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Financial Accounting
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8th
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 Financial Accounting

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 To my beautiful daughter Cassie for being the
best daughter a dad could ever have

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 Craig Deegan
Financial Accounting
8e

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Copyright © 2016 McGraw-Hill Education (Australia) Pty Ltd

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National Library of Australia Cataloguing-in-Publication Data

Author: Deegan, Craig Michael
Title: Financial accounting / Craig Michael Deegan.
Edition: 8th edition.
ISBN: 9781743764022 (pbk.)
Notes: Includes index.
Subjects: Accounting—Australia.
Accounting—Standards—Australia.
Financial statements—Standards—Australia.
Dewey Number: 657.021894

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dee64022_Prelims_i-xxiv.indd iv 05/20/16 12:55 PM

ABOUT THE AUTHOR

Craig Deegan

CRAIG DEEGAN, BCom (University of NSW), MCom (Hons)

(University of NSW), PhD (University of Queensland), FCA,
is Professor of Accounting in the School of Accounting
at RMIT University in Melbourne. Craig has taught at
both undergraduate and postgraduate level for about
three decades. Prior to working in the university sector
Craig worked as a chartered accountant. His research
has tended to focus on various social and environmental
accountability and financial accounting issues and has been
published in a number of leading international accounting
journals, including: Accounting, Organizations and
Society; Accounting and Business Research; Accounting,
Accountability and Auditing Journal; Accounting and
Finance; British Accounting Review; Critical Perspectives
on Accounting; Journal of Business Ethics; Australian
Accounting Review; and The International Journal of
Accounting. According to Google Scholar, Craig’s work accounting journals and he has been the recipient
has attracted approximately 12,000 citations making him of various teaching and research awards, including
one of the most highly cited researchers internationally teaching prizes sponsored by KPMG, and the Institute of
within the accounting and/or finance literature. Chartered Accountants in Australia. He was the inaugural
Craig has regularly provided consulting services recipient of the Peter Brownell Manuscript Award, an
to corporations, government, and industry bodies on annual research award presented by the Accounting and
issues pertaining to financial accounting and corporate Finance Association of Australia and New Zealand. He
social and environmental accountability, he was former was also awarded the University of Southern Queensland
Chairperson of the Triple Bottom Line Issues Group of Individual Award for Research Excellence.
the Institute of Chartered Accountants in Australia, for Craig is also the author of the leading financial
a number of years was involved in developing the CPA accounting theory textbook, Financial Accounting Theory,
Program of CPA Australia, and for many years was a now in its fourth edition. Financial Accounting Theory is
judge on the Australian Sustainability Reporting Awards. widely used throughout Australia as well as in many other
He is on the editorial board of a number of academic countries.

about the author v

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CONTENTS IN BRIEF

PART 1 THE AUSTRALIAN ACCOUNTING ENVIRONMENT 1

Chapter 1 An overview of the Australian external reporting environment 2
Chapter 2 The conceptual framework for financial reporting 48

PART 2 THEORIES OF ACCOUNTING 83

Chapter 3 Theories of financial accounting 84

PART 3 ACCOUNTING FOR ASSETS 139

Chapter 4 An overview of accounting for assets 140
Chapter 5 Depreciation of property, plant and equipment 180
Chapter 6 Revaluations and impairment testing of non-current assets 202
Chapter 7 Inventory 234
Chapter 8 Accounting for intangibles 258
Chapter 9 Accounting for heritage assets and biological assets 300

PART 4 ACCOUNTING FOR LIABILITIES AND OWNERS’ EQUITY 343

Chapter 10 An overview of accounting for liabilities 344
Chapter 11 Accounting for leases 376
Chapter 12 Accounting for employee benefits 427
Chapter 13 Share capital and reserves 457
Chapter 14 Accounting for financial instruments 481
Chapter 15 Revenue recognition issues 548
Chapter 16 The statement of profit or loss and other comprehensive income,
and the statement of changes in equity 585
Chapter 17 Accounting for share-based payments 625
Chapter 18 Accounting for income taxes 656

PART 5 ACCOUNTING FOR THE DISCLOSURE OF CASH FLOWS 695

Chapter 19 The statement of cash flows 696

PART 6 INDUSTRY-SPECIFIC ACCOUNTING ISSUES 741

Chapter 20 Accounting for the extractive industries 742

PART 7 OTHER DISCLOSURE ISSUES 779

Chapter 21 Events occurring after the end of the reporting period 780
Chapter 22 Segment reporting 794

vi Contents in brief

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 Chapter 23 Related party disclosures 820
Chapter 24 Earnings per share 839

PART 8 ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES 869

Chapter 25 Accounting for group structures 870
Chapter 26 Further consolidation issues I: accounting for intragroup transactions 924
Chapter 27 Further consolidation issues II: accounting for non-controlling interests 966

PART 9 FOREIGN CURRENCY 1007

Chapter 28 Accounting for foreign currency transactions 1008
Chapter 29 Translating the financial statements of foreign operations 1028

PART 10 CORPORATE SOCIAL-RESPONSIBILITY REPORTING 1049

Chapter 30 Accounting for corporate social responsibility 1050

ONLINE CHAPTERS
Chapter 31 Further consolidation issues III: accounting for indirect ownership interests
Chapter 32 Accounting for investments in associates and joint ventures

Appendix A Present value of $1 1122

Appendix B Present value of an annuity of $1 1124
Appendix C Calculating present values 1126

Contents in brief vii

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CONTENTS IN FULL

About the author v

Contents in brief vi
Preface xvii
Acknowledgments xviii
AACSB statement xix
How to use this book xx
Digital resources xxii
Credits xxiv

PART 1 THE AUSTRALIAN ACCOUNTING ENVIRONMENT 1

CHAPTER 1 AN OVERVIEW OF THE AUSTRALIAN EXTERNAL REPORTING ENVIRONMENT 2

Accounting, accountability and the role of financial accounting 3 Learning objectives 2

Financial accounting defined 4 Summary 43
Users’ demand for general purpose financial statements 4 Key terms 43
Sources of external financial reporting regulations 6 End-of-chapter exercises 43
The process of Australia adopting accounting standards issued Review questions 44
by the International Accounting Standards Board 25 Challenging questions 44
Structure of the International Accounting Standards Board 34 References 46
International cultural differences and the harmonisation of accounting
standards 37
Accounting standards change across time 38
The use and role of audit reports 38
All this regulation—is it really necessary? 39

CHAPTER 2 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING 48

Australia’s use of the IASB conceptual framework 49 Learning objectives 48

What is a conceptual framework? 49 Summary 78
Benefits of a conceptual framework 50 Key terms 79
Current initiatives to develop a revised conceptual framework 50 End-of-chapter exercises 79
Structure of the conceptual framework 52 Review questions 79
Building blocks of a conceptual framework 54 Challenging questions 80
Measurement principles 73 References 81
A critical review of conceptual frameworks 74
The conceptual framework as a normative theory of accounting 77

viii CONTENTS IN FULL

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 PART 2 THEORIES OF ACCOUNTING 83
CHAPTER 3 THEORIES OF FINANCIAL ACCOUNTING 84

Introduction to theories of financial accounting 85 Learning objectives 84

Why discuss theories in a book such as this? 85 Summary 126
Definition of theory 86 Key terms 127
Positive Accounting Theory 87 End-of-chapter exercises 127
Accounting policy selection and disclosure 101 Review questions 128
Accounting policy choice and ‘creative accounting’ 102 Challenging questions 131
Some criticisms of Positive Accounting Theory 103 Further reading 134
Normative accounting theories 105 References 134
Systems-oriented theories to explain accounting practice 109
Theories that seek to explain why regulation is introduced 122

