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1-2
©
2020
Cengage
Learning.
All
Rights
Reserved.
May
not
be
scanned,
copied
or
duplicated,
or
posted
to
a
publicly
accessible
website,
in
whole
or
in
part.
NUMBER TOPIC CONTENT LO ADAPTED DIFFICULTY
TIME
EST. AACSB AICPA BLOOM’S
1-13 Standard Setting Process for issuing
accounting standard
update
4 Easy 5 Analytic Measurement Comprehension
1-14 Standard Setting FASB; IASB 5 Easy 5 Analytic Measurement Analysis
1-15 Standard Setting Definition of IFRS 5 Easy 5 Analytic Measurement Application
1-16 Standard Setting Changing standards over
time; U.S. GAAP; IFRS
1-17 Standard Setting The impact of pure theory vs.
politics in standard setting
5 Easy 5 Analytic Measurement Analysis
1-18 Financial Statements Balance sheet; financial
reporting stakeholders
6 Easy 5 Analytic Reporting Application
1-19 Financial Statements Income statement; financial
reporting stakeholders
1-20 Financial Statements Statement of cash flows;
financial reporting
stakeholders
1-21 Financial Statements Statement of shareholders'
equity; financial reporting
stakeholders
1-22 Financial Statements Purpose of footnotes;
disclosure of financial
information
1-23 Earnings and the
Stock Market
Economic consequences of
earnings information
7 Easy 5 Analytic Measurement Analysis
1-24 Ethics Ethics 7 Easy 5 Analytic Measurement Application
1-25 Ethics Ethics; code of professional
conduct

1-3
©
2020
Cengage
Learning.
All
Rights
Reserved.
May
not
be
scanned,
copied
or
duplicated,
or
posted
to
a
publicly
accessible
website,
in
whole
or
in
part.
TIME
EST. AACSB AICPA BLOOM’S
E1-1 Pronouncements FASB Accounting Standards
Codification; different
sources of GAAP
C1-1 Accounting Principles Describe the meaning of the
terms “accounting
principles” and “generally
accepted”
3 AICPA Easy 10 Analytic Measurement Application
C1-2 Standard Setting Describe why there is
political action and social
involvement in the standard-
setting process
3 CMA Easy 10 Analytic Measurement Application
C1-3 Organization of the
FASB
Summarize the structure of
the FASB and its operating
procedures
3 Easy 15 Analytic Measurement Application
C1-4 Code of Professional
Conduct
Identify, briefly discuss, and
provide examples to illustrate
the first five principles of CPC
C1-5 Lobbying the FASB Discuss pros and cons of
lobbying the FASB by
interested parties
C1-6 International
Convergence
Discuss convergence of U.S.
GAAP and international
accounting standards;
include discussion of SEC
and its role in this
convergence; includes IFRS
5 Moderate 10 Analytic Measurement Application
C1-7 Starbucks’s Financial
Statements
Identify two important pieces
of information from each of
the four primary financial
statements and
management discussion and
analysis
6 Moderate 20 Analytic Reporting Application

1-4
©
2020
Cengage
Learning.
All
Rights
Reserved.
May
not
be
scanned,
copied
or
duplicated,
or
posted
to
a
publicly
accessible
website,
in
whole
or
in
part.
TIME
AACSB AICPA BLOOM’S
EST.
C1-8 Nestlé’s Financial Identify two important pieces
three primary financial
statements
Statements
C1-9 Coca Cola's Financial
Statements
Identify two important pieces
three primary financial
statements
C1-10 Ethical Responsibilities Discuss steps to take in an
ethical dilemma
(“misplaced” book in library)
7 Moderate 5 Reflective Measurement Analysis
Thinking
C1-11 Ethical Responsibilities Discuss steps to take in an
ethical dilemma (cheating
by friend on exam)
7 Moderate 5 Reflective Measurement Analysis
Thinking
C1-12 Codification Prepare a memo to explain
and demonstrate the
Codification to an
introductory accounting
student, who is familiar with
the financial statements and
accounts
Moderate 25 Analytic Measurement Application
C1-13 Codification Search the Codification to
determine how a company
should account for the cost
of a new desktop computer
for use in the office
C1-14 Codification Search the Codification to
determine how a company
should account for
recognition of retail revenues
with the right to return

1-5
© 2020 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ANSWERS TO GOT IT?
1-1 The role of financial accounting is to identify, measure, record, and report relevant
and reliable financial information about companies to present and potential future
stakeholders. Financial reporting is the process of communicating financial
accounting information about a company to existing and potential future investors,
creditors, and other external decision makers and stakeholders. An important way a
company’s financial accounting information is reported is in its quarterly and annual
reports. The role of financial reporting is to inform investors, creditors, and other
stakeholders. Financial reporting also provides information to mitigate agency
problems which stem from the separation of ownership and control of resources.
1-2 The primary stakeholders that are important users of financial information include
investors, creditors, banks, suppliers, customers, employees, executives, labor unions,
pension funds, government regulatory authorities, tax authorities, local communities,
and many others (see Exhibit 1.1). The instructor can discuss how these stakeholders
can be divided into two major categories: external users and internal users. These two
groups do not have the same decision-making information needs because of their
differing relationships with the company providing economic information. Of these
groups, FASB has stated the primary purpose of financial reporting is to inform
investors and creditors.
1-3 Investors and creditors take different risks and enjoy different potential upside gains
from investing or lending. Equity investors are the residual risk bearers of corporations,
but stand to enjoy potentially greater upside if the company is successful and
profitable. Creditors face less risk of loss of their investments because they have
superior claim in bankruptcy over equity investors. But creditors do not share in the
same upside potential as equity investors. As a result of these differences, their
information needs differ. Equity investors are more concerned with profitability,
whereas creditors tend to be more focused on cash flows.
1-4 Information asymmetry arises from the separation of ownership and control of
resources. Financial reporting helps reduce (but not eliminate) information
asymmetry problems by enabling managers (agents) to provide relevant and
faithfully represented information to investors and creditors (principals), thereby
reducing information asymmetry.
1-5 The demand for financial accounting information, as an economic good in society,
arises from the needs of equity shareholders, creditors, and various other stakeholders
for information to make resource allocation decisions. This demand arises because
businesses have to compete for and attract scarce economic resources, such as
equity and debt capital, productive resources, employees, supplier and customer
relationships, and so forth. In order to compete for these valuable resources,
companies must provide relevant and faithfully represented information to those who
can provide the resources.

1-6
1-6 To solve the problems that would arise from biases in a self-reporting accounting
system, a natural demand arises for accounting standards and audits. The demand
for accounting information drives the demand for professionally established
accounting standards that provide authoritative guidance on how to measure and
report economic activities in financial statements. In addition, the demand for
accounting information also drives the demand for auditing—independent
verification and attestation of whether the financial statements have been fairly
presented in accordance with professional accounting standards.
1-7 Generally Accepted Accounting Principles (GAAP) are the principles, concepts,
guidelines, procedures, and practices that U.S. companies that are listed in the
United States and subject to SEC regulation are required to use in recording and
reporting the accounting information in audited financial statements.
1-8 The supply of accounting information that companies report to external stakeholders
is determined primarily by the interactions between two sets of forces:
• The authoritative professional accounting standards that govern in the
company’s country of incorporation, such as U.S. GAAP or IFRS, and
• the many choices, methods, estimates, and judgments that the company must
make in order to apply those accounting standards to measure and report their
financial statements.
1-9 The stated mission of the U.S. Securities and Exchange Commission is to “protect
investors, maintain fair, orderly, and efficient markets, and facilitate capital
formation.” The U.S. Congress created the SEC to administer the Securities Act of 1933
and the Securities Exchange Act of 1934. Under these Acts, the SEC has the legal
authority to prescribe accounting principles and reporting practices for all
corporations issuing publicly traded securities within the U.S. capital markets. The SEC
has mandated that the information communicated to external users in financial
reporting must be based on professionally established accounting principles, such as
GAAP for U.S companies and IFRS for non-U.S. companies.
The SEC delegates the authority over standard setting to private standard-setting
bodies within the accounting profession, such as the Financial Accounting Standards
Board (FASB) establishing GAAP for U.S. companies and the International Accounting
Standards Board (IASB) establishing IFRS for companies from many other countries
around the world. The SEC monitors closely and oversees the standards being
developed by these standard setters. From time to time, the SEC exerts pressure on
the standard setters to adopt, or not adopt, specific standards.
1-10 The FASB is responsible for identifying financial accounting issues, conducting
research to address these issues, and resolving them by issuing new accounting
standards applicable to U.S. companies. The FASB fulfills its responsibility by:
• establishing standards that are the most acceptable, given the various affected
constituencies, and
• continually monitoring the consequences of its actions so that revised standards
can be issued where appropriate.

