Instant Download Ebook PDF Aucm Accounting For Decision Making 2e PDF Scribd

(eBook PDF) (AUCM) Accounting For
Decision Making 2e
Visit to download the full and correct content document:
https://ebooksecure.com/download/ebook-pdf-aucm-accounting-for-decision-making-
2e/
Carey MAA103_Custom_FM.qxd 1/22/16 5:38 PM Page vi
vi Contents
CHAPTER 8 Asset efficiency analysis 251

Analysis and interpretation of Asset turnover ratio 251
financial statements 231 Days inventory and days debtors ratios 251
Users and decision making 233 Analysis of asset efficiency:

JB Hi-Fi Ltd 253
Nature and purpose of financial analysis 234
Liquidity analysis 256
Analytical methods 235 Current ratio and quick ratio 256
Horizontal analysis 235
Cash flow ratio 257
Trend analysis 239
Analysis of liquidity: JB Hi-Fi Ltd 257
Vertical analysis 241
Ratio analysis 243 Capital structure analysis 258
Benchmarks 243 Capital structure ratios 258
Interest servicing ratios 260
Profitability analysis 245 Debt coverage ratio 260
Return on equity 245
Analysis of capital structure: JB Hi-Fi Ltd 260
Return on assets 246
Profit margin ratios 246 Ratio interrelationships 262
Analysis of profitability: JB Hi-Fi Ltd 247 Limitations of ratio analysis 264
Carey MAA103_Custom_FM.qxd 1/22/16 5:38 PM Page vii
ACKNOWLEDGEMENTS vii
Images
p. 2: © iStockphoto.com/dstephens; p. 8: © iStockphoto.com/Andresr;
p. 11: © iStockphoto.com/stevecoleccs; p. 15: © iStockphoto.com/matthewleesdixon;
p. 18: © iStockphoto.com/Pichunter; p. 25: © iStockphoto.com/gchutka; p. 40: © Mike
Flippo, 2009. Used under license from Shutterstock.com; p. 44: © iStockphoto.com/
KristianSeptimiusKrogh; p. 51: © Dmitrijs Dmitrijevs, 2009. Used under license from
Shutterstock.com; p. 53: © Darko Novakovic, 2009. Used under license from
Shutterstock.com; p. 66: © Digital Vision; p. 70: © Stephen Aaron Rees, 2009. Used under
license from Shutterstock.com; p. 81: © iStockphoto.com/Yuri_Arcurs; p. 90: © Erwin
Wodicka, 2009. Used under license from Shutterstock.com; p. 110: © iStockphoto.com/
stevecoleccs; p. 124: © John Wiley & Sons Australia/ Photo by Renee Bryon;
p. 127: © Stephen Coburn, 2009. Used under license from Shutterstock.com;
p. 142: Copyright MYOB Technology Pty Ltd. Used with permission; p. 143: Copyright
MYOB Technology Pty Ltd. Used with permission; p. 143: Screenshot reprinted by
permission from Microsoft Corporation; p. 156: © iStockphoto.com/damircudic;
p. 159: © Corbis Corporation; p. 163: © iStockphoto.com/LajosRepasi; p. 167: © John Wiley
& Sons Australia/ Photo by Belinda Rose; p. 172: © iStockphoto.com/AtnoYdur;
p. 211: © Marek Slusarczyk, 2009. Used under license from Shutterstock.com.
This page intentionally left blank
Carey MAA103_Custom_ch01.qxd 1/22/16 5:09 PM Page 1
Chapter
Accounting 1
in action
The scene setter helps you picture how the chapter topic relates to the real world of
2 Accounting for decision making accounting and business. You will find references to the story throughout the chapter.
SCENE SETTER
Financial reporting: a matter of trust In the last decade, the financial press was
full of articles about financial scandals and accounting misdeeds. It started with Enron, but then
spread to Xerox, One.Tel, HIH, and WorldCom, and more recently includes Westpoint, Opes Prime
and Fincorp. Many of the articles expressed concern that, as an increasing number of misdeeds came
to public attention, a mistrust of financial reporting in general was developing. These articles made
clear just how important accounting and financial reporting are to world financial markets and to
society as a whole. Without reliable financial information, managers would not be able to evaluate
how well their business is doing or to make decisions about the best way to make their business grow
in the future. Without financial statements, investors and lenders could not make in-
formed decisions about how to allocate their funds. There is no doubt that a sound,
well-functioning economy depends on accurate and dependable financial reporting.
Sustainability reporting and reporting on corporate governance structures
have also become a focus of entities such as Billabong, investors and the com-
munity. This type of social responsibility and concern for the condition of society
at large has increased in importance in recent years. Entities include such report-
ing to assist users of reports in understanding how the entity is responding to
community and environmental issues. Entities are increasingly reporting using
the notion of triple bottom line reporting, which not only focuses on the determi-
nation of profit, but also on including information on the social and environmental
costs of business activity. Some consider disclosing non-financial information
important for a company in discharging its financial accountability to its share-
holders through financial reporting. Investors and other stakeholders are also interested in how
well the company is being managed and run. Good corporate governance, which deals with the
rights and responsibilities of a company’s management, its board and its shareholders is essential
for companies that want to raise capital.
In order to make financial decisions as either an investor or a manager, you need to know how to
read financial statements. In this book you will learn about financial reporting and some basic tools
used to evaluate financial statements. In the first chapter we introduce you to the real financial state-
ments of an entity whose products most of you probably are familiar with — Billabong International
Limited. We have chosen the financial statements of Billabong because they are a good example
from the real world.
Billabong International Limited is the holding company of a global group involved in the
design, production and distribution of surf and boardsports clothing and accessories for males
and females. Billabong commenced in Australia in 1973, and later expanded overseas. It is the
leading surfwear apparel brand in Australia, and is also now one of the world’s leading youth
lifestyle brands. Billabong’s products are sold in more than 100 countries around the world,
including Australia, New Zealand, North America, Europe, Japan, Singapore, Malaysia and Brazil.
In 2007, Billabong reported a profit after tax of $167 million, and made over $1222 million in sales,
had $1390 million in assets and employed over 1000 employees.
Billabong also provides information on its website on corporate governance practices and its
commitment to responsible business practices, which are an important first step in encouraging
positive social and environmental outcomes. www.billabong.com
Chapter opening vignettes end with the Internet addresses of companies cited in
the story to help you connect with these real companies and explore them further.
CHAPTER 1 Accounting in action 3
LEARNING OBJECTIVES
After studying this chapter, you should be able to: Learning objectives give you a
framework for learning the
1. explain what accounting is specific concepts covered in
2. understand the role and value of accounting information the chapter.
3. understand the role of corporate governance in enhancing the quality of financial reporting
4. identify the users and uses of accounting
5. understand why ethics is a fundamental business concept
6. understand the importance of sustainability, and sustainable reporting, for business
7. understand how accounting standards have been regulated and developed
8. explain the nature of the reporting entity
9. state the basic accounting equation, and define assets, liabilities and owner’s equity
10. understand the two recognition criteria that must be met before an item can be included in the
financial statements
11. understand the four financial statements
PREVIEW OF CHAPTER 1
The opening story about Billabong International Limited highlights the importance of having good
financial information to make effective business decisions. Whatever one’s pursuits or occupation,
the need for financial information is inescapable. You cannot earn a living, spend money, buy on
credit, make an investment or pay taxes without receiving, using or dispensing financial information.
Entities are also increasingly reporting social information, providing users with aspects of their
operations that may impact the environment and the community at large. Good decision making
depends on good information and transparency of how an entity is managed and controlled.
The purpose of this chapter is to show you that accounting is the system used to provide useful
financial information. The content and organisation of chapter 1 are as follows.
ACCOUNTING IN ACTION
Why is accounting important? What is accounting? The building blocks of accounting
• Corporate collapses • The role of accounting • Ethics — a fundamental business concept

• Regulatory response • The role of corporate governance in • The importance of sustainability
enhancing the quality of financial reporting
reporting • Regulation and development of
• Who uses accounting data accounting standards
• Brief history of accounting • The reporting entity
• Distinguishing between bookkeeping • Assumptions
and accounting • Basic accounting equation
• Accounting and you • Recognition of the elements
• The four financial statements
The preview describes and outlines the major