PART 3 ACCOUNTING FOR ASSETS 139

CHAPTER 4 AN OVERVIEW OF ACCOUNTING FOR ASSETS 140

Introduction to accounting for assets 141 Learning objectives 140

Numbering of Australian Accounting Standards 141 Summary 173
Definition of assets 142 Key terms 173
General classification of assets 149 End-of-chapter exercises 174
How to present a statement of financial position 150 Review questions 174
Determination of future economic benefits 153 Challenging questions 176
Acquisition cost of assets 157 References 179
Accounting for property, plant and equipment—an introduction 158
Assets acquired at no cost 169
Possible changes in the requirements pertaining to financial
statement presentation 170

CHAPTER 5 DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT 180

Introduction to accounting for depreciation of property, plant and equipment 181 Learning objectives 180
Depreciable amount (base) of an asset 182 Summary 195
Determination of useful life 183 Key terms 196
Method of cost apportionment 184 End-of-chapter exercises 196
Depreciation of separate components 187 Review questions 196
When to start depreciating an asset 188 Challenging questions 198
Revision of depreciation rate and depreciation method 188
Land and buildings 189
Modifying existing non-current assets 191
Disposition of a depreciable asset 191
Depreciation as a process of allocating the cost of an asset over its useful life:
further considerations 193
Disclosure requirements 194

CONTENTS IN FULL ix

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 CHAPTER 6 REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS 202

Introduction to revaluations and impairment testing of non-current assets 203 Learning objectives 202
Measuring property, plant and equipment at cost or at fair value—the choice 203 Summary 227
The use of fair values 204 Key terms 228
Revaluation increments 205 End-of-chapter exercises 228
Treatment of balances of accumulated depreciation upon revaluation 206 Review questions 229
Revaluation decrements 209 Challenging questions 231
Reversal of revaluation decrements and increments 210 References 233
Accounting for the gain or loss on the disposal or derecognition of a revalued
non-current asset 212
Recognition of impairment losses 216
Further consideration of present values 221
Offsetting revaluation increments and decrements 223
Investment properties 223
Economic consequences of asset revaluations 224
Disclosure requirements 226

CHAPTER 7 INVENTORY 234

Introduction to inventory 235 Learning objectives 234

Definition of inventory 235 Summary 251
The general basis of inventory measurement 235 Key terms 252
Inventory cost-flow assumptions 242 End-of-chapter exercises 252
Reversal of previous inventory write-downs 250 Review questions 253
Disclosure requirements 251 Challenging questions 254
References 257

CHAPTER 8 ACCOUNTING FOR INTANGIBLES 258

Introduction to accounting for intangible assets 259 Learning objectives 258

Which intangible assets can be recognised and included in the statement Summary 287
of financial position? 261 Key terms 287
What is the initial basis of measurement of intangible assets? 262 End-of-chapter exercises 288
General amortisation requirements for intangible assets 264 Review questions 289
Revaluation of intangible assets 267 Challenging questions 293
Gain or loss on disposal of intangible assets 268 References 298
Required disclosures in relation to intangible assets 268
Research and development 269
Accounting for goodwill 279
Is the way we account for intangible assets an improvement over what
we did in Australia prior to the introduction of IFRS in 2005? 286

CHAPTER 9 ACCOUNTING FOR HERITAGE ASSETS AND BIOLOGICAL ASSETS 300

Introduction to accounting for heritage assets and biological assets 301 Learning objectives 300
Accounting for heritage assets 301 Summary 336
Accounting for biological assets 320 Key terms 337
End-of-chapter exercises 337
Review questions 337
Challenging questions 338
References 341

x  CONTENTS IN FULL

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 PART 4 ACCOUNTING FOR LIABILITIES AND OWNERS’ EQUITY 343
CHAPTER 10 AN OVERVIEW OF ACCOUNTING FOR LIABILITIES 344

Liabilities defined 345 Learning objectives 344

Contingent liabilities 347 Summary 366
Contingent assets 350 Key terms 366
Classification of liabilities as ‘current’ or ‘non-current’ 350 End-of-chapter exercises 366
Liability provisions 351 Review questions 367
Some implications of reporting liabilities 356 Challenging questions 371
Debt equity debate 358 References 375
Accounting for debentures (bonds) 360
Hybrid securities 365

CHAPTER 11 ACCOUNTING FOR LEASES 376

An overview of recent developments in the accounting requirements Learning objectives 376

pertaining to accounting for leases 377 Summary 416
The core principle and scope of the new accounting standard on leasing 383 Key terms 418
Exemptions for leases of 12 months or less, and for low-value assets 383 End-of-chapter exercises 418
What is a lease? 384 Review questions 419
When to recognise a lease 387 Challenging questions 421
Accounting for the service component of a contract that includes a lease 388 References 425
The meaning of ‘lease term’ 388
Accounting for leases by lessees 390
Accounting for leases by lessors 401
Implications for accounting-based contracts 413

CHAPTER 12 ACCOUNTING FOR EMPLOYEE BENEFITS 427

Overview of employee benefits 428 Learning objectives 427

Categories of employee benefits 430 Summary 450
Accounting for employee benefits 431 Key terms 450
Employees’ accrued employee benefits and corporate collapses 449 End-of-chapter exercises 450
Review questions 452
Challenging questions 453
References 456

CHAPTER 13 SHARE CAPITAL AND RESERVES 457

Introduction to accounting for share capital and reserves 458 Learning objectives 457
Different classes of shares 459 Summary 476
Accounting for the issue of share capital 460 Key terms 476
Accounting for distributions 467 End-of-chapter exercises 477
Redemption of preference shares 468 Review questions 478
Forfeited shares 470 Challenging questions 480
Share splits and bonus issues 472 References 480
Rights issues and share options 473
Required disclosures for share capital 475
Reserves 475

CONTENTS IN FULL xi

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 CHAPTER 14 ACCOUNTING FOR FINANCIAL INSTRUMENTS 481

Introduction to accounting for financial instruments 482 Learning objectives 481

Financial instruments defined 483 Summary 539
Debt versus equity components of financial instruments 488 Key terms 539
Set-off of financial assets and financial liabilities 492 End-of-chapter exercises 540
Recognition and measurement of financial assets 495 Review questions 541
Recognition and measurement of financial liabilities 509 Challenging questions 544
Derivative financial instruments and their use as hedging instruments 512 References 547
Compound financial instruments 535
Disclosure requirements pertaining to financial instruments 537

CHAPTER 15 REVENUE RECOGNITION ISSUES 548

New accounting standard on revenue recognition 549 Learning objectives 548

Definition of income and revenue 550 Summary 575
Recognition criteria for revenue from contracts with customers 551 Key terms 576
Measurement of revenue 552 End-of-chapter exercises 576
Income and revenue recognition points 555 Review questions 580
Accounting for sales with associated conditions 559 Challenging questions 582
Interest and dividends 563 References 584
Unearned revenue 566
Accounting for construction contracts 566
Summary of the steps to be taken when recognising revenue 574

CHAPTER 16  HE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME,

T
AND THE STATEMENT OF CHANGES IN EQUITY 585

Introduction to the statement of profit or loss and other comprehensive income 586 Learning objectives 585
Profit or loss disclosure 589 Summary 617
Statement of changes in equity 603 Key terms 618
Prior period errors 604 End-of-chapter exercises 618
Changes in accounting policy 607 Review questions 618
Profit as a guide to an organisation’s success 613 Challenging questions 620
Future changes in the requirements pertaining to how we present References 624
information about comprehensive income 615