1-7
1-11 In assisting the FASB, the primary objectives of the EITF are:
• to identify significant emerging accounting issues (i.e., unique transactions and
accounting problems) that it feels the FASB should address.
• to develop consensus positions on the implementation issues involving the
application of standards. In some cases, these consensus positions may be
viewed as the ‘‘best available guidance’’ on GAAP, particularly as they relate to
new accounting issues.
1-12 The Codification is an electronic database that integrates and topically organizes
the U.S. GAAP into one coherent body of literature. There are six levels in the
framework of Codification: Areas, Topics, Subtopics, Sections, Subsections, and
Paragraphs. The Topics level contains a collection of related guidance on a
particular subject Area. The Subtopics level includes subsets of a Topic. The Sections
level characterizes the nature of the content in a Subtopic (e.g., Recognition,
Measurement, Disclosure). The Subsections level provides finer breakdown of the
content in a Section. Paragraphs contain the guidance that constitutes GAAP.
The FASB issued six types of pronouncements prior to the Codification:
1. Statements of Financial Accounting Standards. These pronouncements
established GAAP. They indicated the methods and procedures required on
specific accounting issues.
2. Interpretations. These pronouncements provided clarifications of conflicting or
unclear issues relating to previously issued FASB Statements of Financial
Accounting Standards, APB Opinions, or Accounting Research Bulletins.
3. Staff Positions. The staff of the FASB issued these pronouncements to provide more
timely and consistent application guidance in regard to FASB literature, as well as
to make narrow and limited revisions of GAAP.
4. Technical Bulletins. The staff of the FASB issued these pronouncements to clarify,
explain, and elaborate on accounting and reporting issues related to Statements
of Standards or Interpretations.
5. Statements of Financial Accounting Concepts. These pronouncements
established a theoretical foundation upon which to base GAAP. They are the
output of the FASB’s “conceptual framework” project.
6. Other Pronouncements. On a major topic, the staff of the FASB may have issued
a Guide for Implementation.
The Codification did not change GAAP per se, in that it did not issue or rescind any
standards. Instead, the FASB developed the Codification to achieve three goals:
• Simplify user access by codifying all authoritative U.S. GAAP in one spot.
• Ensure the codified content accurately represented all authoritative U.S. GAAP.
• Create a codification research system that is up to date, including the most
recently released standards.

1-8
1-13 Before issuing an Accounting Standards Update, the FASB generally completes a
multistage process as follows:
(1) identifies topic
(2) appoints task force
(3) conducts research
(4) issues Discussion Memorandum or Invitation to Comment
(5) holds public hearings
(6) deliberates on findings
(7) issues Exposure Draft
(8) holds public hearings
(9) modifies Exposure Draft
(10) votes
After a super-majority vote (five votes out of seven) is attained, the FASB issues an
Accounting Standards Update.
1-14 The FASB and IASB are structured very similarly, in organizations that are overseen and
supported by Boards of Trustees, and supported by large staffs of professional and
technical experts and administrative support. Both Boards follow similar open, careful
due processes in deliberating new accounting standards. Whereas the FASB is a
seven-member Board consisting of only U.S. members, the IASB is larger, with 16 full-
time members. The composition of the IASB is structured to contain representation
from different countries and regions of the world. The IASB issues International
Financial Reporting Standards (IFRS). To do so, its operating procedures include study
of the topic, issuance of an Exposure Draft, evaluation of comments, and
consideration of a revised draft. If approved by at least nine members of the IASB,
the International Financial Reporting Standard is issued.
1-15 They are the principles, concepts, guidelines, procedures, and practices that
companies from the roughly 130 countries that have adopted IFRS are required to
use in recording and reporting the accounting information in audited financial
statements. In the United States, the SEC has decided to allow non-U.S. companies
that are listed in the United States and subject to SEC regulation to use IFRS for
preparation of financial statements filed with the SEC.
1-16 The FASB and the IASB have worked together toward convergence since the
“Norwalk Agreement” in 2002. At that time, the two Boards entered into this
agreement to work together on the development of high-quality, compatible
accounting standards that could be used for both “domestic” and “cross-border”
financial reporting. The Boards in 2009 and 2010 identified a number of major
projects they undertook jointly. The Boards have completed most of these major
projects. These joint projects have helped achieve greater convergence in
accounting standard for revenue recognition (issued 2014), consolidated financial
statements (issued 2011), fair value measurement (issued 2011), and financial
statement presentation (amendments to reporting comprehensive income
completed in 2011; other joint work discontinued).

1-9
1-17 Because of the substantial economic consequences of new standards, key
constituents often disagree about the objectives for new standards. Because the
Boards hold public hearings and open meetings, various external user groups (e.g.,
investors and creditors) and other interested parties (e.g., affected corporations and
CPA firms) exert pressure to influence the new standards, continue existing standards,
or change existing standards in their own best interests. In addition, research results
about the likely effects of new standards are sometimes conflicting, and only “best
guesses” can be made of the future consequences of current standards. A particular
difficulty is that costs of complying with new standards are often significant and
measurable, whereas the benefits of new information to decision makers are diffuse
and hard to quantify. As a consequence, the FASB and the IASB often make
decisions about new accounting standards that sometimes require compromise
between conflicting views and interests.
1-18 The balance sheet, or statement of financial position, presents a snapshot of the
resources of a firm (assets) and the claims on the company (liabilities and
shareholders’ equity) as of a specific date (usually the last day of the fiscal quarter or
the fiscal year). The balance sheet reports the following equality:
Assets = Liabilities + Shareholders’ Equity
Most stakeholders in a company, particularly investors and creditors, will be interested
in balance sheet information because it reports the financial position (resources and
obligations) of the company.
1-19 The income statement measures and reports the financial results of a firm’s
performance for a period of time, usually a quarter or a year. The income statement
provides information about the profits (or losses) the firm has generated during the
period by conducting operating, investing, and financing activities. Most
stakeholders in a company, particularly equity investors, will be interested in income
statement information because it reports the profits and losses that accrue to the
common equity shareholders of the company. The chapter shows empirical research
evidence on how changes in earnings are associated with changes in stock prices.
1-20 The statement of cash flows reports for a period of time the net cash flows (inflows
minus outflows) from the three principal categories of business activities: operating,
investing, and financing. The purpose of the statement of cash flows is important but
simple: to provide useful information about how a firm is generating and using cash.
The statement of cash flows provides information to complement the income
statement, demonstrating how cash flows differ from accrual-based income.
Cash flow information is very helpful to financial statement users who want to gauge
how the firm is executing its strategy. The statement is particularly useful to creditors
and other stakeholders with claims on future cash flows of a firm. The statement of
cash flows helps them evaluate the firm’s cash-generating ability, giving them
information about the likelihood of future cash flows for future payments of their
obligations.

1-10
1-21 The statement of shareholders’ equity (sometimes called the statement of changes in
shareholders’ equity) provides information about the common shareholders’ equity
claims on the company, and how those claims changed during the period. The year-
end amounts reported in this statement for the various common shareholders’ equity
accounts will match the amounts reported in the shareholders’ equity section of the
balance sheet. Equity investors will be particularly interested in the information in this
statement.
1-22 A firm’s accounting system records the results of transactions, events, and
commercial arrangements and generates the financial statements, but the financial
statements do not stand alone. To provide more relevant and representationally
faithful information for financial statement users, firms typically provide a substantial
amount of important additional information with the financial statements, including
the Notes, Management Discussion and Analysis, and Managers’ and Independent
Auditors’ Attestations. The notes to the statements explain the methods, assumptions,
and estimates the firm has used in measuring and reporting the accounting
information in the financial statements.
1-23 To illustrate the striking links between accounting earnings and stock returns, the
chapter provides a brief discussion of the results from empirical research by D. Craig
Nichols and James Wahlen. They studied the average cumulative market-adjusted
stock returns generated by firms during the 12 months leading up to and including
the month in which each firm announced annual earnings numbers. For a sample of
31,923 firm-years between 1988 and 2001, they found that the average firm that
announced an increase in earnings (over the prior year’s earnings) experienced
stock returns that beat market average returns by roughly 19.2 percent. On the other
hand, the average firm that announced a decrease in earnings experienced stock
returns that were roughly 16.4 percent lower than the market average. Their results
suggest that merely the sign of the change in earnings was associated with a 35.6
percent stock return differential in one year, on average, over their sample period.
The results show that earnings information has important economic consequences,
because changes in earnings are strongly associated with significant changes in
share prices.
1-24 As accountants, we create valuable financial information that stakeholders use to
make informed resource allocation decisions about companies. Accounting
information triggers substantial economic consequences for a wide array of different
stakeholders in a company. Because accounting information has such important
consequences for so many different stakeholders, being an accountant requires the
ability to bear this great responsibility while behaving ethically.
1-25 The Code of Professional Conduct is a document published by the AICPA to help
guide members in public practice, industry, government, and education in
performing their responsibilities in an ethical and professional manner. The six areas
covered by the Principles include: (1) responsibilities, (2) public interest, (3) integrity,
(4) objectivity and independence, (5) due care, and (6) scope and nature of
services.

