestinformation shalland
enables relevant possess (for example,
representationally relevance
faithful financialand representational
information faithfulness);
to be presented to
dee67382_fm_i-xxvi.indd
how and when transactions
the users xxii
should
of the financial be recognised; what constitutes an element of financial reporting; and who is the
statements. 10/24/19 04:13 PM
audience7. ofWhat
general purpose
role does financialhave
‘materiality’ statements. Unless
with respect the accounting
to deciding profession
whether particular and accounting
financial informationstandard-setters
should be dee67382_ch02_059-098.indd 75 10/18/19 07:05 AM
have agreement on such

disclosed? central issues, it is difficult to understand how logically consistent accounting standards could
LO 2.8
CHAPTER 2: The Conceptual Framework for Financial Reporting 93
2.12 The conceptual framework as a normative theory of accounting

LO 2.12
As the following chapter explains, theories can be classified in a number of ways. One way of classifying theories
is to label them either ‘positive’ or ‘normative’ theories. While the next chapter covers this issue in some depth,
we can briefly point out here that a positive theory of accounting is a theory that seeks to explain and predict particular
accounting practices. That is, a positive theory of accounting will provide explanations of some of the outcomes that
might follow the release of a particular accounting requirement (such as an accounting standard), or perhaps predictions
about which entities are likely to favour particular accounting methods or adopt particular accounting methods when
there are alternatives. By contrast, a normative theory of accounting provides prescription about what accounting
methods an organisation should adopt. Hence, the difference can be summarised by saying that a positive theory of
accounting attempts to explain or predict accounting practice, whereas a normative theory of accounting prescribes a
particular accounting practice. Conceptual frameworks can be classified as normative theories of accounting as they
provide guidance (prescription) to people involved in preparing general purpose financial statements.
Chapter 3 provides an overview of various theories of accounting. A number of the theories to be described are
positive theories that provide insight into the possible implications of the release of particular accounting regulations.
For example, theories are discussed that provide insight into questions such as:
∙ What motivates individuals to support and perhaps lobby regulators for certain accounting methods in preference
to others?
∙ What are the implications for particular types of organisations and their stakeholders if one method of accounting
is chosen or mandated in preference to other methods?
∙ How will particular stakeholder groups react to particular accounting information?
The next chapter also considers factors that motivate organisations to make voluntary accounting disclosures
(and all organisations make many voluntary disclosures in their annual report). Further, Chapter 3 reviews various
normative theories on how various elements of accounting should be measured and provides insight into the question
of whether there is a ‘true measure’ of income.
Tables Chapter summary
The majority of financial accounting textbooks provide little or no discussion of various theories of accounting.
While we acknowledge that the balance of this text could be studied without reading Chapter 3, we believe that a review
Tables provide useful checklists.
166 PART 3: Accounting for assets
Key points of the chapter are summarised in this section.
of that chapter will equip readers to place the impacts of financial accounting in perspective as opposed to merely learning
how to apply the respective accounting standards. Accounting plays a very important—pervasive even—role within
Check through it carefully to make sure you have
society and Chapter 3 provides important insight into this role. Ideally, readers should not only understand how to apply
the rules embodied in various accounting standards, they should have some understanding of the possible consequences
Table 4.1
Some classes
Asset Measurement rule understood the topics covered before moving on.
of standard-setters
76 PART 1: The mandating particular
Australian requirements.
accounting environmentChapter 3 provides the basis for such an understanding.
Cash Face value
of assets and
their associated Accounts receivable Face value less an allowance for doubtful debts. Amounts to be received Rights can take many forms, including rights to receive cash, rights to receive goods or services, or rights over
CHAPTER 2: The
in more than Conceptual
12 months shall beFramework
discounted for Financial
to present Reporting 87
value physical objects, such as property, plant and equipment or inventories (where the right to use the property, plant,
measurement rules
Inventories Lower of cost and net realisable value SUMMARY
equipment or inventories might have been established as a result of buying or leasing the item).
Goodwill At cost of acquisition—internally generated goodwill is not to be
Therefore, transactions such as the purchase of assets, or the issuance of debt, are not considered ‘income’ because
recognised Components of the definition of an asset
In this chapter we considered the history of conceptual frameworks, and we learned that from 2005 Australia has adopted
they do not result in anProperty,
increaseplant
in equity. Looking atAtthe
and equipment above
cost, formula,
recoverable the acquisition
amount (if recoverable ofamount
an asset is not
is less income.
than cost) or For There are three separate components to the above definition of an ‘asset’ that we need to consider. All three related
the conceptual framework that has been developed and released by the IASB. Initially, in 2005, we adopted the IASB
example, purchasing assets with cash simply involves substituting
revalued amount. one asset forare
If revaluations another and does
undertaken, not impactis equity.
the requirement that requirements must exist if we are to consider that a particular transaction satisfies the definition of an asset. The
Framework for the Preparation and Presentation of Financial Statements (which was initially released by the International
Similarly, borrowing cash leads to an increase in assets (cash), and
the valuations an increase
be based in liabilities, with no direct effect on
on ‘fair value’ components are:
Accounting Standards Committee in 1989). In 2010 and 2018 the IASB released revised frameworks, referred to as the
equity. Marketable securities Fair value 1. an asset Framework
IASB Conceptual is an economic resource (right)
for Financial controlled
Reporting, by the entity
and Australia thereafter adopted this framework in place of the
The Conceptual Framework
Leased assetsdoes not include ‘profit’ (or ‘loss’)
At the present valueasof one of the elements
the expected future leaseofpayments
financial accounting. previous an asset
2. IASB exists as a result of past events
framework.
As we know, the fiveBiological
elementsassets
are assets, liabilities, income,
At fair expenses
value less estimated and equity. Profit
point-of-sale costs is simply the difference We the right
3.learned thathas
thethe
rolepotential to produce
of a conceptual economic
framework benefits.
includes identifying the scope and objectives of financial reporting;
between income and expenses,
Explorationboth of which are defined,
and evaluation Initially and hence
at cost there is no
and thereafter need
at cost or for
fair separate
value recognition criteria identifyingLet the us
qualitative characteristics that financial information should possess; and defining the elements of accounting
now consider each of these components separately.
for ‘profits’. assets of mining organisation and their respective recognition criteria. A number of benefits of conceptual frameworks were identified, including
Investment properties At cost initially and then at either fair value or cost accounting standards being Control
more consistent and logical; more efficient development of accounting standards; accounting
equity
Definition of equity
Non-current assets held for sale At the lower of carrying amount and fair value less costs to sell
Defined by the Conceptual standard-setters being accountableAs indicated forinthethecontent
above ofdefinition
accounting of standards;
an asset, aand resource must frameworks
conceptual be controlled before it
providing can be
useful
control (assets)
Paragraph 4.63 of the Conceptual Framework defines equity as ‘the residual interest in the assets Framework as ‘the residual guidance in the absenceconsidered
If an asset is to be
to be an
of an accounting ‘asset’.that
standard Control relates
deals with to the transaction
a specific capacity of ora event.
reporting entity to benefit from
interest in the assets of an asset and to deny or regulate
of the entity The control
chapter discussed the concept of the ‘reportingthe access
entity’ and of noted
others that
to the benefit.
if an The capacity
organisation to control
is deemed to bewould
a
that itafter deductingfor
allreporting
its liabilities’.
entitiesThat is: recognised, rather
is appropriate to measure different classes of assets in different ways. This judgement
the entity afterwas
deducting
normally stem from legal rights. people
However, legal enforceability is not apurpose
prerequisite for establishing
all its liabilities’.
than legal ownership
reporting entity must
(which would be determined by whether exist who rely upon general financial statements the
made on the basis that: existence of control. Hence it isofimportant to then
realise that
to control,
release and not legal ownership,
that is required
be established. Control is
Equity = Assets − Liabilities for the purposes of decisions relating to the allocation resources), it is financial statements comply
NEW!
the capacity of an entity
before an asset can be shown within the body of an entity’s balance sheet (statement of financial
Why do I need to know . . .?
∙ a single measurement basis for all assets and liabilities may not provide the most relevant information for users of
The residual interest
financial is a claim or right to the net assets of the reporting entity held by the owners of an organisation.
statements Key terms
towith accounting