topics and subtopics you will see in the chapter.
4 Accounting for decision making
Why is accounting important?
Corporate collapses
As indicated in the scene setter, accounting scandals and corporate misdeeds
made headlines on a weekly basis for two years during 2001 and 2002 all over
the world. HIH Insurance Limited, which was Australia’s second largest
insurance company, collapsed in March 2001, making it one of Australia’s biggest
corporate collapses. Thousands of people were left without insurance cover, and
the collapse also led to a royal commission, criminal prosecution of board mem-
bers and subsequent legislative reforms. An estimated $5.3 billion was owed to
policyholders and other creditors. The collapse was reported to have resulted
from an aggressive expansion plan and underestimating the amount for insur-
ance payout liabilities. One.Tel, a telecommunications company, was placed into
liquidation in 2001 with debts estimated at $1.8 billion. The company’s cash col-
lection policies were less than adequate, resulting in One.Tel’s customers using
the telephone services for weeks, months and possibly years without receiving a
bill for payment. The demise of this company resulted in the loss of approxi-
mately 1400 jobs. WorldCom’s US$3.8 billion restatement of inflated earnings
contributed to losses to shareholders of US$179.3 billion and to job losses of
17 000. Enron’s variety of schemes that inflated profit by US$586 million, lead-
ing to financial restatements and bankruptcy, caused investor losses of US$66.4
billion and job losses of 6100. Xerox Corp., using ‘accounting tricks’ to fool
investors, restated five years of earnings to reclassify more than US$6 billion
in income.
More recently, even though, as collapses go, the losses in 2006 and 2007 were mod-
est, a number of other entities collapsed, causing hardship to many more investors,
notably investors in failed property group Westpoint, which fell over in January 2006
with debts estimated at up to $1 billion, and a further 15 000 investors in property de-
velopers Fincorp and Australian Capital Reserve who lost up to $630 million.
Regulatory response
Given the accounting scandals of the past, numerous proposals to improve busi-
ness practices and accounting oversights have come from government, profes-
sional associations, including accounting associations, regulators and the invest-
ment community. As a consequence, new laws have been passed to legislate
business behaviour as well as accounting and auditing practices. In Australia,
the Corporate Law Economic Reform Program (Audit Reform and Corporate
Disclosure) Act 2004 (Cwlth) (also known as CLERP 9) became law on 1 July 2004.
This requires entities to put in place adequate measures, processes and proce-
dures to meet the new obligations with regard to financial reporting and audit-
ing. The Australian Securities Exchange introduced corporate governance best
practice principles in 2003 (subsequently reviewed in 2007) to enhance the qual-
ity of financial reporting. In the United States (US), the Sarbanes–Oxley Act,
signed into law in July 2002, increases the resources for the government to com-
bat fraud and to curb poor reporting practices, and it introduces sweeping changes
to the structure of the accounting and auditing professions.
One thing is evident from these recent embarrassing, illegal or unethical business
events: accounting is important. Good accounting is essential to sound business and
investing decisions. Bad accounting cannot be tolerated. At the slightest hint of a com-
pany’s accounting improprieties, investors sell their shares and batter its share price.
Recent events prove the worth of studying, understanding and using the account-
ing process and accounting information. This book is your introduction to accounting
as a valuable tool of business record keeping, communication and analysis. Make the
most of this course — it will serve you for a lifetime in ways you cannot now imagine.
What is accounting?
Accounting is an information system that identifies, records and communicates the LEARNING
economic events of an entity to interested users. Let’s take a closer look at these OBJECTIVE 1
three activities.
Explain what
1. Identifying economic events involves selecting the economic activities relevant accounting is.
to a particular entity. The sale of running shoes and sporting attire by Nike, the
providing of services by Jim’s Group, the payment of wages by Ford Motor Key terms are printed in bold
Company, and the collection of ticket sales and the payment of expenses by when they first appear, and are
major sporting clubs are examples of economic events. defined in the end-of-chapter
glossary.
2. Once identified, economic events are recorded to provide a history of the
entity’s financial activities. Recording consists of keeping a systematic, chrono-
logical diary of events, measured in dollars and cents. In recording, economic ALTERNATIVE
events are also classified and summarised. TERMINOLOGY
3. The identifying and recording activities are of little use unless the information The terms financial
is communicated to interested users. Financial information is communicated statements and financial
through accounting reports, the most common of which are called financial reports are used
statements. To make the reported financial information meaningful, accountants interchangeably.
report the recorded data in a standardised way. Information resulting from sim-
ilar transactions is accumulated and totalled. For example, all of Billabong’s
sales transactions are accumulated over a certain period of time and reported References throughout the
as one amount in its financial statements. Such data are said to be reported in chapter tie the accounting
concepts you are learning to
the aggregate. By presenting the recorded data in the aggregate, the accounting
the story that opened the
process simplifies a multitude of transactions and makes a series of activities chapter.
understandable and meaningful.
A vital element in communicating economic events is the accountant’s ability
to analyse and interpret the reported information. Analysis involves the use of
ratios, percentages, graphs and charts to highlight significant financial trends and
relationships. Interpretation involves explaining the uses, meaning and limitations of
reported data. Financial statements will be referred to in a number of chapters of this
book. At this point, they probably strike you as complex and confusing. By the end
of this course, you’ll be surprised at your ability to understand and interpret them.
The accounting process may be summarised as shown in figure 1.1. Figure 1.1
Accounting process
Communication
SOFTBYTE
Identification Recording
SOFTBYTE
Prepare accounting reports

DISKS
Select economic events (transactions) Record, classify and summarise
TE rt
BY epo
FT alR
SOnnu
A
Analyse and interpret for users

The role of accounting

Accounting is often referred to as the ‘language of business’. The purpose of account-
LEARNING
OBJECTIVE 2 ing is to assist people, whether internal or external to an entity, to make decisions
Understand the role and about the allocation of scarce resources. For example, if you are a holder of a number
value of accounting of Billabong shares, you rely on the regular reporting of accounting information to
information. help you to decide whether or not you will continue to hold your shares.
Accounting is a means of communication, as it provides information that assists
users to understand where the entity has been by looking at its past performance,
to understand where it is now by looking at its current financial position, and to pro-
vide insight into what its likely future prospects are. This information is important
so that the users of such information can make informed decisions.
Accounting is a means of measuring business activity and processing this infor-
mation into reports to communicate results to decision makers. For the information
to be useful, it must be relevant, reliable, understandable and able to be compared
from year to year. Not only are the shareholders of Billabong interested in accounting
information, so is Billabong’s management. They are interested in the information
to assist them in making decisions such as whether to expand into a new market or
invest in equipment or materials to produce a new range of boardsports clothing.
More specifically, accounting, as a communication tool, also enables internal users
(i.e. management) to assess and analyse information to gain insight, especially if the
entity is not performing as well as anticipated. In these instances, through regular
reporting, management can identify what may have gone wrong and what to do to
get the entity back on track. This is discussed later in the chapter.
Many would say the information provided by an entity’s accounting system is
the most important single source of information for financial decision makers. Later
in this chapter, you will see that other information, such as sustainability reporting,
is also viewed as important by users.
The role of corporate governance in enhancing

the quality of financial reporting
LEARNING
Financial failures and collapses, as identified in the scene setter at the beginning of
OBJECTIVE 3 this chapter, cost investors billions of dollars. These failures also had an immediate
impact on employees and creditors of those entities, and shook public confidence in
Understand the role of
corporate governance in accounting information and reports. As a result, corporate governance became a
enhancing the quality of focus of attention, as there was a need for greater transparency and oversight of
financial reporting. management decision making. Many countries initiated reforms mandating or sug-
gesting corporate governance practices for entities to adopt.
Corporate governance can be defined as the system in which entities are
directed or controlled, managed and administered. It influences how the objectives
of a company are set and achieved, how risk is monitored and assessed, and how
performance of the entity is optimised (www.asx.com.au). Much government regu-
lation is designed to encourage good corporate governance. For example, there are
Corporation Law regulations outlining the role and responsibility of directors
and the rights of stakeholders (e.g. shareholders). Governance is largely about the
decision-making process of the entity, ensuring that the goals and hence the decisions
made by management are aligned with those of shareholders (i.e. capital providers).
If good corporate governance practices are followed, investors may be better pro-
tected from opportunistic behaviours of managers who may not act in the best in-
terest of stakeholders. Good corporate governance such as increased transparency
through the disclosure of information and effective monitoring should enhance the
perception, reputation and prosperity of the entity.
Apart from the response to the corporate failures and collapses, there are various
reasons why corporate governance has grown in importance, including the increasing
number of small investors, that is, your average ‘mums and dads’ owning shares; the
globalisation of markets that has led to increased competition between entities; the
freeing up of capital markets with more pressure on the attraction of capital; and
the rapid growth of accessible information, which is more readily available to the pub-
lic at large. This means there are more interested people demanding accountability.
In summary, why is corporate governance important? There are various partic-
ipants who have an interest in the entity and who determine and influence the di-
rection and performance of the entity, namely, for a company, shareholders, man-
agement and the board of directors. However, shareholders typically do not manage
public companies; managers are entrusted with this decision-making authority. The
principal (shareholders) delegates its decision rights to the agent (management) to
act in the principal’s best interest. This concept is called agency theory. There is,
therefore, a separation of ownership and control, which implies a loss of effective
control by shareholders. If the interests of those who manage the entity differ from
those who own the entity, there is the potential for profits to be diverted away from
the best interests of shareholders. Good corporate governance principles and prac-
tices such as effective monitoring and transparency through the disclosure of infor-
mation means shareholders may be protected from divergent behaviour.
Given its importance, a number of bodies throughout the world have introduced
corporate governance best practice guidelines and principles. The Australian Secu-
rities Exchange (ASX) released the Corporate Governance Principles and Recom-
mendations in 2003, which were revised in 2007. The ASX Corporate Governance
Council articulated eight core principles that underlie good corporate governance.
While these recommendations are not mandatory (although the ASX listing rules
require listed companies to disclose their compliance with the corporate governance
principles — if not/why not approach) and cannot, by themselves, prevent corpo-
rate failures or mistakes in decision making, they can provide a reference point for
companies to optimise performance and accountability and minimise risks.
The principles are as follows:
1. Lay solid foundations for management and oversight. That is, companies should
establish the functions of the board and management to disclose the process for
evaluating the performance of senior management.
2. Structure the board to add value. That is, a majority of board members, includ-
ing the chair, should be independent directors.
3. Promote ethical and responsible decision making. That is, companies should
adopt a code of conduct.
4. Safeguard integrity in financial reporting. That is, companies should establish an
audit committee comprising a majority of independent directors.
5. Make timely and balanced disclosures. That is, companies should ensure com-
pliance with ASX listing rule disclosure requirements.
6. Respect the rights of shareholders. That is, companies should promote effective
communication with shareholders and encourage their participation at general
meetings.
7. Recognise and manage risk. That is, companies should establish policies, and de-
sign and implement risk management and internal control systems to manage
the company’s material business risks.
8. Remunerate fairly and responsibly. That is, companies should establish a remu-
neration committee to ensure that there are clear guidelines for the remunera-
tion of directors and managers.
Financial reporting is an important component of an effective system of corpo-