1-11
SOLUTION TO EXERCISE
E1-1
1. e 2. c 3. b 4. d 5. f 6. a 7. f
ANSWERS TO CASES
C1-1 [AICPA Adapted]
1. The term “accounting principles” in the auditor’s report includes not only accounting
principles but also concepts, practices, and the methods of applying them. The auditor's
report typically refers to “accounting principles” being applied by the firm being audited.
The independent auditor's attestation as to the fairness of a company's financial
statements relative to U.S. GAAP or IFRS is an essential element for the reliability of
financial statements.
2. Generally accepted accounting principles are those principles that have substantial
authoritative support. The SEC has deemed the FASB’s Accounting Standards
Codification as GAAP for U.S. companies. In addition, the SEC has deemed IFRS as
generally accepted accounting principles for non-U.S. companies that are listed in the
United States. The FASB and the IASB follow extensive, due processes to deliberate
and develop new accounting standards that, if adopted, become “generally
accepted.”
C1-2 [CMA Adapted]
Financial accounting standards inspire or encourage political action and social involvement
during the standard-setting process because the effects and economic consequences of
accounting standards are wide-ranging and impact many varying groups. The setting of
accounting standards is a social decision and the user groups play a significant role and have
considerable influence.
The economic consequences of financial accounting standards inspire companies,
stakeholders, and special interest groups to become vocal and critical when standards are
being formulated. The reporting of financial information impacts companies’ financial
statements and the wealth and decision-making of stakeholders in differing ways. Companies
and stakeholders may want particular economic events accounted for in particular ways and
are willing to fight for what they want.
The formulation of accounting standards has political roots in the Securities and Exchange Acts
of 1933 and 1934. Although the SEC was vested with complete authority to define and formulate
accounting standards, it has, for the most part, delegated this authority to the private sector.
The SEC supports the FASB in this endeavor and encourages its “due process” system of
standard setting. Financial accounting standards issued are considered to be “generally
accepted accounting principles” and, as such, they must be followed in the preparation of
financial statements. Therefore, the formulation of standards is of vital interest to companies
responsible for preparing the financial statements, stakeholders that use the statements, and
auditors.

1-12
C1-3
The Financial Accounting Foundation is the parent organization of the FASB. It is governed by a
14- to 18-member Board of Trustees appointed from the memberships of eight organizations (the
AICPA, Financial Executives Institute, Institute of Management Accountants, CFA Institute,
American Accounting Association, Securities Industry and Financial Markets Association,
Government Finance Officers Association, and National Association of State Auditors,
Comptrollers, and Treasurers) interested in the formulation of accounting principles. The primary
responsibilities of the Financial Accounting Foundation are to provide general oversight to its
operations and appoint the members of the Financial Accounting Standards Advisory Council
(FASAC) and the FASB. The FASAC consists of about 33 members; it is responsible for advising the
FASB about major policy issues, the priority of topics, the selection of task forces, the suitability of
tentative decisions, and other matters.
There are seven members of the FASB. Appointees to the FASB are full-time, fully paid members
with no other organizational ties and are selected to represent a wide cross-section of interests.
Each Board member is required to have a knowledge of, and experience in, accounting,
finance, investing, business, and accounting education and research; high intelligence, integrity,
and discipline; and a concern for the public interest regarding investing, financial accounting,
and financial reporting. The FASB is responsible for identifying financial accounting issues,
conducting research to address these issues, and resolving them. The FASB is supported by a
research and technical staff that performs numerous functions such as researching issues,
communicating with constituents, and drafting preliminary findings. The administrative staff
assists the FASB by handling library, publications, personnel, and other activities.
Operating Procedures and Pronouncements. Before issuing an accounting standards update,
the FASB generally completes a multistage process, although the sequence and numbers of
steps may vary. Initially, a topic or project is identified and placed on the FASB’s agenda. This
topic may be the result of suggestions from the FASAC, the accounting profession, industry, or
other interested parties. On major issues, a Task Force may be appointed to advise and consult
with the FASB’s Research and Technical Staff on such matters as the scope of the project and
the nature and extent of additional research. The Staff then conducts any research specifically
related to the project.
A Preliminary Views document or Invitation to Comment, which outlines the research related to
the issues, is then usually published and a public comment period is set. During this period, public
hearings, similar to those conducted by Congress, may be held. The intent is to receive
information from and views of interested individuals and organizations on the issues. Many
parties submit written comments (“position papers”) or make oral presentations. These parties
include representatives of CPA firms and interested corporations, security analysts, members of
professional accounting associations, and academicians, to name a few. After deliberating
on the views expressed and information collected, the FASB issues an Exposure Draft of the
proposed Accounting Standards Update. Interested parties generally have 30–90 days to
provide written comments of reaction. On major issues, more public hearings may be held.
Sometimes, a “field test” of the proposed standard is conducted with selected companies to
evaluate implementation issues. A modified draft is prepared, if necessary, and brought to the
FASB for a final vote. After a super-majority vote (at least five of seven votes in favor) is attained,
the FASB Accounting Standards Update is issued.

1-13
C1-4
The first five principles of the AICPA’s Code of Professional Conduct are as follows:
1. Responsibilities: In carrying out their responsibilities as professionals, members should
exercise sensitive professional and moral judgments in all their activities. For example,
when a member chooses a depreciation method, she must carefully analyze each
alternative based upon well-defined criteria before making a final choice.
2. The Public Interest: Members should act in a way that will serve the public interest, honor
the public trust, and demonstrate a commitment to professionalism. When a member
refuses to ignore internal control deficiencies in a company with publicly traded stock,
but instead enumerates these deficiencies in the Auditor’s report, she is adhering to the
public interest principle.
3. Integrity: To maintain and broaden public confidence, members should perform all
professional responsibilities with the highest sense of integrity. For example, a member
who carefully and conscientiously performs each step of an audit without skipping those
steps that are tedious or of less interest is exercising the integrity principle.
4. Objectivity and Independence: A member should be objective and be free from
conflicts of interest in discharging professional responsibilities. A member in public
practice should be independent in fact and appearance when providing auditing and
other attestation services. For example, a member who declines to audit the financial
statements of the company for which his father is a marketing vice president is adhering
to this principle.
5. Due Care: A member should observe the profession’s technical and ethical standards,
strive continually to improve competence and the quality of standards, strive continually
to improve competence and the quality of services, and discharge professional
responsibility to the best of the member’s ability. When a member reads current
accounting literature and strives to employ current principles and procedures, she is
exercising due care.
C1-5
On balance, most people would agree that it is a good idea for the FASB to allow written
comments and oral presentations in which interested parties can lobby for a particular ruling.
However, there are both pros and cons to allowing interested parties to provide input to its
deliberation process. They include:
Advantages
• Enables FASB to get input from different perspectives
• Provides users a forum to express concerns
• Provides preparers a forum to express concerns
• Provides auditors a forum to express concerns
• Overcomes criticism of failing to listen to constituencies
• Allows for consideration of views of all interested parties
• Rulings appear more fair to all constituencies