benefit from an assetstandards.
the pursuit of the entity’s
in
position). Frequently, controlled assets are owned, but this is not always the case. For example, many
As a residual
∙ theinterest,
numberequity ranksmeasurements
of different after liabilities inshould
used terms be
of the
a claim against
smallest the necessary
number assets of atoreporting entity.information.
provide relevant Consistent objectives and to deny organisations include leased assets (and the associated lease liabilities) in their balance sheets.
These boxes enhance real-world relevance; they help
or regulate the access of
with the definitions
and liabilities.
∙ the Given
of income
Unnecessary
benefitsthat
and expenses,
measurement
equityofrepresents
to users
the definition
changes should
a residual
financial reports
be avoidedof and
of a interest
equity is directly
necessary
inmeasurement
particular
a function
measurement
the assets of approach
an entity,need
of theshould
changes
the amount
definitions of assets
be explained
disclosed
to be sufficient as equity
to justify the
Key terms areto thebolded
others to that benefit.
in the text the first time they are
There are many resources that generate benefits for an entity but which are not recognised due
absence of control. For example, the use of the road system generates economic benefits for an
make the content relevant to your working life after
will correspond with the difference
cost associated between
with compiling the the amounts assigned to assets and liabilities. As such, the criteria for the
information. used,entity.
defined in the margin atbutthat point,
that such and
entities dolisted atwaterways,
the
However, because the entity does not control the roads, they do not constitute assets of the entity. Similarly, particular
waterways might provide economic benefits to entities, to the extent not control the
recognition Research
of assets has
andindicated
liabilities,
thatinmanagers’
turn, directly govern
support the recognition
for particular of equity.
measurement rulesTherefore, there isby
will be influenced nothe
need for a
industry
university.
separatetorecognition
which they criterion for example,
belong. For equity. Houghton and Tan (1995) undertook a survey of the chief financial officers of end they
of are not assets of those entities despite the fact that the organisation has a right to use them.
each
dee67382_ch02_059-098.indd
chapter.
93
They also appear in the glossary at
10/18/19 07:05 AM
the Group of 100, an association of senior accounting and finance executives representing major companies and Past events
government-owned enterprises in Australia. They found that 80 per cent of the respondents were satisfied with the end
In relationofto the
‘control’,book.
it therefore follows from the requirement that the relevant transaction must already have
historical cost. The respondents’ views were that historical cost is objective and verifiable; easily understood and occurred that future economic benefits which are not currently controlled are not to be recognised by a reporting entity.
widely known; and allows for consistency and comparability. Of the 20 per cent of respondents who did not favour
WHY DO I NEED TO KNOW ABOUT THE DEFINITIONS AND RECOGNITION CRITERIA
historical cost, at least half thought that historical cost was either meaningless or misleading and lacked relevance.
Potential to produce economic benefits
FOR THE ELEMENTS
Perhaps OF FINANCIAL
the above findings are not surprising.ACCOUNTING?
If a firm adopts some form of fair-value-based accounting, this will The expected future economic benefits can be distinguished from the source of the benefit—a
typically introduce some degree of volatility into the financial statements, given that market values tend to fluctuate.
future economic particular object or right. The definition refers to the economic benefit and not the source. Thus,
If we This
do not understand the bedefinitions benefits whether an object or right is disclosed as an asset will be dependent upon the potential it has to
volatility might not favoured and recognition particularly
by management, criteria, then we will
if they havenot really understand
accounting-based debt what the in
contracts The scarce capacity to
reported financial performance and financial position
place or are themselves rewarded in terms of accounting of profits.
an organisation
For example,actually
generalrepresents. For example, is,
insurers in Australia—that provide benefits to the generate economic benefits for the entity. In the absence of potential to generate economic benefits,
as a result of knowing
organisations theindefinitions
involved of the elements
providing insurance for lossesofassociated
financialwith
accounting,
events suchweasknow
theft, that
storm,certain
vehicleaspects
accidents, 54 PART
entities 1: The
that use them— Australiantheaccounting
object or right should not be considered to be an asset. Rather, any related expenditure would
environment
fire and flood—are
of organisational required towill
performance value
nottheir
be investments
reflected withinon the reported
basis of theprofits—for
assets’ fair values,
instance, withcertain
any changes
impacts in fair
common to all assets constitute an expense.
irrespective of their
on thevalues being treated
environment will as
notpart
beofreflected
a financial period’s
within profit
profits, or loss. because
perhaps Many managers of general
the negative insurance
impacts causedcompanies
by physical or other form. Therefore, cash is an asset owing to the economic benefits that can flow as a result of the
were particularly
the organisation opposed
related to the requirement
to resources that wereto use
notfair‘controlled’
value when byit was
theintroduced some and
organisation, yearswhich
ago. Intherefore
their view, it 3. Does the AASB have purchasing
legal power power it generates.
to enforce A machine
accounting is an asset
standards withinto Australia?
the extent LO that1.4
economic benefits are
introduces unwanted and unnecessary volatility anticipated to flow from
anyusing it. That is,powers.
the assetWithin
is effectively the itfuture economic benefits that
had not ever been recognised as assets of theinto the accounts,We
organisation. given that market
would values
therefore of investments
know can is
that ‘profits’ change
a No. The AASB does not directly have enforcement Australia, is ASIC that enforces the
quite drastically in either direction duringorganisational
an accounting period. will be generated,
requirements of thenot the source ofAct,
Corporations theand
economic benefits
it is within (such as the machine).
the Corporations Act that These
there iseconomic benefitsfor
a requirement could come
particular
somewhat incomplete measure of overall performance. As another example, through having
Houghton and Tan alsoand found that the level of support for historical cost or present from two broad sources—either from the asset’s use, or from its sale. If the economic benefits are greater from its use
knowledge of the definitions recognition criteria, we will also know that certain value and fairthat
resources value
areseemed
used to forms of organisations to comply with accounting standards.
by the reporting entity, then the asset would be expected to be retained, otherwise it would likely be sold. That is, the
by andepend on the industry
organisation will nottonecessarily
which the respondent
appear in belonged. Individuals
the balance sheetworking
if theyinare
financial institutions had
not ‘controlled’, or ifa there
statistically
is 4. What Conceptual Frameworkofdoes
is the relevance thenot require an item
International to have a Standards
Accounting value in exchange
Board before
(IASB)ittocan be recognised
general purpose asfinancial
an asset.
significant preference for fair-value measures as opposed to historical cost, while non-financial-institution representatives
some significant doubt about the relevance, or faithful representation, of the information pertaining to the The economic
reporting withinbenefits
Australia?mayLO result
1.7from its ongoing use (often referred to as value in use) within the organisation.
had a significantly stronger preference for historical cost. To explain this difference, the authors note (p. 36):
underlying item.
By their nature, a significant part of the activities of financial institutions involves dealing with assets (investments Review questions
The IASB As already
economicthat
standards
noted,
is of great
benefits
have be
the previous
relevance
probable,
legal force by which
definition
to general purpose
meant
virtue of the
of an
more
asset and
financial
likely than Act,
Corporations
liability
reporting
less and
likely.
had required
within
theThis
Australia.that
Thethe
is no longer
majority of these
AASBexpected
theaccounting
requirement.
future
releases flows of
accounting
Recognition
standards are
and other financial instruments) for which there are active markets. Accordingly, information based on Present is now based uponofthere beingby a ‘potential’
developed outside Australia the IASB. for economic benefits to flow to the reporting entity. For that potential to
Values might be seen by these users as being more appropriate in evaluating financial performance and position.
These questions ask you to reflect on key topics within
5. What
exist, it does not need to be certain, or even likely, that the right will produce economic benefits. It is necessary only that
power
the right doesexists
already the IASB haveoftoa enforce
as a result the accounting
past transaction or event and standards
that, in atthat
leastitone
develops, and which
circumstance, areproduce
it would in use
Although the Houghton and Tan study looked only at the perceptions of financial statement preparers and not
Exhibits financial statement users, the results do imply that perhaps it is not appropriate to expect all industries to favour the
2.10 Measurement principles
the chapter, and help cement your learning. For this
internationally?
The
economic benefits
benefits
IASB has
LO for
are judged
1.7the reporting entity. However, while there is no longer a requirement that the future economic
no powerto beto‘probable’,
enforce itsthe assessed probability
accounting standards. willIt is nevertheless influence
a standardsetter, not the measurement ultimately
a standardenforcer. When
LO 2.10 edition they have been graded by difficulty level as Easy,