CHAPTER 17 ACCOUNTING FOR SHARE-BASED PAYMENTS 625

Introduction to accounting for share-based payments 626 Learning objectives 625

Background to the release of AASB 2 626 Summary 652
Overview of the requirements of AASB 2 628 Key terms 652
Equity-settled share-based payment transactions 629 End-of-chapter exercises 652
Cash-settled share-based payment transactions 643 Review questions 653
Share-based payment transactions with cash alternatives 647 Challenging questions 654
Possible economic implications of AASB 2 649
Disclosure requirements 650

xii CONTENTS IN FULL

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 CHAPTER 18 ACCOUNTING FOR INCOME TAXES 656

Introduction to accounting for income taxes 657 Learning objectives 656

The balance sheet approach to accounting for taxation 658 Summary 686
Tax base of assets and liabilities: further consideration 664 Key terms 687
Deferred tax assets and deferred tax liabilities 667 End-of-chapter exercises 687
Unused tax losses 669 Review questions 689
Revaluation of non-current assets 672 Challenging questions 691
Offsetting deferred tax liabilities and deferred tax assets 679 References 694
Change of tax rates 679
Evaluation of the assets and liabilities created by AASB 112 680

PART 5 ACCOUNTING FOR THE DISCLOSURE OF CASH FLOWS 695

CHAPTER 19 THE STATEMENT OF CASH FLOWS 696

Comparison with other financial statements 697 Learning objectives 696

Defining ‘cash’ and ‘cash equivalents’ 701 Summary 727
Classification of cash flows 703 Key terms 728
Format of statement of cash flows 704 End-of-chapter exercises 728
Calculating cash inflows and outflows 709 Review questions 731
Contractual implications 721 Challenging questions 735
Potential future changes to the statement of cash flows 722 References 740

PART 6 INDUSTRY-SPECIFIC ACCOUNTING ISSUES 741

CHAPTER 20 ACCOUNTING FOR THE EXTRACTIVE INDUSTRIES 742

Overview of accounting for exploration and evaluation expenditures under AASB 6 743 Learning objectives 742
Extractive industries defined 744 Summary 772
Alternative methods to account for preproduction costs 745 Key terms 773
Abandoning an area of interest 748 End-of-chapter exercises 773
Accumulation of costs pertaining to exploration and evaluation activities 748 Review questions 773
Basis for measurement of exploration and evaluation expenditures 749 Challenging questions 775
Impairment and amortisation of costs carried forward 750 References 776
Restoration costs 752
Sales revenue 754
Inventory 755
Disclosure requirements 755
Does the area-of-interest method provide a realistic value for an entity’s reserves? 764
Research on accounting regulation pertaining to pre-production expenditures 764
Other developments in extractive industry reporting 767
The development of a new accounting standard for extractive activities 769

PART 7 OTHER DISCLOSURE ISSUES 779

CHAPTER 21 EVENTS OCCURRING AFTER THE END OF THE REPORTING PERIOD 780

What is an ‘event after the reporting period’? 781 Learning objectives 780
Types of events after the reporting period 782 Summary 789
Disclosure requirements 787 Key terms 789
End-of-chapter exercises 789
Review questions 789
Challenging questions 790

CONTENTS IN FULL xiii

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 CHAPTER 22 SEGMENT REPORTING 794

Advantages and disadvantages of segment reporting 795 Learning objectives 794

An introduction to AASB 8 799 Summary 811
Defining an operating segment 801 Key terms 812
Defining a reportable segment 803 End-of-chapter exercises 812
Measurement of segment items 806 Review questions 815
Required financial disclosures 807 Challenging questions 817
Reconciliation of segment information to financial statements 808 References 819
Non-financial disclosures 809
Is there a case for competitive harm? 811

CHAPTER 23 RELATED PARTY DISCLOSURES 820

Introduction to related party disclosures 821 Learning objectives 820

Related party relationship defined 821 Summary 836
AASB 124 Related Party Disclosures 822 Key terms 836
Section 300A of the Corporations Act 2001 831 End-of-chapter exercises 836
Examples of related party disclosure notes 835 Review questions 836
Challenging questions 837
References 838

CHAPTER 24 EARNINGS PER SHARE 839

Introduction to earnings per share 840 Learning objectives 839

Computation of basic earnings per share 840 Summary 858
Diluted earnings per share 851 Key terms 859
Linking earnings per share to other indicators 857 End-of-chapter exercises 859
Review questions 861
Challenging questions 864
References 867

PART 8 ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES 869

CHAPTER 25 ACCOUNTING FOR GROUP STRUCTURES 870

Introduction to accounting for group structures 871 Learning objectives 870

Rationale for consolidating the financial statements of different legal entities 872 Summary 910
History of Australian Accounting Standards that govern the preparation Key terms 911
of consolidated financial statements 873 End-of-chapter exercises 911
‘Investment entities’: exception to consolidation 877 Review questions 915
Alternative consolidation concepts 878 Challenging questions 919
The concept of control 879 References 923
Direct and indirect control 885
Accounting for business combinations 887
Gain on bargain purchase 897
Subsidiary’s assets not recorded at fair values 898
Previously unrecognised identifiable intangible assets 903
Consolidation after date of acquisition 906
Disclosure requirements 908
Control, joint control, and significant influence 909

xiv CONTENTS IN FULL

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 CHAPTER 26 FURTHER CONSOLIDATION ISSUES I: ACCOUNTING FOR INTRAGROUP TRANSACTIONS 924

Introduction to accounting for intragroup transactions 925 Learning objectives 924

Dividend payments from pre- and post-acquisition earnings 925 Summary 949
Intragroup sale of inventory 932 Key terms 950
Sale of non-current assets within the group 942 End-of-chapter exercises 950
Review questions 957
Challenging questions 960

CHAPTER 27 FURTHER CONSOLIDATION ISSUES II: ACCOUNTING FOR NON-CONTROLLING INTERESTS 966

Introduction to accounting for non-controlling interests 967 Learning objectives 966

What is a non-controlling interest? 967 Summary 990
Non-controlling interests to be disclosed in the consolidated Key terms 990
financial statements 968 End-of-chapter exercises 991
Calculating non-controlling interests 969 Review questions 1001
Challenging questions 1003

PART 9 FOREIGN CURRENCY 1007

CHAPTER 28 ACCOUNTING FOR FOREIGN CURRENCY TRANSACTIONS 1008

Introduction to accounting for foreign currency transactions 1009 Learning objectives 1008
Foreign currency transactions 1009 Summary 1020
Determination of functional currency and presentation currency 1013 Key terms 1021
Longer-term receivables and payables 1014 End-of-chapter exercises 1021
Translation of other monetary assets such as cash deposits 1015 Review questions 1022
Qualifying assets 1016 Challenging questions 1025
Hedging transactions 1018
Foreign currency swaps 1019

CHAPTER 29 TRANSLATING THE FINANCIAL STATEMENTS OF FOREIGN OPERATIONS 1028

Introduction to translating the financial statements of foreign operations 1029 Learning objectives 1028
Reporting foreign currency transactions in the functional currency 1029 Summary 1043
Translating the accounts of foreign operations into the presentation currency 1036 Key terms 1043
Consolidation subsequent to translation 1041 End-of-chapter exercises 1043
Review questions 1045
Challenging questions 1045