rate governance. Following principle 4 above will increase the likelihood of better
quality financial reporting and ensure stakeholders can more effectively monitor
the firm’s performance. High quality financial reporting is needed to ensure man-
agement is remunerated fairly (principle 8 above) and the rights of shareholders are
respected (principle 6 above).
Increased shareholder confidence can result if entities adopt sound corporate gov-
ernance structures coupled with good management who have a mix of experience, skills
and independence. This can be achieved through the entity being better able to provide
sound, timely and balanced disclosures in its periodic reporting to the public (in par-
ticular, shareholders), employees and other interested parties. Having good corporate
governance encourages entities to create value and provide accountability with the ul-
timate aim of improving the entity’s performance and attracting additional investment.
Before you go on questions

at the end of major text BEFORE YOU GO ON...
sections offer an opportunity
to stop and re-examine the key Do it
points you have studied. Review the corporate governance statement of Billabong International
Limited in its latest annual report available at www.billabongcorporate.com.
Accounting in action How does the information disclosed in the corporate governance statement
examples illustrate important
and interesting accounting
assist you in deciding whether to invest or trade with Billabong?
situations in business.
ACCOUNTING IN ACTION Business insight
Allco Finance Group (Allco) commenced operations in Australia as a private struc-

tured finance business in 1979. The group evolved significantly into a fully inte-
grated global financial services business specialising in asset origination, funds
creation and funds management. Allco has, in recent times, appeared in the finan-
cial press for all the wrong reasons. Allco is long regarded as a byword for poor
disclosure and questionable corporate governance in Australia. Questions have
been asked by finance commentators on how long the company’s board and execu-
tives were aware of the poor liquidity position of the company and of keeping
shareholders in the dark about the company’s position. The disclosure statements
in their annual report were often filled with financial ‘gobbledegook’ that also con-
founded users of the reports. Disclosure of $1.9 billion of short-term liabilities
was classified as long-term liabilities in error — a mistake identified by the media
and the market. Further, more questions were raised by institutional and small
investors regarding the purchase of Rubicon Partners, and on a deal that relied
heavily on the US property market after the sub-prime mortgage fallout.
The questionable transactions, recording errors and the market perception of the
company resulted in the resignation of three executive directors, David Coe, Gordon
Fell and David Turnball. Interestingly, David Coe and Gordon Fell were two of the
largest shareholders in Rubicon. Greed was seen to be responsible for the downward
spiral of Allco that also wiped out the wealth of Allco’s shareholders. The result of
such questionable behaviour resulted in Allco shares trading at 50 cents on 8 March
2007. Allco shares were trading at $13 a year earlier!
Source: Based on information from the Allco Finance Group website, March 2008; M. Sainsbury, ‘High Cost
to Allco’s Day in the Sun’, The Weekend Australian , 8 March 2008, p. 39; M. West, ‘Who will call account-
ants to account?’, The Age , 13 March 2008, p. 10.
Accounting should also consider the needs of the users of financial information.
Therefore, you should know who these users are and something about their infor-
mation needs.
Who uses accounting data

Because it communicates financial information, accounting, as stated earlier, is often
LEARNING
called ‘the language of business’. The information that a user of financial informa- OBJECTIVE 4
tion needs depends on the kinds of decisions the user makes. The differences in the
decisions divide the users of financial information into two broad groups: internal Identify the users and
uses of accounting.
users and external users.
Internal users
Internal users of accounting information are managers who plan, organise and run
a business. These include marketing managers, production supervisors, chief finan-
cial officers and other employees. In running a business, managers must answer
many important questions, as shown in figure 1.2. Figure 1.2
Questions asked by
internal users
Questions asked by internal users
BOWLING
BALL
MACHINE
DEBT
COLLECTOR
Is cash sufficient to pay bills? What is the cost of manufacturing each unit of product?
ST ON
ST RIK r
RIK E fai es
E Un ctic
Acme Pr
a
Products
Acme
Acme Acme
Mouse Traps
Products Bowling Balls
Can we afford to give employee pay rises this year? Which product line is the most profitable?
To answer these and other questions, users need detailed information on a Helpful hints help clarify
timely basis. For internal users, accounting provides internal reports. Examples are concepts or items being
discussed.
investment centre performance evaluations, contribution margin statements and
cash budgets. Internal reporting is explored in chapters 7 to 9.
HELPFUL HINT
External users The tax authorities

require businesses to
There are several types of external users of accounting information. Investors (owners) retain records that can
use accounting information to make decisions to buy, hold or sell shares. Creditors such be audited. Also,
as suppliers and bankers use accounting information to evaluate the risks of grant- corporate regulators
ing credit or lending money. Some questions that may be asked by investors and require public companies
creditors about an entity are shown in figure 1.3 (page 10). to keep records.
Questions asked by external users
XYZ Tyres
Yeah! ABC Tyres
Is the business earning satisfactory income? How does the business compare in size
and profitability with competitors?
What do we do
if they catch us?
DEBT
COLLECTOR
Will the business be able to pay its debts as they fall due?
Figure 1.3
Questions asked by The information needs and questions of other external users vary considerably.
external users Tax authorities, such as the Australian Taxation Office, want to know whether
the entity complies with the tax laws. Regulatory agencies, such as the Australian
Securities and Investments Commission (ASIC) and the Securities and Exchange
Commission (SEC) in the US, want to know whether the entity is operating within
prescribed rules. Customers are interested in whether an entity will continue to
honour product warranties and support its product lines. Employees and labour
unions want to know whether the entity can pay increased wages and benefits.
Economists use accounting information to forecast economic activity.
Brief history of accounting

The origins of accounting are generally attributed to the work of Luca Pacioli, an
Italian Renaissance mathematician. Pacioli was a close friend and tutor to Leonardo
da Vinci and a contemporary of Christopher Columbus. In his 1494 text Summa de
Arithmetica, Geometria, Proportione et Proportionalite, Pacioli described a system
to ensure that financial information was recorded efficiently and accurately.
With the advent of the industrial age in the nineteenth century and, later, the
emergence of large entities, a separation of the owners from the managers of
businesses took place. As a result, and as noted earlier, the need to report the
financial status of the entity became more important so owners could monitor the
performance of managers and ensure that managers acted in accord with owners’
wishes. Also, transactions between entities became more complex, making neces-
sary improved approaches for reporting financial information.
Our economy has now evolved into a post-industrial age — the information
age — in which many ‘products’ are information services. The computer has been
the driver of the information age.
Distinguishing between bookkeeping and accounting

Many individuals mistakenly consider bookkeeping and accounting to be the same.
This confusion is understandable because the accounting process includes the book-
keeping function. However, accounting also includes much more. Bookkeeping usua-
lly involves only the recording of economic events. It is therefore just one part of the
accounting process. In total, accounting involves the entire process of identifying,
recording and communicating economic events and involves considerable judgement.
With increasing business complexity, commercial litigation and fraud, forensic

accounting is a growth area in the accounting professional services sector. Forensic
accounting divisions provide litigation support, investigative accounting and dispute
services. Paul Vincent, Vincent Chartered Accountants, is a forensic accountant and
states that forensic accountants are required to understand ‘all the financial issues
of the business’. As such, appropriate qualifications and work experience, especially
in auditing, are assets for anyone wishing to work in the field of forensic accounting.
A forensic accountant is involved in analysing a business’s records and presenting a
report on these accounts to a court of law. The reports can relate to a variety of fi-
nancial issues, including an insurance claim for personal injury or a multimillion dol-
lar corporate collapse. Forensic investigations can range from looking at expense
claims for personal taxi fares to substantial home improvements being charged to the
business as legitimate business expenses. Forensic accountants are also called upon
to conduct fraud risk assessments for businesses. Forensic accountants at Vincent
Chartered Accountants are offering expert testimony in court in a case against pack-
aging company Amcor Australasia, which colluded with Visy to fix prices.
Source: M. Ham, ‘Courting numbers’, The Sydney Morning Herald, 8 March 2008, p. 10; ‘Forensic accounting –
The number sleuths’, Midlands Business Insider, 23 January 2008; K. Walters, ‘Focus – Crime fiction’, BRW,
13 March 2008, p. 48.
Accounting may be further divided into financial accounting and management

accounting. Financial accounting is the field of accounting that provides economic and
financial information for investors, creditors and other external users. Management
accounting provides economic and financial information for managers and other
internal users.
Accounting and you