a attributed
country claimsto an asset
that it(aisresource
adopting with a higher
IFRSs, likelihood
it is the of generating
responsibility of localeconomic
regulators benefits wouldcompliance
to ensure be expectedwith
to have
the
These
As we have features
already indicated,contain extracts
once we have decided from
that a liability actual
or asset should becompany
recognised, we then a higher value
accounting in the ‘market’
standards. Becausecompared to a similar
some countries haveasset withenforcement
minimal lower likelihood).
mechanisms in place, together with poor
need to determine how to measure it. For financial reporting purposes, measurement refers to the process of Medium or Hard.
standards of financial statement auditing, any claims that the financial statements being generated in such countries
reports
determining the oramounts
documents,
to be included in theorfinancial
providestatements.aApplying
commonly a measurementused
basis to an asset or a comply with accounting standards are often questionable, and should be met with scepticism.
liability also creates a basis for measuring any related income or expense.
dee67382_ch04_159-200.indd 166 10/17/19 08:09 AM
formatConceptualforframeworks
accounting. They
have tended to provide highlight
very limited prescriptionthe relevance
in relation of the
to measurement issues. Assets
and liabilities are often measured in a variety of ways depending upon the class of assets or liabilities being considered. REVIEW QUESTIONS (KEY: Easy • Medium •• Hard •••)
chapter
Given the way content to the
income and expenses practice
are defined—which reliesof accounting,
upon measures attributed to provide
assets and liabilities— dee67382_ch02_059-098.indd 76 10/18/19 07:05 AM
this has direct implications for reported profits. For example, liabilities are frequently recorded at present value, face
another element to the topics covered and help to 1. Describe the roles of ASIC, the AASB, the ASX and the FRC, and the relationships between these regulatory bodies.
LO 1.3, 1.4, 1.5, 1.6 ••
reinforce
168 learning.
PART 3: Accounting for assets
2. What is the IASB and how does it affect financial reporting regulation in Australia? LO 1.4 ••
3. What enforcement powers does the IASB have? LO 1.7 •
dee67382_ch02_059-098.indd 87 10/18/19 07:05 AM

4. What is the role of the independent auditor, and why would the manager or the users of financial statements be
Exhibit 4.1 The balance sheet of BHP Billiton Ltd as at 30 June 2019 prepared to pay for the auditor’s services? LO 1.10 •
CHAPTER 1: An overview of the Australian external reporting environment 55
5. With all the regulations that companies must follow, fulfilling the requirement for corporate reporting is an additional
expensive activity. What are some possible arguments for and against disclosure regulation? LO 1.13 ••
18.
6. Although
Provide anot permitted,asoutline
justification some
to why possible
large theoretical
companies shouldadvantages and disadvantages
have to produce associated
financial statements with
that permitting
comply with
directors
accountingto standards
deviate frombutaccounting standards
small companies in situations
should not have where compliance
to do this. with 1.13
LO 1.3, 1.9, particular
•• accounting standards
is perceived by the directors as likely to generate financial statements that are not true and fair. LO 1.3, 1.4 ••
7. Provide a brief description of the differential reporting requirements in Australia as addressed by AASB 1053.
Challenging questions
19. What
LO 1.9are
• some of the possible cultural impediments to the international standardisation of accounting standards?
LO 1.12 ••
8. Define ‘generally accepted accounting procedures’. LO 1.2 •
These questions require detailed problem analysis and
20. Why did the FRC decide that Australian Accounting Standards needed to be consistent with those being issued by
9. the
WhoInternational
are perceived to be theStandards
Accounting ‘primary users’ of general
Board? • financial reports? LO 1.2 •
purpose
LO 1.5, 1.12
help
21. toknowledge
10. Explain
What build
why problem-solving
of financial
the adoption ofaccounting areFinancial
International ofand
the usersReporting critical
financialStandards
statements thinking
in expected
Australia to haveskills.
possess?
might LO
led 1.2 •
to material
11. changes to reported
If the auditor providesprofits.
an opinion that••
LO 1.11 the financial statements comply with accounting standards, does this indicate
that there are no errors in the financial statements? LO 1.10 •
CHALLENGING QUESTIONS
12. What is included in a Directors’ Declaration, and what are the implications if a director signs the declaration and the
organisation subsequently fails, owing millions of dollars that it cannot repay? LO 1.3 ••
22.
13. IfWhat
directors
does believe
it mean that thethat
to say application of a particular
some financial statementsaccounting
are ‘true standard
and fair’?isHow
inappropriate to the circumstances
would a director of
try to ensure that
their organisation,
the financial what options
statements are trueare
andavailable to them
fair before he or when compiling
she signs their financial
a Directors’ statements?
Declaration? •• 1.3
LO 1.3 LO
23.
14. Accounting standards change
How are International Financialacross Why? LO 1.8
time. Standards
Reporting developed and revised? Explain the role of the AASB in that
24. Ifprocess. LO 1.4,
a company 1.7 ••
adopted a particular accounting policy that ASIC considered to be questionable, in principle ASIC might
15. consider taking
What is the legal action
relevance against
to Australia ofthe company’s directors
Interpretations issued byfor failing
the IFRS to produce trueCommittee?
Interpretations and fair financial
LO 1.7 ••
statements.
However, from a practical perspective, why would it be difficult for ASIC to prove in court that the company’s financial
16. statements
What authority
weredonot
Interpretations
true and fair?issued
LO 1.3by the IASB and AASB have in the Australian financial reporting context? If
they do have authority, from where does this authority emanate? LO 1.4, 1.7 ••
25. Visit the website of a company listed on the ASX. (Hint: some corporate website addresses are provided in this
•
17. chapter.)
What are Review
the functions of the IASB?
the company’s LO 1.7 governance
corporate disclosures and determine whether the company complies xxiii
with the ‘Eight Essential Principles of Corporate Governance’ identified by the ASX. If the company discloses non
compliance, evaluate the reasons provided for this noncompliance. LO 1.6
26. Considered together, does the set of existing accounting standards provide guidance for all transactions and events
that might arise within an organisation? If not, what guidance is available to the organisation? LO 1.3, 1.4
27. The decision
dee67382_ch01_001-058.indd 54 that Australia would adopt IFRSs was in large part based on the view that Australian reporting entities,
10/17/19 07:49 AM
and the Australian economy, would benefit from adopting accounting methods that are the same as those adopted
internationally. Do you think that all Australian reporting entities have benefitted from international standardisation?
LO 1.11
28. Globally, there are variations in business laws, criminal laws and so forth. Such international variations in laws will be a
dee67382_fm_i-xxvi.indd xxiii 10/24/19 04:13 PM
result of differences in history, cultures, religions and so on. While we are apparently prepared to accept international
differences in various laws, groups such as the IASB expect there to be global uniformity in regulations relating to
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CHAP. XII.
Return to head-quarters, after an exile of two years—Renew my
vows of rectitude, to which I strictly adhere—Proposal made
me to obtain my liberty—I make the attempt—Its failure, and
the consequent punishment inflicted on me—Conclusion, page
137.
MEMOIRS
OF
JAMES HARDY VAUX.
CHAPTER I.
I arrive in London.—A sudden Alarm.—Visit my Mother and Sisters. Set out for S
⸺shire.—Interview with my Grandfather.—Return to Town.—A lucky Hit on
the Road.—Obtain a Situation in the Crown-Office.
About four miles from Gosport, is a place called Fareham, where