CONTENTS IN FULL xv

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 PART 10 CORPORATE SOCIAL-RESPONSIBILITY REPORTING 1049
CHAPTER 30 ACCOUNTING FOR CORPORATE SOCIAL RESPONSIBILITY 1050

Introduction to social-responsibility reporting 1051 Learning objectives 1050

Social and environmental reporting defined 1053 Summary 1112
What are the responsibilities of business (to whom and for what)? 1055 Key terms 1113
Evidence of public social and environmental reporting 1061 End-of-chapter exercises 1113
Why report? 1063 Review questions 1113
To whom will the organisation report? 1074 Challenging questions 1116
What information shall be reported? 1075 References 1118
How (and where) will the information be presented? 1077
Other international initiatives to assist corporate social and environmental
performance 1101
Social auditing 1104
The critical problem of climate change 1107
Personal social responsibility 1111
Concluding remarks 1112

ONLINE CHAPTERS
CHAPTER 31 FURTHER CONSOLIDATION ISSUES III: ACCOUNTING FOR INDIRECT OWNERSHIP INTERESTS
CHAPTER 32 ACCOUNTING FOR INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

Appendix A 1122
Appendix B 1124
Appendix C 1126
Glossary1128
Index1137

xvi CONTENTS IN FULL

dee64022_Prelims_i-xxiv.indd xvi 05/20/16 12:55 PM

PREFACE
This is the eighth edition of a book that was originally
published in 1995. Since the first edition of this book was
published we have seen extensive changes in relation to
the practice and regulation of general purpose financial
reporting. These changes continue to occur and this book
has always attempted to carefully explain the nature of
the changes as well as the potential economic and social
consequences which might result from such changes.
In the period of time between when the seventh
edition of this book was published, and the writing of this
eighth edition was completed (writing was completed in
March 2016) there have been some rather significant
changes in regulation and guidance pertaining to external
reporting. These changes have been incorporated
within this eighth edition and some of the major changes
we cover relate to such areas as financial statement
presentation, The Conceptual Framework for Financial
Reporting, accounting for leases, revenue recognition,
financial instruments, and corporate social-responsibility
reporting. Because many of these changes are significant
we will provide critical comparisons of the ‘old’ and ‘new’
requirements.
Each chapter of this eighth edition contains learning
objectives, chapter summaries and a comprehensive end-
of-chapter exercise. A glossary of key terms is provided
towards the back of the book. The book provides material
that will enable the reader to gain a thorough grasp of the
contents and of the practical application of the majority
of financial accounting requirements currently in place
in Australia. In the discussion of these requirements,
numerous worked examples, with detailed solutions, are
provided throughout the text.
As well as addressing how to apply the various
accounting requirements, this text also encourages
readers to critically evaluate the various rules and
guidelines. The aim is to develop accountants who are
not only able to apply particular accounting requirements,
but who will also be able to contribute to the ongoing
improvement of accounting requirements. The view taken
is that it is not only important for students to understand
the rules of financial accounting, but also to understand
the limitations inherent in many of the existing accounting
requirements. For this reason, reference is made to various
dee64022_Prelims_i-xxiv.indd xvii
research studies that consider the merit, implications, and
costs and benefits of the various accounting requirements.
Also, various newspaper articles discussing different
aspects of the accounting requirements are reproduced
for consideration and discussion. The permission of
copyright holders to reproduce this material is gratefully
acknowledged.
Social-responsibility reporting continues to be an
important area of accounting, and one that is rapidly
developing. Its importance is further highlighted by the
growing evidence of climate change, species extinction,
and large scale poverty, hunger and social inequities in
many countries. While this book predominantly considers
financial accounting and reporting, Chapter 30 focuses
on social-responsibility reporting and provides the most
up-to-date and comprehensive material available on this
important topic with additional material being added on
the important topic of Climate Change—both from an
accounting and scientific perspective—as well as the
inclusion of commentaries on various alternative reporting
frameworks.
Writing a text like this is an extremely time-consuming
exercise and it has been very gratifying that the effort
involved has been rewarded by so many institutions
across Australia (and also some outside Australia) electing
to prescribe previous editions of this book as part of their
accounting programs. Given the success of all previous
editions, every effort has been made to ensure that this
eighth edition is equally valuable to students and teachers,
and that it has been substantially and thoroughly revised.
Preface xvii
05/20/16 12:55 PM
ACKNOWLEDGMENTS
There are many people who must be thanked for their
contribution to the eighth edition of this book. First, our
thanks to the following reviewers of the current edition:
Bobae Choi, University of Newcastle; Sally Chaplin,
Queensland University of Technology; Victoria Clout,
University of New South Wales; Sajan Cyril, Australian
Catholic University; Colin Dolley, Edith Cowan University;
Peter Dryden, Federation University; Hermann Frick,
University of Queensland; Syed Haider, Victoria
University; Andrew Jackson, University of New South
Wales; Arifur Khan, Deakin University; Eric Lee, Monash
University; Janet Lee, Australian National University;
Jinghui Liu, Southern Cross University; Tracey McDowall,
Deakin University; Balachandran Muniandy, La Trobe
University; Puspalila Muniandy, Deakin University;
Gregory Phillip, University of Newcastle; Pranil Prasad,
University of the South Pacific; Maria Prokofieva, Victoria
University; Glenn Rechtschaffen, University of Auckland;
Natasja Steenkamp, Central Queensland University;
Grantley Taylor, Curtin University; Suzanne Mary Taylor,
QUT Business School; Maria Tyler, CQUniversity Mackay
campus; Effiezal Aswadi Abdul Wahab, Curtin University.
This book has also been improved during the course of
the first seven editions by the feedback received from many
people and I would like to acknowledge the contribution that
they have previously made. These people include:
Maria Balatbat, University of New South Wales; Peter
Baxter, University of the Sunshine Coast; Poonam Bir,
Monash University; Phil Cobbin, University of Melbourne;
Lome Cummings, Macquarie University; Matt Dyki, Charles
Sturt University, Wagga Wagga campus; Natalie Gallery,
Queensland University of Technology; John Goodwin,
RMIT University; Deborah Janke, University of Southern
Queensland; Maurice Jenner, University of Southern
Queensland; Graham Jones, Flinders University; Peter
Keet, RMIT University; Janet Lee, Australian National
University; Steven Lesser, Charles Sturt University,
Wagga Wagga campus; Stephen Lim, University of
Technology Sydney; Janice Loftus, University of Sydney;
Wei Lu, Monash University; Diane Mayorga, University
of New South Wales; Kellie McCombie, University of
Wollongong; Malcolm Miller, University of New South
xviii Acknowledgments
dee64022_Prelims_i-xxiv.indd xviii
Wales; Lee Moermon, University of Wollongong; Gary
Monroe, Australian National University; Richard Morris,
University of New South Wales; Anja Morton, Southern
Cross University, Lismore campus; Karen Ness, James
Cook University; Cameron Nichol, RMIT University; Gary
Plugarth, University of New South Wales; Lisa Powell,
University of South Australia; Jim Psaros, University of
Newcastle; Michaela Rankin, Monash University; Andrew
Read, University of Canberra; Kathy Rudkin, University
of Wollongong; Dan Scheiwe, Queensland University
of Technology; Mark Silvester, University of Southern
Queensland; Stella Sofocleous, Victoria University of
Technology; Jenny Stewart, Griffith University; Seng
The, Australian National University; Len Therry, Edith
Cowan University; Matthew Tilling, University of Western
Australia; Irene Tutticci, University of Queensland; Mark
Vallely, University of Southern Queensland; Trevor
Wilmshurst, University of Tasmania; Victoria Wise,
University of Tasmania; Ann-Marie Wyatt, University of
Technology Sydney.
Thanks also go to many of my colleagues at RMIT
University for their friendship and encouragement. The team
at McGraw-Hill Education (Australia) also deserve a great
deal of thanks for helping in the preparation of this book.
Lastly, but certainly not leastly, thanks again go to my
16-year-old daughter Cassandra for all the love and support
she gives me in whatever I seem to be doing and for
continually helping me to put everything into perspective. As
I have said before, she is indeed my finest work (and my most
valuable ‘asset’) and represents that aspect of my life of which
I am most proud.
The publisher would also like to thank the following
digital contributors: Victoria Clout, Parmod Chand, Maria
Prokofieva, Jackie Liu, Maria Balatbat, Eric Lee and
Matt Dyki.
05/20/16 12:55 PM
AACSB STATEMENT