One question frequently asked by students of accounting is, ‘How will the study of
accounting help me?’ It should help you a great deal, because a working knowledge
of accounting is desirable for virtually every field of endeavour. Some examples of
how accounting is used in other careers include:
• General management. Imagine running BMW, a major hospital, a school, a
McDonald’s franchise or a bike shop. All general managers need to understand
accounting data in order to make wise business decisions.
• Marketing. A marketing specialist develops strategies to help the sales force be
successful. But making a sale is meaningless unless it is a profitable sale. Marketing
people must be sensitive to costs and benefits, which accounting helps them
quantify and understand.
• Finance. Do you want to be a banker, an investment analyst or a stockbroker?
These fields rely heavily on accounting. In all of them you will regularly examine
and analyse financial statements. In fact, it is difficult to get a good job in a finance
function without having completed two or three subjects in accounting.
• Real estate. The most prevalent career in real estate is that of an agent, a person
who sells real estate. Because a third party — the bank — is almost always
involved in financing a real estate transaction, agents must understand the
numbers involved. Can the buyer afford to make the payments to the bank? Does
the cash flow from an industrial property justify the purchase price? What are the
tax consequences of the purchase?
Accounting is useful even for occupations you might think are completely unrelated.
If you become a doctor, a lawyer, a social worker, a teacher, an engineer, an architect or
an entrepreneur — you name it — a working knowledge of accounting is relevant. You
will need to understand financial statements in any entity you are associated with.
Before you go on questions

at the end of major text BEFORE YOU GO ON...
sections offer an opportunity
to stop and re-examine the key Review it
points you have studied. 1. What is accounting?
2. What is meant by analysis and interpretation?
3. Why is accounting important?
4. What is corporate governance and how can it enhance the quality of
information?
5. Who uses accounting information? Identify specific internal and external
users of accounting information.
6. To whom are the origins of accounting generally attributed?
7. What is the difference between bookkeeping and accounting?
8. How can you use your accounting knowledge?
The building blocks of accounting

Every profession develops a body of theory consisting of principles, assumptions
and standards. Accounting is no exception. Just as a doctor follows certain standards
in treating a patient’s illness, an accountant follows certain standards in reporting
financial information. For these standards to work, a fundamental business concept
is followed — ethical behaviour.
Ethics — a fundamental business concept

Wherever you make your career — whether in accounting, marketing, management,
LEARNING
OBJECTIVE 5 finance, government or elsewhere — your actions will affect other people and enti-
ties. The standards of conduct by which your actions are judged as right or wrong,
Understand why ethics is honest or dishonest, fair or not fair, are ethics. Imagine trying to carry on a business
a fundamental business
or invest money if you could not depend on the individuals you deal with to be
concept.
honest. If managers, customers, investors, co-workers and creditors all consistently
lied, effective communication and economic activity would be impossible. Infor-
mation would have no credibility.
Fortunately, most individuals in business are ethical. Their actions are both legal
and responsible, and they consider the entity’s interests in their decision making.
To sensitise you to ethical situations and to give you practice at solving ethical
dilemmas, we have included in this book three types of ethics materials:
• marginal notes that provide helpful hints for developing ethical sensitivity
• ethics in accounting boxes that highlight ethics situations and issues
• an ethics case simulating a business situation at the end of the chapter.
In the process of analysing these ethics cases and your own ethical experiences,
you should apply the three steps outlined in figure 1.4.
As stated in figure 1.4, to minimise the possibility of unethical behaviour, most
professional bodies have laid down certain codes of conduct for members to follow.
The Accounting Professional and Ethical Standards Board Limited (APESB) was
established in 2006 as an initiative of the Institute of Chartered Accountants in
Australia (ICAA) and CPA Australia. The National Institute of Accountants (NIA)
Solving an ethical dilemma

1. Recognise an ethical 2. Identify and analyse 3. Identify the alternatives,
situation and the ethical the principal elements and weigh the impact of
issues involved. in the situation. each alternative on various
Use your personal ethics to Identify the stakeholders — stakeholders.
identify ethical situations and persons or groups who may Select the most ethical
issues. Some businesses and be harmed or benefited. Ask alternative, considering all the
#1 #2 professional organisations the question: what are the consequences. Sometimes there
ALT ALT provide written codes of responsibilities and obligations will be one right answer. Other
ethics for guidance in some of the parties involved? situations involve more than
business situations. one right solution; these
situations require an evaluation
of each and a selection of the
best alternative.
Figure 1.4
Steps in analysing
has subsequently become a member. The APESB is an independent body responsible ethics cases
for setting the code of ethics and the professional standards by which the members of
these professional accounting bodies are required to abide. The APESB issues and
reviews the professional and ethical standards and guidance notes for the benefit of
practising accountants. The requirements of these standards are mandatory for all
members of the professional accounting bodies. A condition of membership of a
professional association (ICAA or CPA Australia) is that members agree to follow
ethical guidance throughout their working life. For additional information, visit the
website of the APESB (www.apesb.org.au).
The importance of sustainability reporting

One of the significant changes in reporting by entities in recent years has been the
LEARNING
emerging requirement from users for the reporting of information on non-financial OBJECTIVE 6
performance. It is acknowledged that non-financial information concerning the firm’s
social and environmental performance may contribute to the value of an entity and Understand the
importance of
its future earnings. The reporting and management of non-financial performance is
sustainability, and
often referred to as sustainability reporting or corporate social responsibility report-
sustainability reporting,
ing. The concept of sustainability was defined by the Bruntland Commission of the for business.
United Nations in 1987 as ‘meeting the needs of the present without compromising
the ability of future generations to meet their own needs’. From this definition
evolved the term triple bottom line, which has the following three components:
• social bottom line
• environmental bottom line
• economic bottom line.
The social bottom line is an indicator of how the entity deals with issues such
as employee working conditions and safety and security, and the entity’s support
and contribution to community services. The environmental bottom line looks at
how an entity’s products or operations impact on the environment. For example, the
nature of its greenhouse emissions and waste and how they are dealt with. The eco-
nomic bottom line refers to the entity’s profitability and business strategy; that is,
the economic bottom line is financial reporting.
As accountants are in the primary position of being responsible for providing
accounting information to the users of financial statements, they are also well
equipped to assist other departments in an entity such as human resources, re-
search and development, health and safety, and manufacturing in the provision of
non-financial performance measures. Preparation of a sustainability report in-
volves senior management and requires interaction with internal and external
stakeholders such as employees, investors, communities, funding organisations and
customers.
CorporateRegister.com, a global directory of corporate social responsibility (CSR)

reporting, incorporating a CSR report directory, research services and a CSR news and
information section (www.corporateregister.com), conducted a study in 2007 to
determine the number of organisations producing sustainability reports.The study found
that 234 of the world’s largest 300 companies produce such reports. The Body Shop, an
international cosmetics organisation, is well known for promoting environmental and
sustainability reporting and continually making business decisions with sustainability in
mind. The Body Shop states the following on their website (www.thebodyshop.com.au):
‘At The Body Shop we are committed to ensuring that our business is ecologically sus-
tainable: meeting the needs of the present without compromising the future’.
Stakeholders want more than just financial statements. They also want informa-
tion on how the entity is impacting society at large. Users of such information are in-
terested in knowing that when an entity is conducting its business activity in the pro-
vision of goods and services, it does not cause unwanted harm or disadvantage to the
community. In fact, there are a growing number of investors who assess the entity in
terms of its impact on society and the environment before they decide to invest. That
is, they invest on an ethical basis and are known as socially responsible investors.
Entities and investors acknowledge that corporate social responsibility, through
developing environmentally friendly products and services, offers opportunities to
manage risk and create value in a number of ways, including increased loyalty from
employees, customers and investors through brand and reputation; increased
investment by socially responsible investors; and, consequently, reduced risk of
backlash from consumers for not acting responsibly.
Entities are also focusing on their impact on the environment as a result of the
costs that can be incurred if their business operations cause environmental damage.
The community was particularly interested in the Ok Tedi Mining degradation to
the environment in Papua New Guinea by BHP in the mid-1990s, which cost BHP
millions of dollars in restoration costs. An oil spill by Exxon in the Alaskan waters
in 1989, which also received much publicity and is still documented on a dedicated
website at www.evostc.state.ak.us, cost that organisation US$2.1 billion and more
than four summers to clean the spill.
The measurement of non-financial performance is difficult to objectively quantify
in dollar terms; however, much has been done over the last decade to standardise
reporting. While international accounting standards have not yet directly addressed
social and environmental accounting and reporting, the Global Reporting Initiative
(GRI) has pioneered the development of the world’s most widely used sustainability
reporting framework. The GRI has developed useful benchmarks and guidelines for
voluntary reporting to facilitate comparisons between entities and industries. The GRI
is a large multi-stakeholder network with thousands of experts from business,
accountancy, human rights, environmental, labour and government organisations in
countries all over the world. Across 44 countries, more than 1000 organisations
publicly disclose that they use the GRI-developed guidelines. These guidelines are
available from the GRI website www.globalreporting.org.
The guidelines, titled G3, were launched in 2006 and list 50 core indicators that
entities can report against and an additional 60 indicators that may be relevant
depending on the organisation. To be able to state that an entity’s reports are pre-
pared ‘in accordance with GRI’, the entity must report against the core set of indi-
cators that cover the following:
• direct economic impacts
• environmental impacts
• labour practices and decent work
• human rights
• society
• product responsibility.
Given the importance of sustainability reporting, a number of not-for-profit ALTERNATIVE

organisations provide awards to entities for their reporting efforts. The Australasian TERMINOLOGY
Reporting Awards Inc (ARA) provides an annual Sustainability Reporting Award,
which was awarded to mecu Limited in 2009. The ARA also provides a Governance Sustainability can also
Reporting Award, which was awarded to Australia and New Zealand Banking Group be referred to as triple
Limited for the private sector and Port of Brisbane Corporation for the public bottom line and corporate
sector in 2009. Other award winners can be found on the ARA’s website social responsibility.
www.arawards.com.au. CorporateRegister.com also provides awards for the best
report, best first time report and best carbon disclosure report, among others. The
award winners can be found on the website.
Environmental sustainability and the need to be accountable for carbon emissions