1-14
C1-5 (concluded)
• Rulings consider the costs and benefits of implementation
• Standards are established that are the most acceptable
• Allows for clarification of rules
• Allows for corrections of any errors
• Allows for consideration of implementation issues
Disadvantages
• Rulings sometimes appear to be biased in favor of certain user groups
• Rulings sometimes are inconsistent with other Statements of Standards
• Rulings sometimes are inconsistent with Statements of Concepts
• Rulings sometimes appear illogical
• FASB is too slow in establishing standards
• Standards are too complex and difficult to implement
C1-6
Currently, U.S. corporations are subject to the accounting standards (called U.S. GAAP)
established by the FASB, while foreign corporations are subject to international standards called
IFRS (international financial reporting standards) established by the International Accounting
Standards Board (IASB) or by their national accounting standards boards. These differences in
accounting standards have led to differences among U.S. and foreign corporations’ financial
statements. These differences, in turn, have made it difficult for investors and creditors to make
valid comparisons across corporations and to make effective buy-sell-hold decisions in the U.S.
and foreign capital markets.
To overcome this problem, the FASB and the IASB have been working together toward
convergence since the “Norwalk Agreement” in 2002. At that time, the two Boards entered into
this agreement to work together on the development of high-quality, compatible accounting
standards that could be used for both “domestic” and “cross-border” financial reporting. To
achieve this compatibility, the Boards agreed to work together to achieve “short-term”
convergence on a number of individual differences between U.S. and international accounting
standards. They also agreed to coordinate their future agendas on substantial long-term
projects which both Boards would address concurrently. Finally, they agreed to continue
working on joint projects they were currently undertaking. This overall collaboration is sometimes
referred to as the convergence or harmonization of accounting standards.
The Boards in 2009 and 2010 identified a number of major joint projects to undertake jointly, as
well as short-term projects (in which convergence can occur fairly quickly). The Boards have
completed most of their joint efforts to complete these major projects. The major projects the
Boards have completed have achieved great convergence in accounting standards for:
• Consolidated financial statements
• Fair value measurement
• Financial statement presentation
• Revenue recognition

1-15
C1-6 (continued)
Moving forward, the FASB will continue to work on global accounting issues with the IASB
through its membership in the Accounting Standards Advisory Forum (ASAF), a newly established
advisory body comprising twelve standard setters from across the globe. Both Boards also
provide quarterly progress reports which can be downloaded from their web sites.
The SEC has moved forward on two fronts: (1) changing its filing regulations for foreign
companies and (2) considering changing its filing requirements for U.S. companies.
In the past, a foreign company filing its financial statements with the SEC that used accounting
standards other than U.S. GAAP had to file a form which “reconciled” certain amounts reported
in its financial statements with the amounts that would have been reported using U.S. GAAP.
However, in late 2007 the SEC rescinded this rule for foreign companies that use English-
language IFRS (with no exceptions) to prepare their financial statements. These companies no
longer have to file a reconciliation.
In July 2012, the SEC staff issued its final report considering incorporating IFRS into the financial
reporting system for U.S. companies. The report was the final phase of a work plan, initiated in
February 2010, to consider specific issues relevant to the SEC’s determination as to where, when,
and how the current financial reporting system for U.S. issuers should be transitioned to a system
incorporating IFRS.
The 2012 report summarized the staff’s findings regarding key issues surrounding the potential
incorporation of IFRS into U.S. financial reporting, but did not make any recommendation to the
Commission. “Additional analysis and consideration of this threshold policy question is necessary
before any decision by the Commission concerning the incorporation of IFRS into the financial
reporting system for the U.S. issuers can occur,” the report said.
In the report, the staff identified a number of unresolved issues relating to the potential
incorporation of IFRS into the U.S. financial reporting system. These issues include the diversity in
how IFRS are interpreted, applied, and enforced in various jurisdictions around the world; the
potential cost to U.S. issuers of adopting or incorporating IFRS; investor education; and
governance.
The movement by more foreign companies to using IFRS has created two potential problems for
U.S. companies using U.S. GAAP (“regulated companies”) and that operate globally. First, their
financial statements are likely to be different from those of the foreign companies with which
they are competing for capital, creating difficulties for investors in comparing companies.
Second, if they have subsidiaries operating in foreign countries, they may be required to prepare
their subsidiaries’ financial statements according to IFRS for local filings. Since they still have to
prepare their financial statements using U.S. GAAP to file with the SEC, this creates potential
costly inefficiencies. As a result, the SEC has begun a study of whether it should require or allow
U.S. companies to use IFRS in their financial statements filed with the SEC. There are many issues
related to this possible change, and they are very complex and far reaching. These include:
(1) Many U.S. companies (particularly smaller ones) filing with the SEC do not operate
globally so they would not see any advantage to using IFRS. If IFRS were required, it
would likely be very costly for them to switch from U.S. GAAP to IFRS, thereby affecting
their profitability during the conversion period.

1-16
C1-6 (concluded)
(2) The vast majority of U.S. corporations do not issue publicly traded securities and therefore
are not regulated by the SEC. These corporations use U.S. GAAP in preparing their
financial statements. A switch to IFRS for regulated U.S. companies would create a “dual-
GAAP” system in the United States.
(3) Investors, creditors, financial analysts, and other external users would have to retrain to
be able to evaluate the financial statements of companies using IFRS. Also, those
external users who have more resources to learn about analyses under IFRS may be at a
competitive advantage.
(4) Accountants and auditors would have to be trained and/or retrained to understand the
impact of IFRS on the preparation of financial statements and the related audits of
companies using IFRS. Larger auditing firms with more resources for training may be at a
competitive advantage over smaller auditing firms.
(5) Many companies that have borrowed money have “debt covenants” based on U.S.
GAAP that restrict their financing activities. Modifications in existing IFRS may have to be
made to maintain (or modify) these debt covenants.
(6) Some accounting issues (e.g., related to extractive industries) are not covered by IFRS.
New high-quality IFRS would have to be established to address these issues.
C1-7
Note to Instructor: This is an open-ended case question intended to get students reading and
thinking about interesting information in each of the financial statements for Starbucks. Because
of its open-ended nature, we take an open-minded approach to the answers students might
offer. We are willing to accept any reasonable answers regarding what students consider to be
interesting information, so long as the information is drawn from the appropriate statement and
is explained in an appropriate manner. Some simple examples for each statement follow.
Balance Sheet:
• Enormous holdings of cash and cash equivalents, $2,462.3 million.
• Large amount of inventory, $1,364.0 million.
• Jump in property, plant, and equipment, from $4,533.8 million to $4,919.5 million.
• Decrease in goodwill, from $1,719.6 million to $1,539.2.
• Significant increase in long-term debt financing—from $3,185.3 million to $3,932.6 million.
• Total equity ($5,457.0 million) comprises just under 38% of the liabilities and equity,
$14,365.6 million.
• The majority of equity arises from retained earnings, which amounts to $5,563.2. Students
may note that retained earnings actually exceeded total shareholders' equity, in part
because of the accumulated other comprehensive loss of $155.6 million.

1-17
C1-7 (concluded)
Income Statement:
• Revenues of $22,386.8 million, most of which come from company-operated retail stores,
amounting to $17,650.7 million.
• Nice jump in revenues in 2017 (+5.0%)—from $21,315.9 million to $22,386.8 million.
• Along with the growth in revenues, most of the operating expenses experienced
significant increases. Some students will also note that in fiscal 2017, Starbucks recognized
$153.5 million in restructuring and impairment charges. The net result is a slight decrease
in operating income, from $4,171.9 million in 2016 to $4,134.7 million in 2017.
• Income tax expense in fiscal 2017 is $1,432.6 million.
• Record earnings in fiscal 2017 of $2,884.7.
Statement of Cash Flows:
• Operating cash flows in fiscal 2017 are very healthy: $4,174.3 million, a large portion of
which comes from net earnings plus the depreciation and amortization addback.
• Investing cash outflows: ($850.0 million), primarily for additions to property, plant, and
equipment ($1,519.4 million), less the net cash inflows from net sales and maturities of
investment securities.
• Financing cash outflows: ($3,001.6 million), long-term borrowings (net) contributed $350.2
million, whereas cash outflows consisted primarily of payments for dividends ($1,450.4
million) and repurchases of common stock ($2,042.5 million).
• Cash balance increased in 2017, from $2,128.8 million to $2,462.3 million.
Statement of Shareholders’ Equity:
• Interesting pieces of information about equity from the balance sheet can be applied to
this part of the case, too.
• Other comprehensive losses during fiscal 2017 of $47.2 million increased the
accumulated other comprehensive loss from $108.4 million to $155.6 million.
• Retained earnings decreased despite net earnings of $2,884.7 million. The decline is
attributable to dividends declared ($1,515.9 million) and share repurchases ($2,079.1
million) subtracted from retained earnings, with another $323.6 million subtracted from
additional paid-in capital.
Management Discussion and Analysis:
The MD&A section contains many pieces of information, including:
• Starbucks had 27,339 stores worldwide at the end of fiscal 2017.
• In fiscal 2018, Starbucks expects revenue growth in “the high single digits.”
• In fiscal 2018, Starbucks plans to open roughly 2,300 new stores.
• Starbucks expects capital expenditures to be approximately $2.0 billion in fiscal 2018.