McGraw-Hill Education is a proud corporate member of AACSB1 International. Understanding the importance and value
of AACSB accreditation, Financial Accounting has sought to recognise the curricula guidelines detailed in the AACSB
standards for business accreditation by connecting content and exercises to the general knowledge and skill guidelines
found in the AACSB standards.
The statements contained in Financial Accounting and in its digital resources are provided only as a guide for the
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1
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2
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AACSB statement xix

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Another random document with
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Nor was the Emperor successful in stamping out the private
thaumaturgist. Human nature was too strong for him. Sileat perpetuo
divinandi curiositas, ordered one of his successors in 358. But the
curiosity to divine the future continued to defy both civil and
ecclesiastical law.
A much bolder act, however, than the closing of a few temples on
the score of public decency or the forbidding of private divination
was the edict of 325, in which Constantine ordered the abolition of
the gladiatorial shows. “Such blood-stained spectacles,” he said, “in
the midst of civil peace and domestic quiet are repugnant to our
taste.” He ordained, therefore, that in future all criminals who were
usually condemned to be gladiators should be sent to work in the
mines, that they might expiate their offences without shedding of
blood. But it was one thing to issue an edict and another to enforce
it. Whether Constantine insisted on the observance of this particular
edict, we cannot say, but his successors certainly did not, for the
gladiatorial spectacles at Rome were in full swing in the days of
Symmachus, who ransacked the world for good swordsmen and
strange animals. The “cruenta spectacula” as Constantine called
them, were not finally abolished until the reign of Honorius.
To sum up. The only reasonable view to take of the religious
character of Constantine is that he was a sincere and convinced
Christian. This is borne out alike by his passionate professions of
faith and by the clear testimony of his actions. There are, it is true,
many historians who hold that he was really indifferent to religion,
and others who credit him with an easy capacity for finding truth in all
religions alike. Professor Bury, for example, says that “the evidence
seems to shew that his religion was a syncretistic monotheism; that
he was content to see the deity in the Sun, in Mithras, or in the God
of the Hebrews.” Such a description would suit the character of
Constantius Chlorus perfectly, and it may very well have suited
Constantine himself before the overthrow of Maxentius. There is a
passage in the Ninth Panegyric which seems to have been uttered
by one holding these views, and it is worth quotation, for it is an
invocation to the supreme deity to bless the Emperor Constantine. It
runs as follows:
 Wherefore we pray and beseech thee to keep our Prince safe for
all eternity, thee, the supreme creator of all things, whose names are
as manifold as it has been thy will that nations should have tongues.
We cannot tell by what title it is thy pleasure that we should address
thee, whether thou art a divine force and mind permeating the whole
world and mingled with all the elements, and moving of thine own
motive power without impulse from without, or whether thou art some
Power above all Heaven who lookest down upon this thy handiwork
from some loftier arch of Nature.

Such a deity may have satisfied the philosophers, but it certainly

was not the deity whom Constantine worshipped throughout his
reign. Had he been indifferent to religion, or indifferent to Christianity,
had he even been anxious only to hold the balance between the rival
creeds, he would never have surrounded himself by episcopal
advisers; never have set his hand to such edicts as those we have
quoted; never have abolished the use of the cross for the execution
of criminals or have forbidden Jews to own Christian slaves; never
have called the whole world time and again to witness his zeal for
Christ; never have lavished the resources of the Empire upon the
building of sumptuous churches; never have listened with such
extraordinary forbearance to the wranglings of the Donatists and the
subtleties of Arians and Athanasians; never have summoned or
presided at the Council of Nicæa; and certainly never have made the
welfare of non-Roman Christians the subject of entreaty with the
King of Persia. Constantine was prone to superstition. He was
grossly material in his religious views, and his own worldly success
remained still in his eyes the crowning proof of the Christian verities.
But the sincerity of his convictions is none the less apparent, and
even the atrocious crimes with which he sullied his fair fame cannot
rob him of the name of Christian. It was a name, says St. Augustine,
[145]
in which he manifestly delighted to boast, mindful of the hope
which he reposed in Christ (Plane Christiano nomine gloriosus,
memor spei quam gerebat in Christo).
 CHAPTER XVI
THE EMPIRE AND CHRISTIANITY

The reorganisation of the Empire, begun by Diocletian, had been

continued along the same lines by Constantine the Great. There
were still further developments under their successors, but these two
were the real founders of the Imperial system which was to subsist in
the eastern half of the Empire for more than eleven hundred years.
In other words, Diocletian and Constantine gave the Empire, if not a
new lease of life, at least a new impetus and a new start, and we
may here present a brief sketch of the reforms which they introduced
into practically every sphere of governmental activity.
We have already seen how profoundly changed was the position
of the Emperor himself. He was no longer essentially a Roman
Imperator, a supreme War-Lord, a soldier Chief of State. He had
become a King in a palace, secluded from the gaze of the vulgar,
surrounded with all the attributes and ornaments of an eastern
monarch, and robed in gorgeous vestments stiff with gold and
jewels. Men were taught to speak and think of him as superhuman
and sacrosanct, to approach him with genuflexion and adoration, to
regard every office, however menial, attached to his person, as
sacred. In speaking of the Emperor language was strained to the
pitch of the ridiculous; flattery became so grotesque that it must have
ceased to flatter. When Nazarius, for example, speaks of the
Emperor’s heart as “the stupendous shrine of mighty virtues”
(ingentium virtutum stupenda penetralia), and such language as this
became the recognised mode of addressing the reigning Sovereign,
we see how far we have travelled not only from Republican
simplicity, but even from the times of Domitian. The Emperor, in brief,
was absolute monarch, autocrat of the entire Roman world, and his
will and nod were law.
He stood at the head of a hierarchy of court and administrative
officials, most minutely organised from the highest to the lowest. For
purposes of Imperial administration, those next to the throne were
the four Prætorian præfects, each one supreme, under the Emperor,
in his quarter of the world. The Empire had been divided by
Diocletian into twelve dioceses and these again into ninety-six
provinces; Constantine accepted this division but apportioned the
twelve dioceses into four præfectures, those of the Orient, Illyria,
Italy, and Gaul. The four Prætorian præfects stood in relation to the
Emperor—so Eusebius tells us—as God the Son stood in relation to
God the Father. They wore—though not perhaps in the days of
Constantine—robes of purple reaching to the knee; they rode in lofty
chariots, and among the insignia of their office were a colossal silver
inkstand and gold pen-cases of a hundred pounds in weight. Their
functions were practically unlimited, save for the all-important
exception that they exercised no military command. They had an
exchequer of their own, through which passed all the Imperial taxes
from their provinces; they had absolute control over the vicars of the
dioceses beneath them, whom, if they did not actually appoint they
at least recommended for appointment to the Emperor. In their own
præfectures they formed the final court of appeal, and Constantine
expressly enacted that there should be no appeal from them to the
throne. They even had a limited power of issuing edicts. Thus in all
administrative, financial, and judicial matters the four Prætorian
præfects were supreme, occupying a position very similar to that of
the Viceroys of the great provinces of China, save that they had no
control over the troops within their territories.
Below these four præfects came the vicars of the twelve dioceses
of the Oriens, Pontica, Asiana, Thracia, Mœsia, Pannonia,
Britanniæ, Galliæ, Viennenses, Italia, Hispaniæ, and Africa. Egypt
continued to hold an unique position; its governor was almost
independent of the præfect of the Orient, and was always a direct
nominee of the Emperor. Then, below the twelve vicars came the
governors of the provinces, the number of which constantly tended
to increase, but by further subdivision rather than by conquest of
new territory. Various names were given to these governors; they
were rectores and correctores in some provinces, præsides in many
more, consulares in a few of the more important ones, such as Africa
and Italia. Each had his own entourage of minor officials, and the
hierarchical principle was observed as rigidly on the lowest rungs of
the ladder as on the topmost. Autocrats are obliged to rule through a
bureaucracy, a broad-based pyramid of officialdom which usually
weighs heavily upon the unfortunate taxpayer who has to support the
entire structure.