and minimise greenhouse impacts has emerged as a ‘must do’ for many businesses.
Although regulation on carbon emissions is not forcing businesses to report their ac-
tivities, and, indeed, there is still debate on how to appropriately measure a carbon
footprint, all businesses will need to find out their carbon footprints quickly, or risk
potentially losing partners, shareholders and customers.
Sean Lee, the owner of Mt Rael Retreat, a restaurant and accommodation facility
in Healesville Victoria, who is trying to sell his business, was asked by an interested
party in Beijing China how much carbon his restaurant and accommodation facility
was emitting and at what cost. As a result, Lee contacted a number of carbon audi-
tors to assist in assessing the level of carbon in his business and the associated costs.
As there are no guidelines for providing such a service, organisations can collect and
analyse a wide array of information considered relevant and charge a fee they deem
appropriate.
The World Business Council for Sustainable Development and the UK-based The
Climate Group are still exploring models towards establishing a global standard on
how to capture carbon emissions and their cost. When PricewaterhouseCoopers sur-
veyed more than 300 chief executives, they found that more than 75% of those
businesses surveyed had not formally assessed the risk of climate change, and only
2% had recorded emissions data.
Dr Mary Stewart, a former chemical engineering academic and now a principal
consultant with Energetics, a firm that consults to governments and businesses, be-
lieves that while many companies have made bold statements about going carbon
neutral, many have not realised what is involved and what the financial implications
are. Stewart believes that large organisations will take around 3 years to calculate
their carbon footprints, with smaller organisations requiring 2 years. The result may
be a change to cost structures of organisations, as well as a material impact on the
sharemarket.
Source: M. Murphy and R. Williams, ‘Businesses warned they must get moving or pay the price’, The Age ‘Business
Age’, 25 February 2008, p. 1; M. Murphy, ‘Conflicting audits make it hard to be green’, The Age ‘Business Age’, 25
February 2008, p. 1; D. Tarrant, ‘Calculating your business’ carbon footprint’, In the Black, March 2008, pp. 28–33.
LEARNING
Regulation and development of accounting standards OBJECTIVE 7
In this section we introduce the current regulatory arrangements in Australia for the
Understand how
development of accounting standards. Such standards are variously influenced by accounting standards
many interested parties, including the government, professional accounting bodies, have been regulated and
representatives of those who prepare financial statements for publication (such as developed.
Another random document with
no related content on Scribd:
“Well, I’m glad you’ve got here. We’ve been having a picnic up at
the house. Julie’s been having the hysterics and MacDonald—you
never knew MacDonald, did you?”
Applegate listened politely. He had a curious feeling that Julie and
her hysterics were already very far away and unimportant to him, but
he did not wish to be so brutal as to show this.
“When did MacDonald return and where has he been?” he asked,
gravely.
“He got here yesterday. He says he had a shock or something in
that accident—anyhow, he just couldn’t remember anything, and
when he come to he didn’t know who he was, nor anything about
himself, and all his papers and clothes had been burnt, so there was
nothing to show anybody who he was. He could work, and he was all
right most ways. Says he was that way till about six months ago,
when a Frisco doctor got hold of him and did something to his head
that put him right. He has papers from the doctor to show it’s true.
His case attracted lots of attention out there. Of course he wrote to
Julie when he came to himself, but his letters went to our old
address and she never got them. So then he started East to see
about it. He says he’s got into a good business and is going to do
well.”
There was a long silence. Presently Hopson began again,
awkwardly:
“I don’t know how you feel about it, but I think Julie’d ought to go
back to him.”
Applegate’s heart began to beat in curious, irregular throbs; he
could feel the pulsing of the arteries in his neck and there was a
singing in his ears.
“Of course Julie agrees with you?” he said, thickly.
“Well, no; she don’t. That’s what she wanted me to talk to you
about. She can’t see it but one way. She says he died, or if he didn’t
it was the same thing to her, and she married you. She says nobody
can have two husbands, and it’s you who are hers. I told her the law
didn’t look at it that way, and she says then she must get a divorce
from MacDonald and remarry you. MacDonald says if she brings suit
on the ground of desertion he will fight it. He says he can prove it
ain’t been no wilful desertion. But probably he could be brought
round if he saw she wouldn’t go back to him anyhow. MacDonald
wouldn’t be spiteful. But he was pretty fond of Julie.”
Applegate had stopped suddenly in the middle of Hopson’s
speech. Now he went forward rapidly, but he made no answer.
Hopson scrutinized his face a moment before he continued:
“Julie says you won’t be spiteful either. She says maybe she was a
little hasty in what she said just before she came up here. But you
know Julie’s way.”
“Yes,” said Applegate, “I know Julie’s way.”
Hopson drew a breath of relief. He had at least discharged himself
of his intercessory mission.
“I tell Julie she’d better put up with it and go with MacDonald. The
life would be more the sort of thing she likes. But her head’s set and
she won’t hear to anything Henriette or I say. You see, that’s what
Julie holds by, what she thinks is respectable. And it’s about all she
does hold by.” He hesitated, groping blindly about in his
consciousness for words to express his feeling that this passionate,
reckless nature was only anchored to the better things of life by her
fervent belief in the righteousness of the established social order.
“Julie thinks everything of being respectable,” he concluded,
lamely.
“Is it much farther to your house?” asked Applegate, dully.
“Right here,” answered Hopson, pulling his key from his pocket.
They entered a crude little parlor whose carpet was too gaudy, and
whose plush furniture was too obviously purchased at a bargain, but
its air was none the less heavy with tragedy. A single gas-jet
flickered in the centre of the room. On one side a great, broad-
shouldered fellow sat doggedly with his elbows on his knees and his
face buried in his hands. There was resistance in every line of his
figure. On the sofa opposite was Julie in her crimson dress. As she
lifted her face eagerly, Applegate noticed traces of tears upon it. Mrs.
Hopson, who had been moving about the room aimlessly, a pale and
ineffective figure between these two vivid personalities, came to a
standstill and looked at Applegate breathlessly. For a moment no
one spoke. Then Julie, baffled by the eyes she could not read,
sprang to her feet and stretched out her hands with a vehement
gesture.
“John Applegate, you’ll put me right! You will. I know you will. I
can’t go back to him! How can I?” Her hungry eyes scrutinized his
still, inexpressive face.
“John, you aren’t going to turn me off?” Her voice had a despairing
passion in it. “You won’t refuse to marry me if I get the divorce?
Good God! You can’t be such a devil. John! oh, John!”
Applegate sat down and looked at her apathetically. He was not
used to being called a devil. Somehow it seemed to him the term
was misapplied.
“Don’t take on so, Julie,” he said, quietly. The room seemed to
whirl around him, and he added, with a palpable effort:
“I’ll think it over and try to do what is best for both of us.”
At that MacDonald lifted his sullen face from his hands for the first
time and glanced across at the other man with blood-shot eyes.
Then he rose slowly, his great bulk seeming to fill the room, and
walking over to Applegate’s chair stood in front of it looking down at
him. His scrutiny was long. Once Applegate looked up and met his
eyes, but he was too tired to bear their fierce light and dropped his
own lids wearily.
MacDonald turned from him contemptuously and faced his wife,
who averted her head.
“Look at me, Julie!” he cried, appealingly. “I am better worth it than
he is. Good Lord! I don’t see what you see in him. He’s so tame! Let
him go about his business. He’s nobody. He don’t want you. Come
along with me and we’ll lead a life! You shall cut a dash out there. I
can make money hand over fist. It’s the place for you. Come on!”
For a moment Julie’s eyes glittered. The words allured her, but her
old gods prevailed. She threw out her arms as if to ward off his
proposal.
“No, no,” she said, shrilly. “I cannot make it seem right. You were
dead to me, and I married him. One does not go back to the dead. If
I am your wife, what am I to him? It puts me in the wrong these two
years. I cannot have it so, I tell you. I cannot have it so!”
Applegate felt faint and sick. Rising, he groped for the door. “I
must have air,” he said to Hopson, confusedly. “I will come back in a
minute.”
Once outside, the cool November night refreshed him. He dropped
down upon the doorstep and threw back his head, drinking in long
breaths as he looked up at the mocking stars.
When he found at last the courage to ask himself what he was
going to do, the answer was not ready. The decision lay entirely in
his hands. He might still be free if he said the word; and as he
thought of this he trembled. He had always tried to be what his
neighbors called a straight man, and he wanted to be straight in this
also. But where, in such a hideous tangle, was the real morality to be
found? Surely not in acceding to Julie’s demands! What claim had
she upon the home whose simple traditions of peace and happiness
she had trampled rudely under foot? Was it not a poor, cheap
convention of righteousness which demanded he should take such a
woman back to embitter the rest of his days and warp his children’s
lives? He rebelled hotly at the thought. That it was Julie’s view of the
ethical requirement of her position made it all the more improbable
that it was really right. Surely his duty was to his children first, and as
for Julie, let her reap the reward of her own temperament. The Lord
God Himself could not say that this was unjust, for it is so that He
deals with the souls of men.
It seemed to him that he had decided, but as he rose and turned to
the door a new thought stabbed him so sharply that he dropped his
lifted hand with a groan.
Where had been that sense of duty to his children, just now so
imperative, in the days when he had yielded to Julie’s charm against
his better judgment? Had duty ever prevailed against inclination with
him? Was it prevailing now?
High over all the turmoil and desperation of his thoughts shone out
a fresh perception that mocked him as the winter stars had mocked.
For that hour at least, the crucial one of his decision, he felt assured
that in the relation of man and woman to each other lies the supreme
ethical test of each, and in that relation there is no room for
selfishness. It might be, indeed, that he owed Julie nothing, but
might it not also be that the consideration he owed all womankind
could only be paid through this woman he had called his wife? This
was an ideal with which he had never had to reckon.
He turned and sat him down again to fight the fight with a chill
suspicion in his heart of what the end would be.
Being a plain man he had only plain words in which to phrase his
decision when at last he came to it.
“I chose her and I’ll bear the consequences of my choice,” he said,
“but I’ll bear them by myself. His aunt will be glad to take Teddy, and
Dora is old enough to go away to school.” Then he opened the door.
Hopson and his wife had left the little parlor. Julie on the sofa had
fallen into the deep sleep of exhaustion. MacDonald still sat there,
with his head in his hands, and to him Applegate turned. At the
sound of his step the man lifted his massive head and shook it
impatiently.
“Well?” he demanded.
“The fact is, Mr. MacDonald, Julie and I don’t get along very well
together, but I don’t know as that is any reason why I should force
her to do anything that don’t seem right to her. She thinks it would be
more”—he hesitated for a word—“more nearly right to get a divorce
from you and remarry me. As I see it now, it’s for her to say what she
wants, and for you and me to do it.”
MacDonald looked at him piercingly.
“You know you’d be glad of the chance to get rid of her!” he
exclaimed, excitedly. “In Heaven’s name, then, why don’t you make
her come to me? You know I suit her best. You know she’s my sort,
not yours. She’s as uncomfortable with you as you with her, and
she’d soon get over the feeling she has against me. Man! There’s no
use in it! Why can’t you give my own to me?”
“I can’t say I don’t agree with you,” said Applegate, and the words
seem to ooze painfully from his white lips, “but she thinks she’d
rather not, and—it’s for her to say.”
A CONSUMING FIRE
He is a man who has failed in this life, and says he has no chance
of success in another; but out of the fragments of his failures he has
pieced together for himself a fabric of existence more satisfying than
most of us make of our successes. It is a kind of triumph to look as
he does, to have his manner, and to preserve his attitude toward
advancing years—those dreaded years which he faces with pale but
smiling lips.
If you would see my friend Hayden, commonly called by his friends
the connoisseur, figure to yourself a tall gentleman of sixty-five, very
erect still and graceful, gray-headed and gray-bearded, with fine gray
eyes that have the storm-tossed look of clouds on a windy March