is a gate, through which on the coach passing, I had always
understood that the passengers were subject to an overhaul, as the
sailors term it. I was, therefore, somewhat alarmed during this part of
my journey. I felt confident, however, that I could give a good
account of myself, had I been questioned; but to my great joy, on our
approach, the gate was thrown open, and the coach passed without
stopping. I now felt extremely cold, and my dress being thin, I
suffered much during the night. In order to counteract the effects of
the frost, I fortified myself with a good dram of brandy at every stage,
and the ensuing morning proving delightfully fine, I at length found
both my animal and mental spirits revive, and my heart beat high
with expectation of the happiness I anticipated. About eight o’clock I
was gratified with a sight of Hyde Park Corner; and I leave the
reader to imagine what transports I felt at the difference between my
then situation and that from which I had so recently and happily
emerged. On my ascending the coach at Gosport, I had placed
myself on the roof between two men who had the appearance of
country farmers, and I maintained that situation throughout the night,
by which indeed I was something benefited, for they had both good
great-coats, and we sitting rather crowded, I was warmer than I
should otherwise have been. On the coach stopping at the
Gloucester Coffee-house, Piccadilly, I expressed my intention to
alight and walk; the two farmers had the same inclination, and I
observed, that if they were going my way, I should be glad of their
company. They answered they were strangers in town, and their only
object was to find out the inn from which the Yorkshire coach set out,
as they were about proceeding to that county immediately. I replied, I
was myself almost a stranger to those matters, but I fancied the inn
lay in the way I was going, and that I would with pleasure conduct
them to it. We accordingly set forwards, and walked through
Piccadilly, the Haymarket, Strand, &c., until we came to Fetter-lane;
and arriving at the White Horse, I was, I found, right in my
conjecture, for the York coach was among the number of those
advertised in large characters on each side the gateway of the inn. I
introduced them to the coach-office, where they took places for the
ensuing evening; and, as my night’s ride had brought me to an
appetite, I proposed (before going to my mother’s, whose lodgings
were close at hand,) that we should breakfast together; to which they
assenting, I conducted them to the coffee-room, and calling the
waiter, ordered tea, coffee, and plenty of muffins with all possible
speed. We had nearly concluded our meal, and I had just bespoke a
morning paper from the waiter, when the room beginning to fill,
several gentlemen entered, and passed the table at which we sat,
proceeding to the upper end of the room. At that moment a voice
struck my ear, which almost petrified me with fear and astonishment,
for I felt persuaded at the time that it was that of Mr. Oxley himself,
exclaiming, “Waiter, see that portmanteau of mine brought in.” On
hearing these words, I almost dropped the tea-cup from my hand,
and on the impulse of the moment, quitted my seat, and hastily left
the room; nor did I stop for a moment’s reflection until I had crossed
Holborn, and found myself at the corner of Gray’s-Inn-Lane. Then,
however, conceiving I was out of danger, I endeavoured to rally my
spirits, and to persuade myself that I must have been mistaken, as it
was highly improbable that Mr. Oxley, whom I had left on board the
Buffalo, should so suddenly have arrived in town, and particularly at
the White Horse, no Portsmouth or Gosport coach setting up there.
However, Mr. Oxley’s voice and manner of speaking being a little
remarkable, I was so far in doubt that I determined not to return.
What opinion the countrymen must form of me, I know not; it is likely
they would impute my unmannerly departure to a design of avoiding
payment of the reckoning. I have since ascertained that I was
mistaken in my conjecture, for Mr. Oxley did not quit the ship until
several days afterwards.
I now repaired to Middle-Row, and inquiring for my mother, was
ushered up stairs, where I found her and my two sisters pretty
comfortably situated in a genteel first floor, which they hired ready
furnished. They all expressed great joy at seeing me. My mother
appeared to be in a declining state, but my sisters were much
improved, and really very fine girls. I understood that the whole
family were supported by the industry of the latter, who worked
incessantly at their needle, being excellent proficients in fancy-work,
which they obtained from various shops. Having explained to my
mother the particulars of my situation, and the risk I had incurred by
my desertion; and recollecting that I had inconsiderately suffered her
letter, in which was her address, to be seen by several persons on
board the Buffalo, it occurred to me that Captain Houston might
possibly come to the knowledge of that particular, the consequence
of which might be fatal to me. It was the opinion of my mother, that I
should on that account, absent myself from town for a few weeks,
until the affair was blown over, and my mother advised that I should
go down to my relations in S⸺shire. I accordingly the next day set
out by the coach, an aunt of mine who was in good circumstances,
supplying me with the needful. On arriving at S⸺ I went to a
public-house, which was still kept by a woman who had known me
from my infancy; as I feared to break abruptly on my aged
grandfather, who might be too much affected to sustain the surprise,
I, therefore, got the landlady to send word that a stranger had
arrived, who brought news from his grandson: having thus prepared
the way, I followed in person, and was received with transport by my
dear and venerable benefactor. On inquiring into his circumstances, I
was grieved to learn that he had been for several years obliged to
subsist upon the charity of his friends, and particularly the worthy
family of the Moultries, of whom I have made honourable mention in
the second chapter of these Memoirs. I was also concerned to find
that the dear old man’s faculties were much impaired, and my grief
was heightened by the reflection that my misconduct and
consequent misfortunes had been the primary cause of his mental
as well as pecuniary distress. My other relatives in S⸺ treated me
with every mark of attention, and I was hospitably entertained by
them all during my stay in that town. It is to be observed, that only
two or three of my nearest relations were acquainted with the events
of my life for the last seven years. It was given out that I had been
abroad, but it was understood in a respectable capacity. About a
fortnight after my arrival in S⸺shire, I received a letter from my
mother, informing me that no inquiry whatever had been made
respecting me, and concluding from thence that I might with safety
return when I thought proper. As no prospect of employment
presented itself in the country, it was the opinion of my friends that I
should again try my fortune in London; for which purpose they jointly
supplied me with money to defray my present expenses, and
contributed among them a few necessaries I was most in need of. I
was persuaded that my dear grandfather would not experience the
want of any reasonable comforts during the short remaining term of
his life, which could not in all probability be long protracted. I was,
therefore, less solicitous about continuing on the spot, as my
presence in fact only tended to recall to his half-distracted mind the
remembrance of former and better days. My grandfather gave me
letters of recommendation to several of his old law acquaintances,
particularly one to a Mr. Belt, who held a superior situation in the
crown-office, and who had formerly been articled to himself when
resident in London.
All things being arranged, I once more took leave of my friends,
and set off by the coach for London, on the 1st of January, 1808.
Having occasion to take a fresh coach at Birmingham, and wishing