AUREUS OF CARAUSIUS.

AUREUS OF ALLECTUS.
 SOLIDUS OF HELENA.

SOLIDUS OF GALERIUS.

SOLIDUS OF SEVERUS II.

A similar hierarchy of officials prevailed in the palace and the

court, from the grand chamberlain down through a host of Imperial
secretaries to the head scullion. The tendency of each was to
magnify his office into a department, and to be the master of a set of
underlings. And it was the policy of Constantine, as it had been the
policy of Augustus, to invent new offices in order to increase the
number of officials who looked to the Emperor as their benefactor.[146]
In the conduct of State affairs the Emperor was assisted by an
Imperial council, known as the consistorium principis. It included the
four Prætorian præfects of whom we have spoken; the quæstor of
the palace, a kind of general secretary of state; the master of the
offices (magister officiorum), one of whose principal duties was to act
as minister of police; the grand chamberlain (præpositus sacri
cubiculi); two ministers of finance, and two ministers for war. One of
the finance ministers was dignified with the title of count of the
sacred largesses (comes sacrarum largitionum); the other was count
of the private purse (comes rerum privatarum). The distinction was
similar to the old one between the ærarium and the fiscus, between,
that is to say, the State treasury and the Emperor’s privy purse. One
of the two ministers for war had supreme charge of the infantry of the
Empire; the other was responsible for the cavalry. Both also
exercised judicial functions and sat as a court of appeal in all military
cases wherein the State was interested, either as plaintiff or
defendant.
There were still consuls in Rome, who continued to give their
names to the year. All their political power had vanished, but their
dignity remained unimpaired, though it was now derived not from the
intrinsic importance of their office so much as from its extrinsic
ornaments. To be consul had become the ambition not of the boldest
but of the vainest. (In consulatu honos sine labore suscipitur.) The
prætorship had similarly fallen, but it still entailed upon the holder the
expensive and sometimes ruinous privilege of providing shows for
the amusement of the Roman populace. The number of prætors had
fallen to two in Constantine’s day: he raised it to eight, in accordance
with his general regardlessness of expense, so long as there was
outward magnificence. It is doubtful whether, during the reign of
Constantine, there were consuls and prætors in Constantinople.
Certainly there was no urban præfect appointed in that city until
twenty years after his death, and it seems probable that the Emperor
did not set up in his new capital quite such a pedantically perfect
imitation of the official machinery of Rome as has sometimes been
supposed. His successors, however, were not long in completing
what he had begun.
We pass to the senate and the senatorial order, with their various
degrees of dignity, which Constantine and those who came after him
delighted to elaborate. Every member of the senate was naturally a
member of the senatorial order, but it by no means followed that
every member of the order had a seat in the senate. The new senate
of Constantinople, like its prototype at Rome, had little or no political
power. It merely registered the decrees of the Emperor, and its
function seems to have been one principally of dignity and
ceremony. Membership of the senatorial order was a social
distinction that might be held by a man living in any part of the
Empire and was gained by virtue of having held office. The order
was an aristocracy of officials and ex-officials, distinguished by
resplendent titles, involving additional burdens in the way of taxation
—the price of added dignity. A few of these titles are worth brief
consideration. To the Emperor there were reserved the grandiloquent
names of Your Majesty, Your Eternity, Your Divinity. Members of the
reigning house were Most Noble (Nobilissimi). To the members of
the senate, including the officials of the very highest rank, viz., the
consuls, proconsuls, and præfects, there was reserved the title of
Most Distinguished (Clarissimi), while officers of lower rank,
members of the senatorial order but not of the senate, were Most
Perfect (Perfectissimi) and Egregious (Egregii), the former being of a
higher class than the latter. Such was the order of precedence in
Constantine’s reign, but there was a constant tendency for these
honourable orders to expand, due, no doubt, entirely to the
exigencies of the treasury. Thus the high rank of Clarissimi was
bestowed on those who previously had been only Perfectissimi and
Egregii, and two still higher orders of Illustres and Spectabiles were
created for the old Clarissimi and Perfectissimi. The two topmost
classes were thus given an upward step.
Such was the new official aristocracy, while a rigid line of division,
quite unknown to Republican and early Imperial Rome, was drawn
between the civil and the military officers of the Empire. The military
forces themselves were organised into two great divisions, (1) the
troops kept permanently upon the frontiers, and (2) the soldiers of
the line. The first were known as Limitanei (Borderers) or
Riparienses (Guardians of the Shore), the second name being
specially applied to the soldiers of the Rhine and the Danube. All
these troops were stationed in permanent camps and forts, which
often developed into townships, and it was a rare thing for a legion to
be moved to another quarter of the Empire. Boys grew up and
followed their fathers in the profession of arms in the same camp,
and were themselves succeeded by their own sons. The term of
service was twenty-four years, and these Limitanei were not only
soldiers but tillers of the soil, playing a part precisely similar to the
soldier colonists of Russia in her Far Eastern provinces. The soldiers
of the line (Numeri), on the other hand, served for the shorter period
of twenty years. They included the Palatini,—practically the
successors of the old Prætorian Guard,—the crack corps of the
army, who were divided into regiments bearing such titles as
Scholares, Protectores, and Domestici, and enjoyed the privilege of
guarding the Emperor’s person. Most of the legions of the line were
known as the Comitatenses. These were employed in the interior
garrisons of the Empire, and Zosimus—whether justly or not, it is
impossible to say—accuses Constantine of having dangerously
weakened the frontier garrisons and withdrawn too many troops into
the interior. The control of the army, under the Emperor and his two
ministers for war, was vested by the end of the fourth century in
thirty-five commanders bearing the titles of dukes and counts,—the
latter being the higher of the two. Three of these were stationed in
Britain, six in Gaul, one each in Spain and Italy, four in Africa, three
in Egypt, eight in Asia and Syria, and nine along the upper and lower
reaches of the Danube.
Such was the structure which rested upon the purse of the
taxpayer and upon a system of finance inherently vicious and
wasteful. The main support of the treasury was still, as it had always
been, the land tax, known as the capitatio terrena, the old tributum
soli. It was the landed proprietor (possessor) who found the
wherewithal to keep the Empire on its feet. Diocletian had
reorganised the census, and, in the interests of the treasury, had
caused a new survey and inventory to be made of practically every
acre of land in every province. By an ingenious device he had
established a system of taxable units (jugum or caput), each of
which paid the round sum of 100,000 sesterces or 1000 aurei. The
unit might be made up of all sorts of land—arable, pasture, or forest
—the value of each being estimated on a regular scale. Thus five
acres of vineyard constituted a unit and were held to be equivalent to
twenty acres of the best arable land, forty acres of second-class
land, and sixty of third-class. Nothing escaped: even the roughest
woodland or moorland was assessed at the rate of four hundred and
fifty acres to the unit. The Emperor and his finance ministers
estimated every year how much was required for the current
expenses of the Empire. When the amount was fixed, they sent word
throughout the provinces, and the various municipal curiæ, or town
senates, knew what their share would be, for each town and district
was assessed at so many thousand units, and each curia or senate
was responsible for the money being raised. The curia was
composed of a number of the richest landowners, who had to collect
the tax from themselves and their neighbours as best they could. If,
therefore, any possessor became bankrupt, the others had to make
up the shortage between them. Those who were solvent had to pay
for the insolvent. All loopholes of evasion were carefully closed.
Landowners were not permitted to quit their district without special
leave from the governor; they could not join the army or enter the
civil service. When it was found that large numbers were becoming
ordained in the Christian Church to escape their obligations, an edict
was issued forbidding it. Once a decurion always a decurion.
The provincial country landowner and the small farmer were
almost taxed out of existence by this monstrous system. Every ten or
fifteen years, it is true, a revision of the assessments took place, and
there were certain officials, with the significant name of defensores,
whose duty it was to prevent the provincials from being fleeced too
flagrantly. But a man might easily be reduced to beggary by a
succession of bad harvests before the year of revision came round,
and the defensor’s office was a sinecure except in the rare
occasions when he knew that he would be backed at the
headquarters of the diocese. During Constantine’s reign, or at least
during its closing years, there is overpowering evidence that the
provincial governors were allowed to plunder at discretion. They
imitated the reckless prodigality of their sovereign, who, in 331, was
compelled to issue an edict to restrain the peculation of his officers.
There is a very striking phrase in Ammianus Marcellinus who says
that while Constantine started the practice of opening the greedy
jaws of his favourites, his son, Constantius, fattened them up on the
very marrow of the provinces.[147] Evidently, the incidence of this land
tax inflicted great hardships and had the mischievous result of
draining the province of capital, and of dragging down to ruin the
independent cultivator of the land. Hence districts were constantly in
arrears of payment, and the remission of outstanding debt to the
treasury was usually the first step taken by an Emperor to court
popularity with his subjects.
In short, the fiscal system of the Empire, so far as its most
important item, the land tax, was concerned, seemed expressly
designed to exhaust the wealth of the provinces. It helped to
introduce a system of caste, which became more rigid and cramping
as the years passed by and the necessities of the treasury became
more urgent. It also powerfully contributed to crush out of existence
the yeoman farmer, whose insolvency was followed, if not by slavery,
at any rate by a serfdom which just as effectually robbed him of
freedom of movement. The colonus having lost the title-deeds of his
own land became the hireling of another, paying in kind a fixed
proportion of his stock and crops, and obliged to give personal
service for so many days on that part of the estate where his master
resided. The position of the poor colonus, in fact, became precisely
similar to that of a slave who had not obtained full freedom but had
reached the intermediate state of serfdom, in which he was
permanently attached to a certain estate as, so to speak, part of the
fixtures. He was said to be “ascribed to the land” (ascripticius), and
he had no opportunity of bettering his social position or enabling his
sons to better theirs, unless they were recruited for the legions.
SOLIDUS OF MAXIMIN DAZA.