day, and a bearing that somehow impresses you with an idea of the
gracious and pathetic dignity of his lonely age.
I myself am a quiet young man, with but one gift—I am a finished
and artistic listener. It is this talent of mine which wins for me a
degree of Hayden’s esteem and a place at his table when he has a
new story to tell. His connoisseurship extends to everything of
human interest, and his stories are often of the best.
The last time that I had the honor of dining with him, there was
present, besides the host and myself, only his close friend, that
vigorous and successful man, Dr. Richard Langworthy, the eminent
alienist and specialist in nervous diseases. The connoisseur
evidently had something to relate, but he refused to give it to us until
the pretty dinner was over. Hayden’s dinners are always pretty, and
he has ideals in the matter of china, glass, and napery which it would
require a woman to appreciate. It is one of his accomplishments that
he manages to live like a gentleman and entertain his friends on an
income which most people find quite inadequate for the purpose.
After dinner we took coffee and cigars in the library.
On the table, full in the mellow light of the great lamp (Hayden has
a distaste for gas), was a bit of white plush on which two large opals
were lying. One was an intensely brilliant globe of broken gleaming
lights, in which the red flame burned strongest and most steadily; the
other was as large, but paler. You would have said that the prisoned
heart of fire within it had ceased to throb against the outer rim of ice.
Langworthy, who is wise in gems, bent over them with an
exclamation of delight.
“Fine stones,” he said; “where did you pick them up, Hayden?”
Hayden, standing with one hand on Langworthy’s shoulder, smiled
down on the opals with a singular expression. It was as if he looked
into beloved eyes for an answering smile.
“They came into my possession in a singular way, very singular. It
interested me immensely, and I want to tell you about it, and ask
your advice on something connected with it. I am afraid you people
will hardly care for the story as much as I do. It’s—it’s a little too
rococo and sublimated to please you, Langworthy. But here it is:
“When I was in the West last summer, I spent some time in a city
on the Pacific slope which has more pawnbrokers’ shops and that
sort of thing in full sight on the prominent streets than any other town
of the same size and respectability that I have ever seen. One day,
when I had been looking in the bazaars for something a little out of
the regular line in Chinese curios and didn’t find it, it occurred to me
that in such a cosmopolitan town there might possibly be some
interesting things in the pawn-shops, so I went into one to look. It
was a common, dingy place, kept by a common, dingy man with
shrewd eyes and a coarse mouth. Talking to him across the counter
was a man of another type. Distinction in good clothes, you know,
one is never sure of. It may be only that a man’s tailor is
distinguished. But distinction in indifferent garments is distinction
indeed, and there before me I saw it. A young, slight, carelessly
dressed man, his bearing was attractive and noteworthy beyond
anything I can express. His appearance was perhaps a little too
unusual, for the contrast between his soft, straw-colored hair and
wine-brown eyes was such a striking one that it attracted attention
from the real beauty of his face. The delicacy of a cameo is rough,”
added the connoisseur, parenthetically, “compared to the delicacy of
outline and feature in a face that thought, and perhaps suffering,
have worn away, but this is one of the distinctive attractions of the
old. You do not look for it in young faces such as this.
“On the desk between the two men lay a fine opal—this one,” said
Hayden, touching the more brilliant of the two stones. “The younger
man was talking eagerly, fingering the gem lightly as he spoke. I
inferred that he was offering to sell or pawn it.
“The proprietor, seeing that I waited, apparently cut the young man
short. He started, and caught up the stone. ‘I’ll give you—’ I heard
the other say, but the young man shook his head, and departed
abruptly. I found nothing that I wanted in the place, and soon passed
out.
“In front of a shop-window a little farther down the street stood the
other man, looking in listlessly with eyes that evidently saw nothing.
As I came by he turned and looked into my face. His eyes fixed me
as the Ancient Mariner’s did the Wedding Guest. It was an appealing
yet commanding look, and I—I felt constrained to stop. I couldn’t
help it, you know. Even at my age one is not beyond feeling the force
of an imperious attraction, and when you are past sixty you ought to
be thankful on your knees for any emotion that is imperative in its
nature. So I stopped beside him. I said: ‘It is a fine stone you were
showing that man. I have a great fondness for opals. May I ask if you
were offering it for sale?’
“He continued to look at me, inspecting me calmly, with a
fastidious expression. Upon my word, I felt singularly honored when,
at the end of a minute or two, he said: ‘I should like to show it to you.
If you will come to my room with me, you may see that, and another;’
and he turned and led the way, I following quite humbly and gladly,
though surprised at myself.
“The room, somewhat to my astonishment, proved to be a large
apartment—a front room high up in one of the best hotels. There
were a good many things lying about which obviously were not hotel
furnishings, and the walls, the bed, and even the floor were covered
with a litter of water-color sketches. Those that I could see were
admirable, being chiefly impressions of delicate and fleeting
atmospheric effects.
“I took the chair he offered. He stood, still looking at me,
apparently not in haste to show me the opals. I looked about the
room.
“‘You are an artist?’ I said.
“‘Oh, I used to be, when I was alive,’ he answered, drearily. ‘I am
nothing now.’ And then turning away he fetched a little leather case,
and placed the two opals on the table before me.
“‘This is the one I have always worn,’ he said, indicating the more
brilliant. ‘That chillier one I gave once to the woman whom I loved. It
was more vivid then. They are strange stones—strange stones.’
“He said nothing more, and I sat in perfect silence, only dreading
that he should not speak again. I am not making you understand
how he impressed me. In the delicate, hopeless patience of his face,
in the refined, uninsistent accents of his voice, there was somehow
struck a note of self-abnegation, of aloofness from the world,
pathetic in any one so young.
“I am old. There is little in life that I care for. My interests are
largely affected. Wine does not warm me now, and beauty seems no
longer beautiful; but I thank Heaven I am not beyond the reach of a
penetrating human personality. I have at least the ordinary instincts
for convention in social matters, but I assure you it seemed not in the
least strange to me that I should be sitting in the private apartment of
a man whom I had met only half an hour before, and then in a
pawnbroker’s shop, listening eagerly for his account of matters
wholly personal to himself. It struck me as the most natural and
charming thing in the world. It was just such chance passing
intercourse as I expect to hold with wandering spirits on the green
hills of paradise.
“It was some time before he spoke again.
“‘I saw her first,’ he said, looking at the paler opal, as if it was of
that he spoke, ‘on the street in Florence. It was a day in April, and
the air was liquid gold. She was looking at the Campanile, as if she
were akin to it. It was the friendly grace of one lily looking at another.
Later, I met her as one meets other people, and was presented to
her. And after that the days went fast. I think she was the sweetest
woman God ever made. I sometimes wonder how He came to think
of her. Whatever you may have missed in life,’ he said, lifting calm
eyes to mine, and smiling a little, ‘you whose aspect is so sweet,
decorous, and depressing, whose griefs, if you have griefs, are the
subtle sorrows of the old and unimpassioned’—I remember his
phrases literally. I thought them striking and descriptive,” confessed
Hayden—“‘I hope you have not missed that last touch of exaltation
which I knew then. It is the most exquisite thing in life. The Fates
must hate those from whose lips they keep that cup.’ He mused
awhile and added, ‘There is only one real want in life, and that is
comradeship—comradeship with the divine, and that we call religion;
with the human, and that we call love.’
“‘Your definitions are literature,’ I ventured to suggest, ‘but they are
not fact. Believe me, neither love nor religion is exactly what you call
it. And there are other things almost as good in life, as surely you
must know. There is art, and there is work which is work only, and
yet is good.’
“‘You speak from your own experience?’ he said, simply.
“It was a home thrust. I did not, and I knew I did not. I am sixty-five
years old, and I have never known just that complete satisfaction
which I believe arises from the perfect performance of distasteful
work. I said so. He smiled.
“‘I knew it when I set my eyes upon you, and I knew you would
listen to me and my vaporing. Your sympathy with me is what you
feel toward all forms of weakness, and in the last analysis it is self-
sympathy. You are beautiful, not strong,’ he added, with an air of
finality, ‘and I—I am like you. If I had been a strong man.... Christ!’
“I enjoyed this singular analysis of myself, but I wanted something
else.
“‘You were telling me of the opals,’ I suggested.
“‘The opals, yes. Opals always made me happy, you know. While I
wore one, I felt a friend was near. My father found these in Hungary,
and sent them to me—two perfect jewels. He said they were the twin
halves of a single stone. I believe it to be true. Their mutual relation
is an odd one. One has paled as the other brightened. You see them
now. When they were both mine, they were of almost equal
brilliancy. This,’ touching the paler, ‘is the one I gave to her. You see
the difference in them now. Hers began to pale before she had worn
it a month. I do not try to explain it, not even on the ground of the old
superstition. It was not her fault that they made her send it back to
me. But the fact remains; her opal is fading slowly; mine is burning to
a deeper red. Some day hers will be frozen quite, while mine—mine
—’ his voice wavered and fell on silence, as the flame of a candle
fighting against the wind flickers and goes out.
“I waited many minutes for him to speak again, but the silence was
unbroken. At last I rose. ‘Surely you did not mean to part with either
stone?’ I said.
“He looked up as if from a dream. ‘Part with them? Why should I
sell my soul? I would not part with them if I were starving. I had a
minute’s temptation, but that is past now.’ Then, with a change of
manner, ‘You are going?’ He rose with a gesture that I felt then and
still feel as a benediction. ‘Good-by. I wish for your own sake that
you had not been so like my poor self that I knew you for a friend.’
“We had exchanged cards, but I did not see or hear of him again.
Last week these stones came to me, sent by some one here in New
York of his own name—his executor. He is dead, and left me these.
“It is here that I want your counsel. These stones do not belong to
me, you know. It is true that we are like, as like as blue and violet.
But there is that woman somewhere—I don’t know where; and I
know no more of their story than he told me. I have not cared to be
curious regarding it or him. But they loved once, and these belong to
her. Do you suppose they would be a comfort or a curse to her? If—if
—” the connoisseur evidently found difficulty in stating his position.
“Of course I do not mean to say that I believe one of the stones
waned while the other grew more brilliant. I simply say nothing of it;
but I know that he believed it, and I, even I, feel a superstition about
it. I do not want the light in that stone to go out; or if it should, or
could, I do not want to see it. And, besides, if I were a woman, and
that man had loved me so, I should wish those opals.” Here Hayden
looked up and caught Langworthy’s amused, tolerant smile. He
stopped, and there was almost a flush upon his cheek.
“You think I am maudlin—doting—I see,” he said. “Langworthy, I
do hope the Lord will kindly let you die in the harness. You haven’t
any taste for these innocent, green pastures where we old fellows
must disport ourselves, if we disport at all. Now, I want to know if it
would be—er—indelicate to attempt to find out who she is, and to
restore the stones to her?”
Langworthy, who had preserved throughout his usual air of strict
scientific attention, jumped up and began to pace the room.
“His name?” he said.
Hayden gave it.
“I know the man,” said Langworthy, almost reluctantly. “Did any
one who ever saw him forget him? He was on the verge of
melancholia, but what a mind he had!”
“How did you know him, Langworthy?” asked Hayden, with
pathetic eagerness.
“As a patient. It’s a sad story. You won’t like it. You had better keep
your fancies without the addition of any of the facts.”
“Go on,” said Hayden, briefly.
“They live here, you know. He was the only son. He unconsciously
acquired the morphine habit from taking quantities of the stuff for
neuralgic symptoms during a severe protracted illness. After he got
better, and found what had happened to him, he came to me. I had
to tell him he would die if he didn’t break it off, and would probably
die if he did. ‘Oh, no matter,’ he said. ‘What disgusts me is the idea
that it has taken such hold of me.’ He did break it off directly and
absolutely. I never knew but one other man who did that thing. But
between the pain and the shock from the sudden cessation of the