1-18
C1-8
thinking about interesting information in each of the financial statements of Nestlé. Because of its
open-ended nature, we take an open-minded approach to the answers students might offer.
We are willing to accept any reasonable answers regarding what students consider to be
interesting information, so long as the information is drawn from the appropriate statement and
is explained in an appropriate manner. Some simple examples for each statement follow.
Note: all amounts in millions of CHF
Balance Sheet:
• The largest assets consist of goodwill (CHF 29,748 million), property, plant, and equipment
(CHF 27,775 million), intangible assets (CHF 20,615 million), investments in associates and
joint ventures (CHF 11,628 million), and trade and other receivables (CHF 12,422 million).
• Total assets amount to CHF 130,380 million.
• Less financing from equity than from debt—total liabilities amount to CHF 67,603 million
and total equity amounts to CHF 62,777 million.
• Financial debt—current (CHF 10,536 million) and noncurrent (CHF 15,932 million)—
represent borrowings.
• The largest liability that arises from operating activities is trade and other payables (CHF
18,872 million).
• Retained earnings account for common equity: CHF 84,174 million.
Income Statement:
• Revenues of CHF 89,791 million in 2017, only a slight increase from 2016.
• Profit for the year was CHF 7,538 million in 2017, down significantly from CHF 8,883 for
2016.
• Operating cash flows are very healthy in 2017: CHF 13,486 million, most of which comes
from operating profit plus the non-cash items.
• Investing cash flows in 2017: CHF -4,940 million, with capital expenditures being the
largest use of cash for investing (CHF -3,934 million).
• Financing cash flows in 2017: (CHF -8,381 million), primarily for dividends and purchases of
treasury shares.
• Cash balance decreased CHF 52 million: CHF 7,990 million at the beginning of 2017, CHF
7,938 million at the end of 2017.

1-19
C1-9
thinking about interesting information in each of the financial statements for Coca-Cola.
Because of its open-ended nature, we take an open-minded approach to the answers students
might offer. We are willing to accept any reasonable answers regarding what students consider
to be interesting information, so long as the information is drawn from the appropriate statement
and is explained in an appropriate manner. Some simple examples for each statement follow.
Balance Sheet:
• Enormous holdings of cash, cash equivalents, and short-term investments $15,358 million.
• Largest asset—equity method investments $20,856 million.
• Significant holdings of property, plant, and equipment $8,203 million, goodwill, $9,401
million, and trademarks with indefinite lives, $6,729 million.
• Total assets are $87,896 million.
• Financial debt—current ($13,205 million in loans and notes payable plus $3,298 million in
current maturities of long-term debt) and long-term ($31,182 million).
• Financed with more debt than equity—total liabilities amount to $68,919 million and total
equity amounts to $18,977 million.
• The majority of equity arises from retained (reinvested) earnings.
Income Statement:
• Net operating revenues of $35,410 million in 2017.
• Big drop in revenues—from $44,294 million in 2015 to $35,410 million in 2017.
• Equity income ballooned from $489 million in 2015 to $1,071 million in 2017.
• Big drop in net income: $1,248 million in 2017, down considerably from 2015 net income
of $7,351 million.
• Operating cash flows are healthy in 2017: $6,995 million, but they have dropped
considerably since 2015, when they were $10,528 million.
• Investing cash flows in 2017: ($2,385 million), primarily for additions to property, plant, and
equipment and (net) purchases of investments.
• Financing cash flows in 2017: ($7,409 million), primarily for dividends ($6,320 million) and
(net) repurchases of common stock, net of roughly $1.1 billion in cash flows from net
issuances of debt.
• Cash balance decreased by $2,549 million in 2017, from $8,555 million to $6,006 million.

1-20
C1-10
Note to Instructor: Listed below are some possible findings that students may discuss at each
step in the moral reasoning process:
I. Gather facts: (A) What has occurred? (1) there is only one copy of the needed book, (2)
everyone in my class is required to use the book to write a report, (3) the book has been
intentionally misfiled. (B) Who are the stakeholders? (1) me, (2) classmate who has
misfiled the book, (3) other members of the class, (4) the professor, (5) other students
wanting to use the book, (6) library staff. (C) What are my responsibilities? (1) to write a
report (2) to be socially responsible. (D) How will my actions affect the stakeholders? My
actions will affect the stakeholders who need to use the book, the professor who gave
the assignment, the library staff, and the student who “misfiled” the book. If I report the
misfiling, my actions will likely help the other students and I prepare the assignment, will
help the professor and the library staff, and will likely incur negative consequences for
the person who misfiled the book.
II. Ask whether the action (my classmate misfiling the book) is acceptable according to
ethical criteria: (A) How does the action affect stakeholders? (1) the classmate who
misfiled the book can satisfactorily use the book without having to wait his turn, (2) I am
unable to use the book to finish my report, (3) the rest of the class cannot use the book to
finish their reports, (4) the professor cannot collect the assignment on the regularly
scheduled due date, (5) others wanting to use the book cannot find it, (6) library staff will
be forced to search for the book. (B) Does the action respect the rights of all
stakeholders? (1) the classmate who misfiled the book has the right to use the book,
(2) other members of the class as well as other students have the right to use the book,
but cannot if it is misfiled, (3) the professor cannot exercise his/her right to set due dates
and expect them to be adhered to, (4) the library staff cannot effectively and efficiently
perform its job. (C) Is the act fair and just? (1) purposely preventing others from
completing an assignment is not fair, (2) making it difficult for others to find a book is not
just, (3) inhibiting the library staff’s ability to perform its job is not fair, (4) forcing the
professor to accept late reports is not just.
III. Consider whether there are any overwhelming factors that may justify disregarding any
of the ethical criteria: In this situation, there do not appear to be overwhelming factors
but students may bring up issues like: (1) classmate has full-time job, (2) classmate is
disabled, (3) classmate has family (or other) obligations, (4) library has limited hours.
IV. Decide what ethical action to take: Students may decide on a number of
alternative courses of action, including: (1) doing nothing, (2) discussing with classmate,
(3) discussing with other students to exert pressure on classmate to refile book,
(4) reporting to professor (in person or anonymously).

1-21
C1-11
Note to Instructor: Listed below are some possible findings that students may discuss at each
step in the moral reasoning process:
I. Gather facts: (A) What has occurred? (1) my friend copied an answer, (2) she received
an A on the test, (3) I received a B on the test, (4) our professor is unaware that she
cheated, (5) I am aware that she cheated. (B) Who are the stakeholders? (1) my friend
who cheated, (2) me, (3) student from whom my friend copied the answer, (4) our
professor, (5) other members of the class, (6) all students in other sections of the same
course, (7) all accounting students at my school who have taken the same class, (8) all
students who will be competing with my friend for jobs, (9) all accountants, (10) company
that hires her. (C) What are my responsibilities? (1) to take the examination honestly (2) to
be socially responsible. (D) How will my actions affect the stakeholders? My actions will
affect the stakeholders involved with the exam: the professor who gave the exam, the
students who took the exam and did not cheat, including me, the student who cheated
on the exam; and the other stakeholders who evaluate (and hire) students based on their
academic performance, including results on exams. If I report the cheating, my actions
will likely help the professor, the other students and I to be evaluated fairly on this exam,
and will likely incur negative consequences for the person who cheated.
II. Ask whether the action (my friend’s cheating) is acceptable according to ethical
criteria: (A) How does the action affect all stakeholders? (1) her copying led to a short-
term satisfaction in the form of an A. However, in the long run, this A may prove to be
harmful to her if she views the A as a reward for cheating and continues to cheat in
the future, (2) my receipt of a lower grade puts her at an unfair advantage over me,
(3) others in the class who received the same grade as her had to rely on their own effort
and intelligence, whereas she was rewarded with the same grade for relying on
someone else’s work, (4) others in the class who received a lower grade than her are at
a disadvantage to her even though they may be equally intelligent, (5) because
recruiters compare the grades of all their applicants, she will appear more qualified
because her A will cause her GPA to increase, (6) the professor may be placed in a
position of giving her a higher recommendation than warranted, (7) her future employer
may be depending on higher qualifications than she has. (B) Does the action respect the
rights of all stakeholders? (1) my friend forfeited her right to a good grade by cheating,
(2) others in the class had their rights violated because they can no longer compete
fairly, (3) the professor can no longer exercise his/her right to distribute grades fairly,
(4) recruiters cannot exercise their right to use GPA as a quantitatively reliable guide for
selecting employees. (C) Is the act fair and just? (1) cheating is not generally accepted
as being fair, (2) receiving a better grade through deceit is not just, (3) having an
advantage in recruiting due to dishonesty is not fair.
III. Consider whether there are any overwhelming factors that may justify disregarding any
of the ethical criteria: In this situation, there do not appear to be overwhelming factors
but students may bring up issues like: (1) friend has full-time job, (2) friend is disabled,
(3) friend has family (or other) obligations, (4) friend was sick before class, (5) friend was
an athlete.
IV. Decide what ethical action to take: Students may decide on a number of alternative
courses of action, including: (1) doing nothing, (2) discussing with friend, (3) discussing
with student from whom friend copied (or other students) to exert pressure on friend to
confess action to professor, (4) reporting to professor (in person or anonymously).