SOLIDUS OF LICINIUS I.

SOLIDUS OF LICINIUS II.

 DOUBLE SOLIDUS OF CONSTANTINE THE GREAT.

The land tax, of course, was not the only one, for the theory of
Imperial finance was that everybody and everything should pay.
Constantine did not spare his new aristocracy. Every member of the
senatorial order paid a property tax known as “the senatorial purse”
(follis senatoria), and another imposition bearing the name of aurum
oblaticium, which was none the more palatable because it was
supposed to be a voluntary offering. Any senator, moreover, might
be summoned to the capital to serve as prætor and provide a costly
entertainment—a convenient weapon in the hands of autocracy to
clip the wings of an obnoxious ex-official. Another ostensibly
voluntary contribution to the Emperor was the aurum coronarium, or
its equivalent of a thousand or two thousand pieces of gold, which
each city of importance was obliged to offer to the sovereign on
festival occasions, such as the celebration of five or ten complete
years of rule. Every five years, also, there was a lustralis collatio to
be paid by all shopkeepers and usurers, according to their means.
This was usually spoken of as “the gold-silver” (chrysargyrum), and,
like “the senatorial purse,” is said by some authorities to have been
the invention of Constantine himself. Zosimus, in a very bitter attack
on the fiscal measures of the Emperor, declares that even the
courtesans and the beggars were not exempt from the extortion of
the treasury officials, and that whenever the tribute had to be paid,
nothing was heard but groaning and lamentation. The scourge was
brought into play for the persuasion of reluctant taxpayers; women
were driven to sell their sons, and fathers their daughters. Then
there were the capitatio humana, a sort of poll-tax on all labourers;
the old five per cent. succession duty; an elaborate system of octroi
(portoria), and many other indirect taxes. We need not, perhaps,
believe the very worst pictures of human misery drawn by the
historians, for, in fairness to the Emperors, we must take some note
of the roseate accounts of the official rhetoricians. Nazarius, for
example, explicitly declares that Constantine had given the Empire
“peace abroad, prosperity at home, abundant harvests, and cheap
food.”[148] Eusebius again and again conjures up a vision of
prosperous and contented peoples, living not in fear of the tax-
collector, but in the enjoyment of their sovereign’s bounty. But we
fear that the sombre view is nearer the truth than the radiant one,
and that the subsequent financial ruin, which overtook the western
even more than the eastern provinces, was largely due to the
oppressive and wasteful fiscal system introduced and developed by
Diocletian and Constantine, and to the old standing defect of Roman
administration, that the civil governor was also the judge, and thus
administrative and judicial functions were combined in the same
hands.
Here, indeed, lay one of the strongest elements of disintegration in
the reorganised Empire, but there were other powerful solvents at
work, at which we may briefly glance. One was slavery, the evil
results of which had been steadily accumulating for centuries, and if
these were mitigated to some extent by the increasing scarcity of
slaves, the degradation of the poor freeman to the position of a
colonus more than counterbalanced the resultant good. Population,
so far from increasing, was going back, and, in order to fill the gaps,
the authorities had recourse to the dangerous expedient of inviting in
the barbarian. The land was starving for want of capital and labour,
and the barbarian colonus was introduced, as we have seen in an
earlier chapter, not, if the authorities are to be trusted, by tens, but by
hundreds of thousands, “to lighten the tribute by the fruits of his toil
and to relieve the Roman citizens of military service.” This was the
principal and certainly the original reason why recourse was had to
the barbarian; the idea that the German or the Goth was less
dangerous inside than outside the frontier, and would help to bear
the brunt of the pressure from his kinsmen, came later. The result,
however, of importing a strong Germanic and Gothic element into the
Empire was one of active disintegration. Though they occupied but a
humble position industrially, as tillers of the soil, they formed the best
troops in the Imperial armies. The boast which Tacitus put into the
mouth of a Gallic soldier in the first century, that the alien trooper
was the backbone of the Roman army,[149] was now an undoubted
truth, and the spirit which these strangers brought with them was that
of freedom, quite antagonistic to the absolutism of the Empire.
There was yet another great solvent at work,—in its cumulative
effects the greatest of them all,—the solvent of Christianity,
dissociating, as it did, spiritual from temporal authority, and
introducing the absolutely novel idea of a divine law that in every
particular took precedence of mundane law. The growth of the power
of the Church, as a body entirely distinct from the State and claiming
a superior moral sanction, was a new force introduced into the
Roman Empire, which, beyond question, weakened its powers of
resistance to outside enemies, inasmuch as it caused internal
dissensions and divisions. The furious hatreds between Christianity
and paganism which lasted in the West down to the fall of Rome,
and the equally furious hatreds within the Church which continued
both in East and West for long centuries, can only be considered a
source of serious weakness. No one disputes that the desperate and
murderous struggle between Catholic and Huguenot retarded the
development of France and weakened her in the face of the enemy,
and it stands to reason that a nation which is torn by intestinal
quarrel cannot present an effective front to foreign aggression. It
wastes against members of its own household part of the energy
which should be infused into the blows which it delivers at its foe.
Christianity has always tended to break down distinctions and
prejudices of race. It has never done so wholly and never will, but
the tendency is forever at work, and, as such, in the days of the
Empire, it was opposed both to the Roman and to the Greek spirit.
For though there had already sprung up a feeling of cosmopolitanism
within the Empire, it cannot be said to have extended to those
without the Empire, who were still barbarians in the eyes not only of
Greek or Roman, but of the Romanised Celt and Iberian, whose
civilisation was no longer a thin veneer. When we say that
Christianity was a disintegrating element in this respect, the term is