to take a little recreation, which the restraint I was under at S⸺,
and the nature of the place had hitherto precluded me from, and
having the pecuniary means of so doing in my power, I determined
on devoting a few days to that object, before I resumed my journey
to London. After three days’ amusement I again took coach, and
having travelled all night, we stopped about seven in the morning at
Henley-upon-Thames to breakfast. I had been so free in my
expenses at Birmingham, that I had at this time but four shillings left
in my purse. I therefore declined alighting, in order to save the cost
of a breakfast, as I had had a snack at the last stage, and felt no
inclination to eat. The other passengers having entered the house, I
remained alone in the coach, the horses being taken out, and the
coachman and guard having also quitted it. After sitting a few
minutes, it occurred to me that I had seen a number of small parcels
put into the seats of the coach, previous to our departure from
Birmingham; and, having frequently heard of large sums in bank-
notes being transmitted by this mode of conveyance to London, I
was tempted to purloin one of them, which it appeared I should run
no risk in doing, as the coast was clear, and I had a large bundle of
linen, &c., deposited in one of the seats. I solemnly declare that until
this moment, no idea of depredation had entered my head since my
arrival in England; the act was, therefore, perfectly unpremeditated.
Without hesitation then, I opened the seat, and taking out my bundle,
untied it, in case of a surprise. As I had not time to examine the
contents of the various parcels, I determined to trust to fortune, and
therefore took out the first which came to hand. It was enclosed in
brown paper, tied with packthread, about twelve inches by eight in
size, and from its weight and hardness, I supposed it to contain
some kind of cutlery or other hardware; but as such goods were
commonly packed up with bank-notes, to prevent a suspicion of
money being enclosed, the apparent contents were a matter of
indifference to me. The parcel was directed to “Mr. ⸺, Goodge-
street, Tottenham-court-road.” This circumstance convinced me
there could be no discovery of the robbery until after I was far
enough from the coach, which I intended to quit on arriving at the
Gloucester Coffee-house, as, in case I had gone on to the George
and Blue-boar in Holborn, the parcel might possibly have been
searched for, on our passing the end of Tottenham-court-road.
Having concealed my prize in my own bundle, which I replaced in
the seat, I judged it best to alight and partake of breakfast with the
other passengers. I was also in better spirits on account of the
confidence I felt, that I should find something in the parcel to recruit
my slender finances; as, let the contents be what they might, it was
probable they would produce me at least a guinea or two, which
would supply my immediate exigencies. I accordingly entered the
parlour, and took a cup of coffee with the company. The bill being
called, amounted to two shillings and three pence per head; I put
down half-a-crown, which left me in possession of eighteen pence.
We then re-ascended the coach, and resumed our journey. At three
in the afternoon we entered London, and stopping as usual at the
Gloucester Coffee-house, I told the coachman I should then leave
him, as I resided in the neighbourhood. He inquired if I had any
luggage, and on my saying I had a bundle in the seat, he opened the
door and handed it to me. I gratified him with a shilling out of my
small stock, and made the best of my way. Having suffered the
coach to pass on, I followed slowly until I arrived in Holborn; but
previous to visiting my mother, I entered a public-house, being
anxious to examine my newly-acquired prize. Retiring to a private
room, I cut the string with a trembling hand, and opening the outside
paper, found three several parcels (also in brown paper,) lying one
upon another. Developing the first of these, I found it to contain, to
my no small surprise and chagrin, a quantity of fine, new ⸺
twelvepenny nails! about a hundred in number. My hopes now fell to
the ground. I was determined, however, to see the whole; and lo! the
second paper contained ⸺ the same quantity of tenpenny nails!!
The third and last, which I carelessly unfolded, expecting nothing
better, presented a number of small plated articles, apparently
designed for fixing on harness, being hooks, rings, &c., of various
shapes, and every one separately wrapped in fine silver paper. As
these latter articles were of no more real value to me than the nails, I
was much mortified at my ill luck, and was on the point of tying up
the whole parcel in order to throw it away as soon as I gained the
street, when it fortunately struck me that there must be somewhere,
a letter or note accompanying these goods. I, therefore, once more
overhauled the packages, and lifting up the bottom one, found under
it a letter, which on taking up, I perceived to contain an enclosure,
and I plainly felt several pieces of loose money. Now again my spirits
rose—all that I had read and heard of large sums in bank-notes
being artfully transmitted in this manner, recurred to my mind, and I
eagerly drew the candle towards me, half afraid, and yet impatient to
see the event. The letter was superscribed in the same manner as
the parcel; and opening it, I could scarce believe my eyes, when I
discovered some bank-paper carefully folded, and through which the
black marks of the sum were plainly discernible! Before I ascertained
the amount, however, I proceeded to peruse the letter, and found it
to the following effect:—“Sir, I have sent you herewith specimens of
the nails and other articles; the order shall be completed as speedily
as possible. I have also enclosed you £47 9s. which you will find to
be the present balance between us. I am, &c.”—Here was an
unexpected windfall! The reader will conceive my joy, and with what
satisfaction I replaced the parcel in my bundle, in order to quit the
public-house. The notes proved to be two of twenty pounds each on
a Birmingham bank, but payable also at Forster, Lubbock, and Co’s,
in London, a bank of England five pound note, and another of two
pounds, also a bank dollar, and four shillings. I now repaired with a
light heart to my mother’s lodgings, where I met with a cordial
welcome. Having spent the evening with my mother, I walked into
the city and procured a bed at an inn. The next morning I sent one of
my twenty pound notes by a porter to the banking-house, where he
procured small notes of the Bank of England in exchange; I soon
afterwards called myself with the second, and did the like. Being now
possessed of near fifty pounds by this lucky hit, I determined to
furnish myself with a stock of genteel clothes, a watch, and other
appendages, prior to my obtaining some employment, as I always
considered an outward appearance essential to success in every
pursuit; but I was firmly resolved never again to hazard my liberty by
a second act or attempt of a similar nature.
In a few days I had purchased such articles as were most
requisite, at the expense of about forty pounds, and I then turned my
attention to procuring a genteel situation. I accordingly waited on Mr.
Belt, the gentleman I mentioned of the Crown-office; who, on perusal
of the letter I presented, testified his respect for my grandfather’s
recommendation, and very obligingly offered to take me as an
assistant clerk under his own direction in the above office, if I thought
fit to accept of a guinea a week, which was all he could promise to
allow me at first, but might be afterwards increased. I thought this too
favourable an offer to be rejected. I, therefore, thankfully closed with
it, and prepared immediately to attend assiduously to the duties of
my office.
CHAPTER II.
Quit the Crown Office, and engage as Reader in a Printing Office.—Determine to
live a strictly honest life.—Meet with an old Acquaintance who laughs me out
of my Resolution.—Give up all thoughts of Servitude and become a professed
Thief.
I had, on my second arrival in London, engaged a small apartment