1-22
ANSWERS TO USING CODIFICATION
C1-12
Note to Instructor: Students are expected to cite references to GAAP in their research of this
issue. While they might use various sources to conduct their research, the FASB Accounting
Standards Codification, which is the primary source of GAAP, is cited.
The FASB Accounting Standards Codification is an electronic database that integrates and
topically organizes the U.S. accounting standards (GAAP). The Codification is important because
it is the only source of authoritative U.S. GAAP for companies to determine how to record their
transactions, events, or circumstances, and how to report the results in their financial statements.
(An exception to this statement is the rules and interpretive releases of the SEC which are
sources of authoritative GAAP for publicly traded companies that are required to file their
financial statements with the SEC. For convenience, the Codification includes selected portions
of GAAP issued by the SEC for publicly traded companies. The Codification, however, does not
contain all of the SEC’s rules and regulations that constitute GAAP.)
The Codification is located at http://asc.fasb.org (or, if your institution participates in the
American Accounting Association academic access initiate, at http://aaahq.org/ascLogin
.cfm). All users must register before they can log in. After logging in, the “home page” provides a
notice to constituents, links to tutorials, instructions on how to “join sections,” and explanations of
how to cross reference the Codification sections to the original pronouncements. The framework
of the Codification contains six components or levels: (1) Areas, (2) Topics, (3) Subtopics, (4)
Sections, (5) Subsections, and (6) Paragraphs containing GAAP. The Areas component is
located on the left side of the home page, and contains links to nine broad accounting subjects
which include General Principles, Presentation, Assets, Liabilities, Equity, Revenue, Expenses,
Broad Transactions, and Industry, along with a Master Glossary link and a “Go To” box for users
familiar with the Codification numbering system.
The Topics, Subtopics, Sections, Subsections, and Paragraphs are considered descending
“levels” of the Codification database, and each item in each level is numbered for reference
and search purposes. The Topics level is accessed by clicking on the Area “subject” links on the
Codification home page. The following is an explanation of the descending order of the levels
within each Area.
• Topics involve a collection of related guidance on a particular subject area (e.g.,
Assets).
• Subtopics are subsets of a Topic and generally are distinguished by “type” or by “scope”
(e.g., under the Leases Topic, there are Subtopics for Operating Leases and Capital
Leases, because they are different types of Leases).
• Sections characterize the nature of the content in a Subtopic (e.g., Recognition,
Measurement, Disclosure).
• Subsections refine and break down Sections into narrower and more specific items. If a
Subsection is necessary, it is not numbered but does include the Paragraphs that contain
the guidance that constitutes GAAP.
• Paragraphs contain the guidance that constitutes GAAP.

1-23
C1-12 (concluded)
To find the GAAP for a particular accounting issue, after logging in you would go to the Area
links in the left column of the home page and click on an Area (e.g., Assets). This would bring
you to a menu of Topics, after which you would click on one topic. This would bring you to a
menu containing Subtopics. After clicking on a Subtopic, this would bring you to a menu
containing several Sections. Here, you would have to decide which Section is most likely to
contain the answer to your question. You would click on that Section, which would bring you to
the paragraphs containing the answer (GAAP) for your question. This completes your search. If
you wanted to reference this answer, you would indicate that it can be found by listing the
Topic, Subtopic, Section, and paragraph numbers (e.g., ASC 330-10-30-1). Now, suppose you
had left this screen and wanted to go back to this paragraph. To save time, you could enter
330-10-30-1 in the “Go To” box on the home page, and it would bring you directly to the
paragraph.
C1-13
The cost of a productive facility (e.g., machine) is one of the costs of the services it renders
during its useful economic life. Generally accepted accounting principles (GAAP) require that
this cost be spread over the expected useful life of the facility in such a way as to allocate it as
equitably as possible to the periods during which services are obtained from the use of the
facility. This procedure is known as depreciation accounting, which aims to distribute the cost,
less salvage (if any), over the estimated useful life of the unit in a systematic and rational
manner. It is a process of allocation, not of valuation.
This is a summary. The complete GAAP may be found at FASB ASC 360-10-35-4.
of the Codification contains six components or levels: (1) Areas, (2) Topics, (3) Subtopics,
(4) Sections, (5) Subsections, and (6) Paragraphs containing GAAP. The Areas component is
• The Topics, Subtopics, Sections, Subsections, and Paragraphs are considered descending
“levels” of the Codification database, and each item in each level is numbered for
reference and search purposes. The Topics level is accessed by clicking on the Area
“subject” links on the Codification home page. The following is an explanation of the
descending order of the levels within each Area.
Assets).

1-24
C1-13 (concluded)
you to a menu of seven Topics of assets, after which you would click on one topic. This would
bring you to a menu containing Subtopics. After clicking on a Subtopic, this would bring you to a
menu containing several Sections. Here, you would have to decide which Section is most likely
to contain the answer to your question. You would click on that Section, which would bring you
to the paragraphs containing the answer (GAAP) for your question. This completes your search.
If you wanted to reference this answer, you would indicate that it can be found by listing the
paragraph.
C1-14
The recognition of revenue of a company during a period involves consideration of the following
two factors, with sometimes one and sometimes the other being the more important
consideration:
(a) Being realized or realizable. Revenue generally is not recognized until realized or realizable.
Revenue is realized when products (goods or services), merchandise, or other assets are
exchanged for cash or claims to cash. Revenue is realizable when related assets received
or held are readily convertible to known amounts of cash or claims to cash.
(b) Being earned. Revenue is not recognized until earned. A company’s revenue-earning
activities involve delivering or producing goods, rendering services, or other activities that
constitute its ongoing major or central operations, and revenue is considered to have
been earned when the company has substantially accomplished what it must do to be
entitled to the benefits represented by the revenue.
This is a summary. The complete GAAP may be found at FASB ASC 605-10-25-1.

1-25
C1-14 (concluded)
of the Codification contains six components or levels: (1) Areas, (2) Topics, (3) Subtopics,
(4) Sections, (5) Subsections, and (6) Paragraphs containing GAAP. The Areas component is
The Topics, Subtopics, Sections, Subsections, and Paragraphs are considered descending
“levels” of the Codification database, and each item in each level is numbered for reference
and search purposes. The Topics level is accessed by clicking on the Area “subject” links on the
Codification home page. The following is an explanation of the descending order of the levels
within each Area.
Assets).
you to a menu of Topics, after which you would click on one topic. This would bring you to a
menu containing Subtopics. After clicking on a Subtopic, this would bring you to a menu
containing several Sections. Here, you would have to decide which Section is most likely to
contain the answer to your question. You would click on that Section, which would bring you to
the paragraphs containing the answer (GAAP) for your question. This completes your search. If
you wanted to reference this answer, you would indicate that it can be found by listing the
paragraph.