drug, his mind was unbalanced for awhile. Of course the girl’s
parents broke off the engagement. I knew they were travelling with
him last summer. It was a trying case, and the way he accepted his
own weakness touched me. At his own request he carried no money
with him. It was a temptation when he wanted the drug, you see. It
must have been at some such moment, when he contemplated
giving up the struggle, that you met him in the pawn-shop.”
“I am glad I knew enough to respect him even there,” murmured
Hayden, in his beard.
“Oh, you may respect him, and love him if you like. He died a
moral hero, if a mental and physical wreck. That is as good a way as
any, or ought to be, to enter another life—if there is another life.”
“And the woman?” asked the connoisseur.
“Keep the opals, Hayden; they and he are more to you than to her.
She—in fact it is very soon—is to marry another man.”
“Who is—”
“A gilded cad. That’s all.”
Langworthy took out his watch and looked at it. I turned to the
table. What had happened to the dreaming stones? Did a light flash
across from one to the other, or did my eyes deceive me? I looked
down, not trusting what I saw. One opal lay as pale, as pure, as
lifeless, as a moon-stone is. The other glowed with a yet fierier
spark; instead of coming from within, the color seemed to play over
its surface in unrestricted flame.
“See here!” I said.
Langworthy looked, then turned his head away sharply. The
distaste of the scientific man for the inexplicable and irrational was
very strong within him.
But the old man bent forward, the lamp-light shining on his white
hair, and with a womanish gesture caught the gleaming opal to his
lips.
“A human soul!” he said. “A human soul!”
AN UNEARNED REWARD
It is the very last corner of the world in which you would expect to
find a sermon. Overhead hang the Colorado skies, curtains of
deepest, dullest cobalt, against which the unthreatening white clouds
stand out with a certain solidity, a tangible look seen nowhere else
save in that clear air. All around are the great upland swells of the
mountains, rising endlessly, ridge beyond ridge, like the waves of the
sea. In a hollow beside the glittering track is the one sign of human
existence in sight—the sun-scorched, brown railway station. It is an
insignificant structure planted on a high platform. There is a red tool-
chest standing against the wall; a tin advertisement of somebody’s
yeast-cakes is nailed to the clap-boards; three buffalo hides, with
horns still on them, hang over a beam by the coal-shed, and across
the side of the platform, visible only to those approaching from the
west, is written, in great, black letters:
THE WAGES OF SIN IS DEATH.
This legend had no place there on the September afternoon, some
years ago, when Carroll Forbes stepped off the west-bound express
as it halted a minute at the desolate spot. Because it looked to him
like the loneliest place in all the world the notion seized him
suddenly, as the train drew up beside the high platform, to catch up
his valise and leave the car. He was looking for a lonely place, and
looking helplessly. He snatched at the idea that here might be what
he sought, as a drowning man at the proverbial straw.
When the train had gone on and left him there, already repenting
tremulously of what might prove his disastrous folly, a man, who was
possibly the station agent—if this were indeed a station—came
limping toward him with an inquiring look.
Forbes was a handsome man himself, and thoroughly aware of
the value of beauty as an endowment. He was conscious of a half-
envious pang as he faced the blonde giant halting across the
platform. This was, or had been, a singularly perfect specimen of the
physical man. Over six feet in height, muscular, finely proportioned,
fair-haired and fair-skinned, with a curling, blonde beard, and big,
expressionless blue eyes, he looked as one might who had been
made when the world was young, and there was more room for
mighty men than now.
The slight, olive-skinned young man who faced him was conscious
of the sudden feeling of physical disadvantage that comes upon one
in the presence of imposing natural objects, for the man was as
august in his way as the cliffs and canyons.
“I am a—an artist,” said Carroll Forbes. “Is there any place
hereabouts where I can get my meals and sometimes a bed, while I
am sketching in the mountains?”
The man stared at him.
“Would it have been better if I had said I was a surveyor?” asked
Forbes of his confused inner consciousness.
“We feed folks here sometimes—that is, my wife does. Mebbe you
could have a shake-down in the loft. Or there’s Connor’s ranch off
north a ways. But they don’t care about taking in folks up there.”
“Then, if you would ask your wife?” ventured Forbes, politely. “I
shall not trouble you long,” he added.
“Ellen!”
A woman appeared at the door, then moving slowly forward, stood
at her husband’s side, and the admiration Forbes had felt at the sight
of the man flamed into sudden enthusiasm as he watched the wife.
She was tall, with heavy, black hair, great eyes like unpolished jet,
one of the thick white, smooth, perfectly colorless skins, which
neither the sun nor the wind affect, and clear-cut, perfect features.
Standing so, side by side, the two were singularly well worth looking
at.
“What a regal pair!” was Forbes’s internal comment; and while
they conferred together he watched them idly, wondering what their
history was, for of course they had one. It is safe to affirm that every
human creature cast in the mould of the beautiful has, or is to have,
one.
“She says you c’n stay,” announced the man. “Just put those traps
of yours inside, will you?” and, turning, he limped off the length of the
platform at a call from somebody who had ridden up with jingling
spurs.
Forbes, left to his own devices, picked up his valise, then set it
down again and looked around him helplessly, wondering if there
was a night train by which he could get away from this heaven-
forsaken spot.
“If you want to see where you can sleep,” said a voice at his side,
“I will show you.” It was the woman. She bent as she spoke to pick
up some of his impedimenta, but he hastily forestalled her with a
murmur of deprecation.
She turned and looked at him, and as he met her eyes it occurred
to him that the indifference of her face was the indifference of the
desert—arid and hopeless. The look she gave him was searching
and impersonal; he saw no reason for it, nor for the slow, dark color
that spread over her face, and there was less than no excuse for the
way she set her lips and stretched a peremptory hand, saying, “Give
me those,” in tones that could not be disobeyed. To his own
astonishment he surrendered them, and followed her meekly up a
ladder-like flight of steps to the rough loft over the station. It was
unfinished, but partitioned into two rooms. She opened the door of
one of these apartments, silently set his luggage inside, and
vanished down the stairs.
Forbes sat down on the edge of a broken chair and looked about
him.
“Now, in heaven’s name,” he demanded of the barren walls, “what
have I let myself in for, and why did I do it?”
To this question there seemed no sufficient answer, and for awhile
he sat there fretting with the futile anxiety of a man who knows that
his fate pursues him, who hopes that this turning or that may help
him to evade it, yet always feels the benumbing certainty that the
path he has taken is the shortest road to that he would avoid. When
at last—recognizing that his meditations were unprofitable—he rose
and went down the stairs, it was supper-time.
The woman was uncommunicative, but he could feel that her eyes
were on him. The man—it occurred to Forbes that he had probably
been drinking—was talkative. After the meal was over they went
outside. Forbes, by way of supporting his pretence of being an artist,
took out a pocket sketch-book and made notes of the values of the
clouds and the outlines of the hills against the sky in a sort of artistic
short-hand. The man Wilson sat down on a bench and began to talk.
Between the exciting effects of the whiskey he had taken, the
soothing influence of the cigar Forbes proffered him, and a natural
talent for communicativeness, he presently went on to tell his own
story. Forbes listened attentively. It seemed a part of the melodrama
of the whole situation and was as unreal to him as the flaming
miracle of the western skies or his own presence here.
“So the upshot of it all was that we just skipped out. She ran away
with me.”
It was a curious story. As Forbes listened he became aware that it
was one with which he had occasionally met in the newspapers, but
never in real life before. It was, apparently, the story of a girl
belonging to a family of wealth and possibly of high social traditions
—naturally he did not know what importance to attach to Wilson’s
boast that his wife belonged “to the top of the heap”—who had
eloped with the man who drove her father’s carriage.
The reasons for this revolt against the natural order of her life was
obscure; there was, perhaps, too high a temper on her side and too
strict a restraint on the part of her guardians. There was necessarily
a total absence of knowledge of life; there was also the fact that the
coachman was undoubtedly a fine creature to look at; there might
have been a momentary yielding on the part of a naturally dramatic
temperament to the impulse for the spectacular in her life.
But whatever the reasons, the result was the same. She had
married this man and gone away with him, and they had drifted
westward. And when they had gone so far west that coachmen of his
stamp were no longer in demand, he took to railroading, and from
brakeman became engineer; and finally, being maimed in an
accident in which he had stood by his engine while the fireman
jumped—breaking his neck thereby—he had picked up enough
knowledge of telegraphy to qualify him for this post among the
mountains. He and his handsome wife lived here and shared the
everlasting solitude of the spot together, and occasionally fed stray
travellers like this one who had dropped down on them to-day.
“He drinks over-freely and he swears profusely,” mused Forbes,
scrutinizing him, “but he is too big to be cruel, and he still worships
her beauty as she, perhaps, once worshipped his; and he still feels
an uncouth pride in all that she gave up for his sake.”
It had never occurred to him before to wonder what the after-life of
a girl who eloped with her father’s servant might be like. He
speculated upon it now. By just what process does a woman so
utterly déclassée adjust herself to her altered position? Would she
make it a point to forget, or would every reminder of lives, such as
her own had been, be a turning of the knife in her wound? Would not
a saving recollection of the little refinements of life cling longer to a
weak nature than to a strong one under such circumstances?
This woman apparently gave tongue to no vain regrets, for her
husband was exulting in the “grit” with which she had taken the
fortunes of their life. “No whine about her,” was his way of expressing
his conviction that the courage of the thoroughbred was in her.
“No, sir; there’s no whine about her. Un she’s never been sorry,
un, s’help me, she sha’n’t never be,” concluded Wilson. There were
maudlin tears in his eyes.
“Few men can say that of their wives,” said Forbes’s smooth,
sympathetic voice. “You are indeed fortunate.”
While her husband was repeating the oft-told tale of their conjugal
happiness, Ellen Wilson had done her after-supper work, and,
slipping out of the door, climbed the short, rocky spur to the north of
the station. Beyond the summit, completely out of sight and hearing,
there was a little hollow that knew her well, but never had it seen her
as it saw her now, when, throwing herself down, her face to the
earth, she shed the most scalding tears of all her wretched years.
They were such little things this stranger had done—things so
slight, so involuntary, so unconscious that they did not deserve the
name of courtesies, but they were enough to open the flood-gates of
an embittered heart. There was a world where all the men were
deferential and all the women’s lives were wrapped about with the
fine, small courtesies of life—formal, but not meaningless. It had
been her world once and now was so no longer.
Good or bad, she knew little and cared less, this man had come
from that lost world of hers, as she was made aware by a thousand
small signs, whose very existence she had forgotten; and silently,
fiercely she claimed him as an equal.
“I—I too was—” Slow tears drowned the rest.
She could have told him how a déclassée grows used to it. She
knew how the mind can adjust itself to any phase of experience, and
had learned that what woman has undergone, woman can undergo
—yes, and be strong about it. She knew how, under the impulse of
necessity, the once impossible grows to be the accepted life, and the
food that could not be swallowed becomes the daily bread.
When the struggle for existence becomes a hand-to-hand fight,
traditions of one’s ancestry do not matter, except, possibly, that some
traditions bind you to strength and silence, while others leave you
free to scream. She knew what it was to forget the past and ignore
the future, and survey the present with the single-hearted purpose of
securing three meals a day, if possible; two, if it were not.
She had forgotten with what facility she might the faces and
scenes that once were dear to her. She had nothing to do with them
any longer, as she knew. She might, perhaps, have heard their
names without emotion. But, even in this day and generation and
among this democratic people, in the soul of a woman bred as she
had been the feeling for her caste is the last feeling that dies. And to
her anguish she found that in her it was not yet dead.
The color died from the sky, and the stars came swiftly out.