by no means wholly one of reproach. For it also implies that
Christianity assisted the partial fusion which took place when at
length the frontier barriers gave way and the West was rushed by the
Germanic races. These races were themselves Christianised to a
certain extent. They, too, worshipped the Cross and the Christ, and
this circumstance alone must, to a very considerable degree, have
mitigated for the Roman provinces the terrors and disasters of
invasion. It is true that the invaders were for the most part Arians,—
though it is a manifest absurdity to suppose that the free Germans
from beyond the Rhine understood even the elements of a
controversy so metaphysical and so purely Greek,—and, when Arian
and Catholic fought, they tipped their barbs with poison. “I never yet,”
said Ammianus Marcellinus, “found wild beasts so savagely hostile
to men, as most of the Christians are to one another.”[150] But the fact
remains that the German and Gothic conquerors, who settled where
they had conquered, accepted the civilisation of the vanquished
even though they modified it to their own needs; they did not wipe it
out and substitute their own, as did the Turk and the Moor when they
appeared, later on, at the head of their devastating hordes. If,
therefore, Christianity tended to weaken, it also tended to assimilate,
and we are not sure that the latter process was not fully as important
as the former. The Roman Empire, as a universal power, had long
been doomed; Christianity, in this respect, simply accelerated its
pace down the slippery slope.
But other and more specific charges have been brought against
Christianity. One is that it contributed largely to the depopulation of
the Empire, which, from the point of view of the State, was an evil of
the very greatest magnitude. The indictment cannot be refuted
wholly. In the name of Christianity extravagant and pernicious
doctrines were preached of which it would be difficult to speak with
patience, did we not remember that violent disorders need violent
remedies. No one can doubt the unutterable depravity and
viciousness which were rampant and unashamed in the Roman
Empire, especially in the East. If there was a public conscience at all,
it was silent. Decent, clean-living people held fastidiously aloof and
tolerated the existence of evils which they did nothing to combat. A
strong protest was needed; it was supplied by Christianity. But many
of those who took upon themselves to denounce the sins of the age
felt compelled to school themselves to a rigid asceticism which made
few allowances not only for the weaknesses but even for the natural
instincts of human nature. The more fanatical among them
grudgingly admitted that marriage was honourable, but rose to
enthusiastic frenzy in the contemplation of virginity, which, if they
dared not command, they could and did commend with all the
eloquence of which they were capable. One cannot think without pity
of all the self-torture and agonising which this new asceticism—new,
at least, in this aggravated form—brought upon hundreds and
thousands of men and women, whose services the State needed
and would have done well to possess, but who cut themselves off
from mundane affairs, and withdrew into solitudes, not to learn there
how to help their fellowmen but consumed only with a selfish anxiety
to escape from the wrath to come. They thought of nothing but the
salvation of their own souls. It is impossible to see how these wild
hermits, who peopled the Libyan deserts, were acceptable in the
sight either of themselves, their fellows, or their God. Simon Stylites,
starving sleepless on his pillar in the posture of prayer for weeks,
remains for all time as a monument of grotesque futility. If charity
regards him with pity, it can only regard with contempt those who
imputed his insane endurance unto him for righteousness. No one
can estimate the amount of unnecessary misery and sufferings
caused by these extreme fanatics, who broke up homes without
remorse, played on the fears and harrowed the minds of
impressionable men and women, and debased the human soul in
their frantic endeavour to fit it for the presence of its Maker. They
stand in the same category as the gaunt skeletons who drag
themselves on their knees from end to end of India in the hope of
placating a mild but irresponsive god. Man’s first duty may be
towards God; but not to the exclusion of his duty towards the State.
It is not to be supposed, of course, that the majority of Christians
were led to renounce the world and family life. The weaker brethren
are always in a majority, and we do not doubt that most of the
Christian priests were of like mind with their flock in taking a less
heroic but far more common-sense view. It is also to be noted that
the practical Roman temper speedily modified the extravagances of
the eastern fanatics, and the asceticism of monks and nuns living in
religious communities in the midst of their fellow-citizens, and
working to heal their bodies as well as to save their souls, stands on
a very different plane from the entirely self-centred eremitism
associated with Egypt. By doing the work of good Samaritans the
members of these communities acted the part of good citizens.
Succeeding Emperors, whose Christianity was unimpeachable,
looked with cold suspicion on the recluses of the deserts. Valens, for
example, regarding their retirement as an evasion of their civic
duties, published an edict ordering that they should be brought back;
Theodosius with cynical wisdom said that as they had deliberately
chosen to dwell in the desert, he would take care that they stopped
there. But it is easy to exaggerate the influence wielded by extreme
men, whose doctrines and professions only emerge from obscurity
because of their extravagances. We must not, therefore, lay too
much stress on the constant exhortations to celibacy and virginity
which we find even in the writings of such men as Jerome and
Ambrose. However zealously they plied the pitchfork, human nature
just as persistently came back, and the extraordinary outspokenness
of Jerome, for example, in his letters to girls who had pledged
themselves to virginity—an outspokenness based on the confident
assumption that human, and more especially womanly, nature is
weak and liable to err—shews that he was profoundly diffident of the
success of his preaching. Nevertheless, when the counsel of
perfection offered by the Church was the avoidance of marriage, it is
a just charge against Christianity that it was in this respect anti-civic
and anti-social.
DOUBLE SOLIDUS OF CONSTANTINE THE GREAT.

DOUBLE SOLIDUS OF FAUSTA.

DOUBLE SOLIDUS OF CRISPUS.

DOUBLE SOLIDUS OF CONSTANTIUS II. AS

CÆSAR.