Other documents randomly have
different content

witnesses, but accepts Christ Himself. The great, final object of faith
that saves is Christ, and all testimony is valuable only as it brings us to
Him. The sin-tossed spirit finds rest and peace only as it reposes, not in
an abstract truth, but in a person—not in love as the law of the moral
universe, but in a person who is Himself love.
II. The Christian life is governed by the law of Christ.—“So walk ye
in Him” (ver. 6). The word “walk” expresses the general conduct of man
and the process of progression in the formation of individual character.
The will of Christ, as indicated in His character, words, spirit, and
example, is the ruling principle in the life of the believer.
1. To walk in Christ implies a recognition of Him in all things.—In
everything that constitutes our daily life—business, domestic relations,
social engagements, friendships, pleasures, cares, and trials—we may
trace the presence of Christ and recognise His rule. Everywhere, on
road, or rail, or sea—in all seasons of distress or joy, of poverty or
wealth, of disturbance or rest—we may be conscious of the
encompassing and regulating presence of Christ Jesus the Lord.
2. To walk in Christ implies a complete consecration to Him.—He has
the supreme claim upon our devotion and service: “We are not our
own; we are bought with a price.” Our life consists in serving Him:
“Whether we live, we live unto the Lord.” The best of everything we
possess should be cheerfully offered to Him. Carpeaux, the celebrated
French sculptor, was kept in comparative retirement for some time
before his death by a long and painful illness. One Sunday, as he was
being drawn to church, he was accosted by a certain prince, who
exclaimed, “Carpeaux, I have good news for you! You have been
advanced in the Legion of Honour. Here is the rosette d’officier.” The
emaciated sculptor smiled and replied, “Thank you, my dear friend. It
is the good God who shall first have the noble gift.” Saying which, he
approached the altar, put the rosette in his button-hole, and
reverentially knelt down to pray.
3. To walk in Christ implies a continual approximation to the highest life
in Him.—The Christian can rise no higher than to be most like Christ.

The highest ambition of the apostle was to be “found in Him.” Life in
Him is a perpetual progress in personal purity and ever-deepening
felicity. Our interest in the vast future is intensified by the Christ-
inspired hope that we shall be for ever virtually united to Him, that we
shall delight in ever-changing visions of His matchless glory, that we
shall be like Him, and reflect and illustrate the splendour of His all-
perfect character. Every triumph over sin is a substantial advance
towards this glorious future destiny.
III. The Christian life is supported and established by faith in
fully declared truth.—1. There is the idea of stability. The believer is
rooted in Christ, as a tree planted in firm, immovable soil; he is built
up in Christ, as an edifice on a sure foundation; and in both senses, as a
tree and as a building, he must be established in the truth which has
been demonstrated to him as Divine and all-authoritative. It is not
enough to preserve the appearance of an external walk in Christ; but
the roots of our faith must be worked into Him, and the superstructure
of holiness rest on Him as the only foundation laid in Zion. The soul
thus firmly established will survive the heaviest storms of adversity and
the most furious assaults of error.
2. There is the idea of progress.—Walking implies a continual advance
to a given destination; a tree is planted in order to grow; the building,
after the foundation is laid, rises to completion. The word “built” is in
the present tense and describes a work in actual process. So the
believer, having become attached to the only foundation that is laid,
which is Christ Jesus, is ever rising in conformity with the foundation
and with the outlines of that grand spiritual edifice of which Christ is
the pattern and glory. Faith is the cement that fastens one part of the
building to the other; but faith as a living, active principle, also admits
of increase. With respect to every individual effort after a higher
spiritual life, according to our faith it is done unto us.
IV. The Christian life has its most appropriate outflow in
thanksgiving.—“Abounding therein with thanksgiving” (ver. 7). The
end of all human conduct is thanksgiving. It should be expressed in
every word and appear in every action. Life should be a ceaseless, ever-

abounding outflow of gratitude. We should never forget the magnitude
of the blessings we have received, the wealth of mercies now offered to
us, and the source whence they all issue. A thankful remembrance of
past benefits cheers and strengthens the heart under difficulties and
disposes the bounteous Donor to confer further benefits. There is
nothing in which Christians are more deficient than in a devout and
heartily expressed gratitude. Gratitude expands our sympathies for the
race. What a triumph of disinterested thankfulness was that of the
invalid who, though confined to his room, “thanked God for the
sunshine for others to enjoy”! The spirit of Christian progress is one of
unceasing thanksgiving.
Lessons.—1. The Christian life is Divinely bestowed. 2. The Christian
life is Divinely sustained. 3. The reality of the Christian life is evidenced
by effusive and practical gratitude.
GERM NOTES ON THE VERSES.
Vers. 6, 7. Retrospection the Basis of Progress.
I. The Christian consciousness in its apprehension of Christ.—
1. There are two opposing theories prevalent on the person of Christ—
the rationalistic and the revealed. The one rules out His Godhead; the
other is the basis of the Christian faith. 2. Two systems of theology,
widely distinct from each other, are dependent on these theories. The
one puts man at its centre, and is wholly human; the other enthrones
God, and is essentially Divine. 3. There is only one Christ, one faith, one
salvation. 4. It is within the one or the other of these two systems that
we must posit our decisions.
II. The Christian consciousness in its reception of Christ.—
1. Faith receives the whole Christ. 2. Christ asks and gets the whole man.
3. The life of faith, as embodied in the moralities of Christian living, is
thus provided for and follows this consecrating act.

III. The Christian consciousness in its subjection to Christ.—
1. The sphere of the lordship of Christ is the human mind. 2. The claim
of this lordship is absolute. 3. The mind is free and unconstrained in its
surrender to the authority of Christ.—John Burton.
Ver. 6. Moral Imitation.
I. The text assumes that man possesses the faculty of
imitation.
II. He requires an example to imitate and that example is
Christ.
III. A model must be seen to be imitated, so Christ has
presented Himself to us for that purpose.—W. Frazer.
MAIN HOMILETICS OF VERSE 8.
The Marks of a False Philosophy.
Philosophy plays an important part in the investigation and discovery
of truth. The use of the word arose out of the humility of Pythagoras,
who called himself a lover of wisdom. The noblest intellects of all ages
have been devoted to the pursuit of the same coveted prize. Philosophy
represents the highest effort of the human intellect in its search after
knowledge. It explores and tests phenomena in the realm of physics
and of morals and discovers the subtle laws by which those
phenomena are governed. It elevates man to his true rank in creation,
and teaches that he must be estimated, not by his physical relation to
the outward world, but by the sublime endowments of his mind, into
which it is the special function of philosophy to inquire. The
philosophic mood never reaches its highest development till it is
Christianised. The apostle does not stigmatise all philosophy as in vain;
he knew the value of a true philosophy, and in his estimation the
Christian religion was the embodiment of the highest philosophy. But
he warned the Colossians against a false philosophy that was deceptive
in its pretensions and deadly in its influence.

I. A false philosophy is known by its profitless speculations.—The
absence of both preposition and article in the second clause shows that
“vain deceit” describes and qualifies philosophy. A celebrated Roman
sophist summed up his deliberate judgment on the efforts of the
learned in the painful search after wisdom in these words: “The human
mind wanders in a diseased delirium, and it is therefore not surprising
that there is no possible folly which philosophers, at one time or
another, have propounded as a lesson of wisdom.” When the most
highly cultured intellects have been gravely occupied with tricks of
magic, the casting of nativities, the random guesses of soothsaying,
and the pretended marvels of a mystic astrology; when the best of life
has been spent in discussing transcendental questions as to the
eternity of matter, fate, the mortality of the soul, the worship of angels,
and their mature endowments and habits, and in definitional hair-
splitting as to what constitutes the chief good of man; when the truest
and best discoveries of human reason are used to disparage Divine
revelation and discredit the absolute authority of saving truth—then
philosophy falsifies its name, frustrates its lofty mission, and
degenerates into vain, empty, profitless speculations. The student of
the theories and contradictions of certain philosophic schools may
begin with extravagant expectations, only to end in chagrin and
despondency. The errors which assailed the Colossian Church were a
mixture of the Oriental system of Zoroaster with Judaism, and with the
crude, half-comprehended truths of Christianity. It was a mongrel
system of philosophy, containing the germs of what afterwards
developed into an advanced Gnosticism and became the prolific source
of many forms of heresy. Its abettors became “vain in their
imaginations, and their foolish heart was darkened; professing
themselves wise, they became fools” (Rom. i. 21, 22).
II. A false philosophy is known by its purely human origin.
—“After the tradition of men.”
1. The human mind is limited.—The stream can never rise higher than
its source; so the wisdom that comes from man is necessarily bounded
by the range of his mental powers. The human mind cannot penetrate