Instant Download Ebook PDF Aucm Accounting For Decision Making 2e PDF Scribd

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Instant Download Ebook PDF Aucm Accounting For Decision Making 2e PDF Scribd

Uploaded by

Copyright:

Available Formats

(eBook PDF) (AUCM) Accounting For

CHAPTER 8 Asset efficiency analysis 251

Users and decision making 233 Analysis of asset efficiency:

CHAPTER 1 Accounting in action 3

Why is accounting important? What is accounting? The building blocks of accounting

• Corporate collapses • The role of accounting • Ethics — a fundamental business concept

The preview describes and outlines the major

4 Accounting for decision making

Why is accounting important?

CHAPTER 1 Accounting in action 5

Prepare accounting reports

Select economic events (transactions) Record, classify and summarise

Analyse and interpret for users

6 Accounting for decision making

The role of accounting

The role of corporate governance in enhancing

CHAPTER 1 Accounting in action 7

8 Accounting for decision making

Financial reporting is an important component of an effective system of corpo-

Before you go on questions

ACCOUNTING IN ACTION Business insight

Allco Finance Group (Allco) commenced operations in Australia as a private struc-

CHAPTER 1 Accounting in action 9

Who uses accounting data

Questions asked by internal users

External users The tax authorities

10 Accounting for decision making

Questions asked by external users

Brief history of accounting

Distinguishing between bookkeeping and accounting

CHAPTER 1 Accounting in action 11

ACCOUNTING IN ACTION Business insight

With increasing business complexity, commercial litigation and fraud, forensic

Accounting may be further divided into financial accounting and management

Accounting and you

12 Accounting for decision making

Before you go on questions

The building blocks of accounting

Ethics — a fundamental business concept

CHAPTER 1 Accounting in action 13

Solving an ethical dilemma

The importance of sustainability reporting

14 Accounting for decision making

CorporateRegister.com, a global directory of corporate social responsibility (CSR)

CHAPTER 1 Accounting in action 15

Given the importance of sustainability reporting, a number of not-for-profit ALTERNATIVE

ACCOUNTING IN ACTION Business insight

Environmental sustainability and the need to be accountable for carbon emissions

You might also like