in a creditable house, and regulated my expenses upon principles of
the strictest economy; but notwithstanding every possible effort, I
soon found it impossible to subsist within my income; consequently,
in a few weeks I had sensibly decreased my little capital. I, therefore,
began to consider how I might obtain a more productive situation, as
I saw no prospect of my present salary being augmented. At this
juncture I met with an advertisement for a person of good education,
to act as Reader in a Printing Office. Though this was an
employment of which I had not the least idea, I determined to offer
myself, conceiving there could be nothing very difficult in its duties.
Having, therefore, first inquired into the nature of the latter I boldly
applied to the advertiser Mr. Barnard, on Snow-hill; and in answer to
his queries, replied that I had lately left the service of a country
printer, whom I named, and was well acquainted with the business of
a printing office in general; adding, that if he pleased to make trial of
me, I doubted not of proving well qualified for the situation in
question. Mr. Barnard consented to do so; and informing me that the
salary he had given my predecessor was two guineas a week,
expressed his willingness to allow me the same. I was so much
pleased with this increase of wages, as well as with the nature of the
employment when explained to me, that I immediately quitted Mr.
Belt, and began my attendance at the office of Mr. Barnard. My
business here was to read over or examine the proofs (sheet by
sheet, as they were struck off by the pressmen) of every new work
printed by my employer. These proofs or first impressions, having
been first compared with the copy or manuscript, the errors so
discovered being noted by me, were corrected by the compositor,
and a second impression produced, which was then carefully
examined, and the few errors yet remaining were rectified as before.
A third sheet was then revised by me, which in most cases proved
perfectly correct; and this being ascertained, the required number of
copies were struck off, whilst a succeeding sheet was in the hands of
the compositors, in a state of progress for the like operation. In a few
days I had a perfect knowledge of the business confided to me; and
here I found the advantages of a good education, and of my
extensive reading, which enabled me at first sight to detect many
errors that an experienced “Reader,” with a common education,
would have passed over, particularly where Latin or French phrases,
quotations, &c., were introduced. This soon became obvious to my
employer, who expressed his satisfaction, and paid me more than
common respect. On my part I was equally pleased with my new
situation. The business of Mr. Barnard’s office was very extensive. It
employed from forty to fifty workmen in various capacities, and he
had generally ten or more different works (periodical as well as
others) in the press. Among these were some of an entertaining
kind; so that while I was performing my duty, I gratified my passion
for reading, and anticipated the public in the perusal of many curious
and interesting new publications.
I still adhered closely to my system of economy and took care to
expend something less than my income. It was my fixed
determination to abstain from every kind of dishonesty; and for about
three weeks I met with no temptation to an opposite conduct: but one
day as I entered the eating-house at which I commonly dined, I was
accosted by a young man who had come home with me from New
South Wales, in the Buffalo, having been for several years in the
service of Governor King. This was, in fact, the very person to whom
I had confided my intention of deserting, and bequeathed my effects
previous to my going ashore. Our joy at meeting was reciprocal, and
before we parted an appointment to sup together the same evening
was the consequence. My old friend informed me that the Buffalo
was paid in about five days after I quitted her, and that the crew were
immediately drafted into various ships: he himself was put on board
the Diomede of 50, and having at last, with much difficulty, obtained
a liberty-ticket for eight days, he had been about a week in town. It is
needless to add, that nothing was further from his thoughts than
returning. From him I also learnt that a diligent search was instituted
for me in Portsmouth the day after my absconding, and that Captain
King, as well as his subordinate Captain Houston, were much
exasperated on the occasion. On meeting my shipmate at the
appointed place (which by-the-by, proved to be a house of ill repute)
he introduced me to several other old acquaintances, who had also
come home with us, and to a few of the same stamp, who had been
a longer time returned, from New South Wales. I soon discovered
that they had all resumed the same depredatory course of life which
had caused their former sufferings, and must inevitably entail upon
them future misery and disgrace. However, as I knew how fruitless it
would be to advise or remonstrate, I contented myself with letting
them know that I had met with a tolerable situation which enabled
me to live upon the square, and that I had “tied up prigging,” as I was
determined never to be “lagged” again[47]. By this communication I
only incurred at the moment, a few dry jokes on my pretended
honesty, and a hint or two that I should soon become tired of
servitude, and be easily brought over to get an easy guinea. Upon
the whole, I spent a very agreeable evening, but to prevent a
relapse, I determined to avoid the company of these misguided
persons in future, notwithstanding they extracted a promise at
parting, that I would meet them again next day. This promise I
scrupled not to break, and how long I might have refrained from their
society I know not; but a day or two afterwards, as I was descending
Holborn-hill in my way to the office, I unexpectedly met my old
partner and fellow-sufferer, Alexander Bromley, whom I had left in
Newgate in 1801. Having in vain made inquiry as to his fate, since
my return to England, I was truly glad to see him, for he looked well
and was genteelly dressed. I was so much altered, that when I first
accosted him, he had no immediate recollection of me, but on
making myself known, nothing could exceed the joy he evinced at
our meeting. Before we parted it was indispensable that we should
drink together, and he hastily informed me that he had served his
seven years on board the Hulks, at Portsmouth, from whence he
returned to London the 17th of September 1807, and that he was
now once more under the protection of his father, who had received
him with great kindness, and was inclined, if he continued honest, to
take care of his future fortune; but added, with a shrewd shake of the
head, that he could never reconcile himself to confinement on a
shop-board, and feared he should very speedily make a push at
some higher enjoyments. Having agreed to dine together, and by
mere accident named the house at which I had lately supped as the
place of meeting, we parted with some little regret.
Bromley was punctual to his time, and during the two hours I
allowed for dinner, we became more fully informed of each other’s
circumstances. When I was on the point of leaving him to return to
my duty, two or three of my Botany-bay acquaintances dropping in,
forcibly detained me; urging that I might for once stretch a point, and
spend the afternoon with them, ridiculing with too much effect, the
idea of a man like myself being confined to certain hours like a
school-boy, &c. As I was somewhat elevated with the liquor I had
drank, and had really no business at the office which could not be
easily deferred, I consented in an evil moment, to join the party
which was forming, consisting of nearly a dozen persons, most of
them recently returned either from the Hulks, or New South Wales. It
is needless to describe the nature of our conversation, or the various
characters of which the party was composed; let it suffice to state
(with sorrow and shame I confess it) that I was effectually laughed
out of my late good intentions; and before we parted, had joined with
the loudest of them in decrying and contemning every species of
servitude or confinement; and cordially agreed in a resolution to live
independent while I could, and to make up by every means in my
power for the privations and sufferings I had endured for the last
seven years.
From this moment I returned no more to the printing-office, but
joined myself with Bromley, and a few others, who regularly walked
out every evening in quest of money, without confining our pursuits
to any particular branch, but embracing every opportunity which
offered. These were indeed but few, and far from productive, so that
I soon grew heartily tired of the set I was associated with, and
determined to withdraw myself from them the first opportunity, and to
live by the exercise of my own ingenuity. Indeed my appearance was
so much above, and of so different a stamp from their’s, that this
circumstance alone was enough to excite suspicion, and on many
accounts rendered them unsuitable companions for me. I
determined, however, not to discard poor Bromley, for whom I felt a
real friendship, on account of our former intimacy and joint
misfortunes.
CHAPTER III.
Various modes of obtaining Money.—My regular course of Life when disengaged
from my vicious Companions.—Meet with an amiable girl, like myself, the
Child of Misfortune.—We cohabit together.—Our mutual Happiness.
Having withdrawn myself from my late companions, I now became

very circumspect in my proceedings; and as Bromley had neither the
appearance nor the manners of a gentleman, I only made use of him
occasionally in the course of my practice, keeping him in the back
ground to receive and carry any articles which I purloined, and never
suffering him to converse with, or approach me except in private. I
generally spent the mornings, that is, from about one o’clock to five
P. M. (which are the fashionable hours for shopping) in visiting the
shops of Jewellers, Watchmakers, Pawnbrokers, &c. Having
conceived hopes that this species of robbery would turn to a good
account, and depending upon my own address and appearance, I
determined to make a circuit of the town, and not to omit a single
shop in either of those branches: and this scheme I actually
executed so fully, that I believe I did not leave ten untried in all
London, for I made a point of commencing every day in a certain
street and went regularly through it on both sides the way. My
practice was to enter a shop and request to look at gold seals,
chains, broaches, rings, or any other small articles of value; and
while examining them, and looking the shopkeeper in the face, I
contrived by slight of hand to conceal two or three (sometimes more)
in the sleeve of my coat, which was purposely made wide. On some
occasions I purchased a trifling article to save appearances; at other
times I took a card of the shop, promising to call again; and as I
generally saw the remaining goods returned to the window, or place
from whence they were taken, before I left the shop, there was
hardly a probability of my being suspected, or of the property being
missed. In the course of my career I was never once detected in the
fact, though on two or three occasions, so much suspicion arose,
that I was obliged to exert all my effrontery, and to use very high
language, in order, as the cant phrase is, to bounce the tradesman
out of it; and my fashionable appearance, and affected anger at his
insinuations, had always the effect of convincing him that he was
mistaken, and inducing him to apologize for the affront put upon me.
I have even sometimes carried away the spoil notwithstanding what
had passed, and I have often gone a second and third time to the
same shop, with as good success as at the first. To prevent
accidents however, I made it a rule never to enter a second shop
with any stolen property about me; for as soon as I quitted the first, I
privately conveyed my booty to Bromley, who was attending my
motions in the street, and herein I found him eminently useful. By
this course of depredation I acquired on the average about ten
pounds a week, though I sometimes neglected shopping for several
days together. This was not, indeed, the only pursuit I followed, but
was my principal morning’s occupation; though if a favourable
opportunity offered of getting a guinea by any other means, I never
let it slip. In the evenings I generally attended one of the theatres,
where I mixed with the best company in the boxes, and at the same
time that I enjoyed the amusements of the place, I frequently
conveyed pocket-books, snuff-boxes, and other portable articles,
from the pockets of their proprietors into my own. Here I found the
inconvenience of wanting a suitable companion, who might have
received the articles I made prize of, in the same manner as Bromley
did in the streets; but though I knew many of the light-fingered
gentry, whose appearance fitted them for any company, yet, their
faces being well known to the police-officers, who attend the
Theatres, they would not have been suffered to enter the house: and
herein I possessed an advantage which many of these gentry envied
me; for being just arrived in England, and a new face upon the town,
I carried on my depredations under the very noses of the officers,
without suspicion. Having, therefore, at first no associate, I was
obliged to quit the Theatre and conceal my first booty in some
private spot, before I could make (with prudence) a second attempt.
Upon the whole I was very successful in this pursuit also, at least as
to the number of articles I filched, and had their value been
reasonably proportionate to what I expected, I need not long have
followed so hazardous an employment. I have very frequently
obtained nine or ten pocket-books, besides other articles, in an
evening; and these being taken from gentlemen evidently of fortune
and fashion, I had reason to expect I should sometime meet with a
handsome sum in Bank-notes; but fortune did not favour me therein,
for during near twelve months almost nightly attendance at one or
other of the public places, I never found more than twenty pounds in
a book, and that only on one occasion. I several times got five, ten,
or eleven pounds, but commonly one, two, or three pounds, and
most generally four books out of five contained nothing but letters,
memorandums, and other papers useless to me. At the same time I
knew frequent instances of the common street pickpockets getting a
booty of fifty, one hundred and sometimes three or four hundred
pounds. However, I never failed to pay the expenses of the night,
and if I gained nothing, I enjoyed at least a fund of amusement,
which was to me the highest gratification. It sometimes happened
that the articles I got (particularly pocket-books) were advertised by
the losers, within a few days, as “Lost,” and a reward offered for their
restoration: where this reward was worth notice, I frequently restored
the property by means of a third person whom I could confide in, and
whom I previously tutored for the purpose.
In the mean time, the manner in which I spent my life, abstracted
from the disgraceful means by which I supported myself, was (as I
have formerly hinted,) perfectly regular and inoffensive. Though I
lived by depredation, yet I did not like the abandoned class of
common thieves, waste my money, and leisure time in profligate
debauchery, but applied myself to the perusal of instructive and
amusing books, my stock of which I daily increased. I occupied
genteel apartments in a creditable house, the landlord of which
understood me to hold a situation under Government, and every part
of my conduct at home tended to confirm his opinion of my
respectability. I was scrupulously exact in paying my rent, as well as
the different tradesmen in the neighbourhood, with whom I had
occasion to deal; nor did I ever suffer any person of loose character
to visit me, but studiously concealed from those of my acquaintance
my place of residence. I was sometimes, indeed, so imprudent as to
resort, for company’s sake, to some of those public-houses
frequented by thieves and other dissolute characters, the landlord of
which is himself commonly an experienced thief, or returned
transport. When I had a mind to relax a little, or grew tired of
domestication, I disguised my appearance as much as I could, and
repaired to a house of this description, sometimes taking my
Dulcinea with me, whom I shall shortly introduce to the reader, and
whose person and dress I was not a little proud of exhibiting in
public. This fondness for flash-houses, as they are termed, is the
rock on which most persons who live by depredation unhappily split,
and will be found in the sequel to have brought me to my present
deplorable condition; for the police officers, or traps, are in the daily
habit of visiting these houses, where they drink with the thieves, &c.,
in the most familiar manner; and, I believe, often obtain secret
information by various means from some parties respecting the
names, characters, pursuits, &c., of others. By this imprudent
conduct I also became personally known to many of the officers,
which was productive of great danger to me in the exercise of my
vocation; whereas, had I avoided such houses, I might have
remained unknown and unsuspected by them for a series of years. I
ought not to omit what may perhaps gratify the reader, as much as
the act did myself, namely, that as soon as I became possessed of a
moderate sum, I remembered the kindness shewn me by the good
woman at Gosport, and wrote her a letter of thanks, enclosing a five-
pound bank-note, which, no doubt, proved highly acceptable. I also
from time to time assisted my aged mother, whose circumstances
were extremely narrow, and her support derived solely from the
earnings of my two sisters, whose success depending on the caprice
of fashion and of milliners, both alike inconstant, was but precarious.
They, as well as my other relations in S⸺shire, were indeed totally
ignorant of my unhappy relapse into a life of infamy, but believed my
assertion, that I had a liberal salary from Mr. Belt, and was still
employed under that gentleman in the Crown-office.
About three months after my return to London, and whilst in the
zenith of my success, I was introduced by one of my former dissolute
companions to the acquaintance of a young woman, who, like
myself, had been well and tenderly brought up, but having been
seduced by a young man equally inexperienced with herself, to quit
her friends and cohabit with him as his wife, she had thereby
forfeited the countenance of her family, and her paramour having
died after a year’s cohabitation, she had been driven to the usual
refuge in such cases, a life of prostitution. At the period of my
introduction, however, she had been only a few months upon the
town, and I clearly perceived that her mind was yet but very slightly
contaminated. As there were many reasons which rendered a female
companion in whom I could place confidence, desirable, and in fact
necessary to me; and as this young woman’s misfortunes had
placed her in such circumstances, that I had no obstacles to
surmount on the score of delicacy, I proposed to her, after a few
days’ acquaintance, that we should live together; to which, as she
was heartily tired of her present course of life, she willingly
consented. She knew enough of the world from her late experience,
to surmise in what manner I obtained my living, of which, however, to
avoid all duplicity, I fully possessed her. Having informed my
landlord, that my wife, whom I had not before mentioned to him, was
arrived in town from a visit she had been paying in the country, I
accordingly took her home; and in a very few days we had arranged
a pretty snug system of domestic economy, and provided every
requisite for the family life I meant in future to live. My companion
was the daughter of an industrious mechanic, who, having a
numerous offspring, had only been enabled to give her a common
education; but her mother had instructed her in the duties of house-
keeping, and she was perfectly conversant in all the qualities
requisite to form a good wife. She was about nineteen years of age,
agreeable in her person, and of the sweetest disposition imaginable;
and what was most gratifying, the company she had latterly mixed
with, and the disgusting examples before her eyes, had not been
able to eradicate an innate modesty which she naturally possessed;
so that her manners and conversation were such as fitted her for any
company to which I might be inclined to introduce her. I informed my
mother and sisters that I was on the point of contracting a union with
this young woman, and having made them personally acquainted,
the three young ladies soon became very intimate. As my mother
and sisters but rarely called at my lodgings, and then merely en
passant, I had no difficulty in concealing the connexion from them
until I could with propriety declare my marriage to have taken place.
We had the happiness of finding ourselves mutually pleased with
each other, and I considered my meeting with so amiable a friend as
one of the greatest blessings of my life. In a few weeks after our
junction, my partner discovered evident symptoms of pregnancy,
which with her affectionate behaviour, and real attachment to my
interest, endeared her still more to me. In a word, I now felt myself
as happy as any man daily risking his liberty and life, and exposed to
the reproaches of his own conscience, could possibly be.

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(eBook PDF) Financial Accounting Theory 4th Craig

(eBook PDF) Financial Accounting 9th by John Hoggett

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(eBook PDF) Financial Accounting 9th Edition by Jerry

PART 7 OTHER DISCLOSURE ISSUES  853

PART 8 ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES  947

PART 9 FOREIGN CURRENCY  1205

PART 10 CORPORATE SOCIAL-RESPONSIBILITY REPORTING  1249

dee67382_fm_i-xxvi.indd vii 10/24/19 04:13 PM

CHAPTER 1 An overview of the Australian external reporting environment. . . . . . 2

CHAPTER 2 The Conceptual Framework for Financial Reporting. . . . . . . . . 59

dee67382_fm_i-xxvi.indd viii 10/26/19 12:02 PM

CHAPTER 5 Depreciation of property, plant and equipment. . . . . . . . . . . . . . . 201

dee67382_fm_i-xxvi.indd ix 10/26/19 12:03 PM

CHAPTER 6 Revaluations and impairment testing of non-current assets. . . . . 223

CHAPTER 7 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

CHAPTER 8 Accounting for intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

dee67382_fm_i-xxvi.indd x 10/24/19 04:13 PM

CHAPTER 9 Accounting for heritage assets and biological assets. . . . . . . . . . 327

CHAPTER 10 An overview of accounting for liabilities. . . . . . . . . . . . . . . . . . . . 374

CHAPTER 11 Accounting for leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409

dee67382_fm_i-xxvi.indd xi 10/24/19 04:13 PM

CHAPTER 12 Accounting for employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . 463

CHAPTER 13 Share capital and reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495

CHAPTER 14 Accounting for financial instruments. . . . . . . . . . . . . . . . . . . . . . . . 527

dee67382_fm_i-xxvi.indd xii 10/26/19 12:04 PM

CHAPTER 15 Revenue recognition issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599

CHAPTER 16 The statement of profit or loss and other comprehensive

dee67382_fm_i-xxvi.indd xiii 10/24/19 04:13 PM

CHAPTER 17 Accounting for share-based payments. . . . . . . . . . . . . . . . . . . . . 687

CHAPTER 18 Accounting for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723

CHAPTER 19 The statement of cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770

dee67382_fm_i-xxvi.indd xiv 10/26/19 12:05 PM

CHAPTER 20 Accounting for the extractive industries. . . . . . . . . . . . . . . . . . . . . 814

CHAPTER 22 Segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869

dee67382_fm_i-xxvi.indd xv 10/24/19 04:13 PM

CHAPTER 23 Related party disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899

CHAPTER 24 Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917

CHAPTER 25 Accounting for group structures. . . . . . . . . . . . . . . . . . . . . . . . . . . 948

CHAPTER 26 Further consolidation issues I: accounting for

dee67382_fm_i-xxvi.indd xvi 10/24/19 04:13 PM

CHAPTER 27 Further consolidation issues II: accounting for

CHAPTER 28 Further consolidation issues III: accounting for indirect

CHAPTER 29 Accounting for investments in associates

CHAPTER 30 Accounting for foreign currency transactions. . . . . . . . . . . . . . 1206

dee67382_fm_i-xxvi.indd xvii 10/26/19 12:06 PM

CHAPTER 31 Translating the financial statements of foreign operations. . . . . . 1227

CHAPTER 32 Accounting for corporate social responsibility. . . . . . . . . . . . . . 1250

dee67382_fm_i-xxvi.indd xviii 10/24/19 04:13 PM

dee67382_fm_i-xxvi.indd xix 10/24/19 04:13 PM

dee67382_fm_i-xxvi.indd xx 10/24/19 04:13 PM

McGraw-Hill is a proud corporate member of AACSB International. Understanding the importance

dee67382_fm_i-xxvi.indd xxi 10/24/19 04:13 PM

Each chapter starts with a list of the chapter’s learning and

A short video by Craig Deegan explains why topics are

being discussed and why you need to know particular

WORKED EXAMPLE 2.3: Applying the definition of assets

PART 7 OTHER DISCLOSURE ISSUES 853

PART 8 ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES 947

PART 9 FOREIGN CURRENCY 1205

PART 10 CORPORATE SOCIAL-RESPONSIBILITY REPORTING 1249

dee67382_fm_i-xxvi.indd vii 10/24/19 04:13 PM

CHAPTER 1 An overview of the Australian external reporting environment. . . . . . 2

CHAPTER 2 The Conceptual Framework for Financial Reporting. . . . . . . . . 59

dee67382_fm_i-xxvi.indd viii 10/26/19 12:02 PM

CHAPTER 5 Depreciation of property, plant and equipment. . . . . . . . . . . . . . . 201

dee67382_fm_i-xxvi.indd ix 10/26/19 12:03 PM

CHAPTER 6 Revaluations and impairment testing of non-current assets. . . . . 223

CHAPTER 7 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

CHAPTER 8 Accounting for intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

dee67382_fm_i-xxvi.indd x 10/24/19 04:13 PM

CHAPTER 9 Accounting for heritage assets and biological assets. . . . . . . . . . 327

CHAPTER 10 An overview of accounting for liabilities. . . . . . . . . . . . . . . . . . . . 374

CHAPTER 11 Accounting for leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409

dee67382_fm_i-xxvi.indd xi 10/24/19 04:13 PM

CHAPTER 12 Accounting for employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . 463

CHAPTER 13 Share capital and reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495

CHAPTER 14 Accounting for financial instruments. . . . . . . . . . . . . . . . . . . . . . . . 527

dee67382_fm_i-xxvi.indd xii 10/26/19 12:04 PM

CHAPTER 15 Revenue recognition issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599

CHAPTER 16 The statement of profit or loss and other comprehensive

dee67382_fm_i-xxvi.indd xiii 10/24/19 04:13 PM

CHAPTER 17 Accounting for share-based payments. . . . . . . . . . . . . . . . . . . . . 687

CHAPTER 18 Accounting for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723

CHAPTER 19 The statement of cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770

dee67382_fm_i-xxvi.indd xiv 10/26/19 12:05 PM

CHAPTER 20 Accounting for the extractive industries. . . . . . . . . . . . . . . . . . . . . 814

CHAPTER 22 Segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869

dee67382_fm_i-xxvi.indd xv 10/24/19 04:13 PM

CHAPTER 23 Related party disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899

CHAPTER 24 Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917

CHAPTER 25 Accounting for group structures. . . . . . . . . . . . . . . . . . . . . . . . . . . 948

CHAPTER 26 Further consolidation issues I: accounting for

dee67382_fm_i-xxvi.indd xvi 10/24/19 04:13 PM

CHAPTER 27 Further consolidation issues II: accounting for

CHAPTER 28 Further consolidation issues III: accounting for indirect

CHAPTER 29 Accounting for investments in associates

CHAPTER 30 Accounting for foreign currency transactions. . . . . . . . . . . . . . 1206

dee67382_fm_i-xxvi.indd xvii 10/26/19 12:06 PM

CHAPTER 31 Translating the financial statements of foreign operations. . . . . . 1227

CHAPTER 32 Accounting for corporate social responsibility. . . . . . . . . . . . . . 1250

dee67382_fm_i-xxvi.indd xviii 10/24/19 04:13 PM

dee67382_fm_i-xxvi.indd xix 10/24/19 04:13 PM

dee67382_fm_i-xxvi.indd xx 10/24/19 04:13 PM

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