far into any subject without discovering there is a point beyond which
all is darkness and uncertainty. It is impossible for the circumscribed
and unaided mind of man to construct a philosophy that shall be
universally true and beneficial. Tillotson has said: “Philosophy has
given us several plausible rules for attaining peace and tranquillity of
mind, but they fall very much short in bringing men to it.”
2. All human knowledge is imperfect.—“If any man think that he
knoweth anything, he knoweth nothing yet as he ought to know.” The
traditions of men are the accumulation of mere human theories
transmitted from age to age until they have assumed the pretensions of
a philosophy, imposing a number of uninspired and unauthorised
observances and austerities. The imperfection of human knowledge is
not obliterated but aggravated by its antiquity. A philosophy that
builds solely on man is baseless and full of danger.
III. A false philosophy is known by its undue exaltation of
elementary principles.—“After the rudiments of the world.” The
source of the false teaching against which the apostle warned was
found in human tradition, and its subject-matter was made up of “the
rudiments of the world”—the most elementary instruction conveyed
by external and material objects, suited only to man’s infancy in the
world. The legal rights and ceremonies instituted by Moses are
evidently referred to here; they were the first rough elements of an
introductory religion fit only for children—shadows at best of great
and deeper truths to which they were intended to lead, and yet, by the
tendency of the soul to cling to the outward, gendering to bondage.
“Even so we, when we were children, were in bondage under the
elements [rudiments] of the world. But now, after that ye have known
God, how turn ye again to the weak and beggarly elements?” (Gal. iv. 3–
10). The apostle shows the Colossians that, in Christ, they had been
exalted into the sphere of the Spirit, and that it would be a sad
retrogression to plunge again into the midst of the sensuous and
ceremonial. A true philosophy, while starting necessarily with
elementary principles, conducts its votaries into a pathway of
increasing knowledge and of spiritual exaltation and liberty. A false

philosophy fetters the mind by exaggerating the importance of first
principles and insisting on their eternal obligation.
IV. A false philosophy is known by its Christlessness.—“And not
after Christ.” Christ is neither the author nor the substance of its
teaching; not the author, for its advocates rely on human traditions;
not the substance, for they ignore Christ by the substitution of external
ceremonies and angelic mediators. Such a method of philosophising
may be after the Jewish fanatics, after the Pythagoreans or Platonists,
after Moses and his abrogated legalism; but is it not after Christ. There
is no affinity between Christ and their inventions; the substances
cannot amalgamate. As it is impossible, by any process, to convert a
baser metal into gold, so it is impossible to elevate a vain philosophy
into Christianity. All true saving knowledge must be after—i.e.
according to—Christ. It is in Him alone the deepest wants of man’s
nature can be met and satisfied. Any philosophy, though championed
by the most brilliant intellects, that tends to lure the soul from Christ,
that puts anything in the place of Him, or depreciates in any way our
estimate of His glorious character, is false and full of peril.
V. A false philosophy is known by its destructive influence.—“Lest
any man spoil you.” The meaning of the word “spoil” is very full and
significant: it is not simply to despoil—to strip off—but to carry away
as spoil, just as the four kings, after the battle in the vale of Siddim,
plundered the cities of Sodom and Gomorrah, and bore away as spoil
the people and all their property and victuals (Gen. xiv. 12–16). The
Colossians had been rescued from the bondage of darkness and
transferred to the kingdom of light; they were settled there as free and
happy citizens; and now there was danger lest they should be tampered
with by some crafty marauder, seized and carried away as booty, and
fall into a worse state than their former slavery. There are worse losses
than loss of property, or even of children: man is never so grievously
spoiled as when his soul is debased and robbed by the errors of wicked
seducers. Men who have contemptuously given up the Bible as a book
of fables, lost their peace of mind, wrecked their moral character, and
blasted their prospects for ever, began their downward career by

embracing the apparently harmless ideas of a false philosophy. “The
thief cometh not,” saith Jesus, “but to steal, to kill, and to destroy; I”—
the infallible Teacher, the incorruptible Guardian, the inexhaustible
Life-giver—“am come that they might have life, and that they might
have it more abundantly” (John x. 10).
VI. Against a false philosophy the Church must be faithfully
warned.—“Beware.”
1. Because it is seductive in its pretensions.—It seeks to refine and
elevate the plain Gospel by a show of lofty intellectualism; it dignifies
some particular religious rite into an unjustifiable importance; it
elaborates a ritual marvellous for spectacular display and musical
effect; it flatters the pride and ministers to the corruption of the
human heart; and, stealing through the avenue of the charmed senses,
gains an imperious mastery over the whole man.
2. Because it is baneful in its effect.—It not only misrepresents and
distorts the truth, but injures the faculties of the soul by which truth is
obtained and kept. It darkens the understanding, pollutes the
conscience, and weakens the will. It robs man of his dearest treasure,
and offers in exchange a beggarly system of crude, unsatisfying
speculations. The soul is goaded into a restless search after rest and
cursed with its non-attainment.
Lessons.—1. Human philosophy is essentially defective. 2. The true
philosophy is the highest knowledge of Christ. 3. All philosophy that
weans the soul from Christ is false and should be shunned.
MAIN HOMILETICS OF THE PARAGRAPH.—Verses 9, 10.
The Divine Fulness of Christ a Pledge of the Believer’s Perfection.
Christianity is the true philosophy. Here are its profoundest depths, its
loftiest themes, its most substantial discoveries. The philosophy that is
not after Christ is vain and misleading. It was a false conception of the
Colossian heresy that the Divine energy was dispersed among several

spiritual agencies. The apostle boldly declares that in Christ dwells the
whole πλήρωμα, the entire fulness of the Deity, and that it is in vain to
seek for spiritual life in communion with inferior creatures.
I. The Divine fulness of Christ.—1. In Christ is the fulness of the
Deity. “For in Him dwelleth all the fulness of the Godhead” (ver. 9). A
small text, but a great subject. These words contain the sublimest truth
in the narrowest compass. Fulness is a term used to signify all that
anything contains. Hence, we read of the fulness of the earth, the
fulness of the sea, and that the Church is Christ’s body, the fulness of
Him that filleth all in all. In Christ inhere all the perfections, attributes,
and qualities that essentially constitute the Divine nature—power,
wisdom, eternity, self-existence, omnipresence, truth, love, holiness.
The deities of the heathen never pretended to possess more than a few
Divine attributes, some portion of Divinity. But Christ contains in
Himself the totality of Divine powers and excellencies.
2. The fulness of the Deity in Christ is present and permanent.
—“Dwelleth.” The present tense is used. It is not as a transient gleam or
as a brilliant display to serve a temporary purpose, but as an ever-
present and unchanging reality. Mystery of mysteries! the body that
hungered and thirsted, that bled and died, that rose and ascended on
high, is still the temple of illimitable Deity! The manifestations of God
through angels and prophets were brief and partial. The Shekinah, or
visible glory, that hovered over the ark of the covenant was a symbol
only of a present deity and disappeared as mysteriously as it came. But
in Christ, the transcendent fulness of the Godhead finds its permanent
home, never to depart, never to vanish.
3. The fulness of the Deity in Christ has a visible embodiment.
—“Bodily.” In the person of Christ every moral perfection of the
Godhead was enshrined and brought within the range of human
vision. He presented and proved the fact of the Divine existence. He
embodied and declared the Divine spirituality. He delineated the
Divine disposition, and character in the days of His flesh. Gleams of
the Divine nature occasionally broke forth. “We beheld His glory, the
glory as of the only begotten Son of God” (John i. 14). And now, from

that subtle, glorified human form of our exalted Mediator, the
splendour of the Deity rays forth, filling the universe with light and
glory and joy. In Christ the Godhead is revealed, not as a changing,
shadowy phantasm, but as a positive, substantial reality.
II. The supreme authority of Christ.—“Which is the Head of all
principality and power” (ver. 10).
1. Angels are the principalities and powers of the universe.—They are
called spirits to express their nature, and angels to designate their
office as messengers sent by God. They are called sons of God, to
indicate their lofty relationship; cherubim, because of their composite
nature, and because they are placed under the presence of Jehovah,
whose moving throne they appear to draw; seraphim, because of their
burning ardour in executing the commands of God; stars of the
morning, to set forth their brightness; a flaming fire, because of the
fierceness and celerity with which they carry out the vengeance of
Heaven; and they are called principalities and powers on account of
their exalted rank and superior endowments.
2. Among the principalities and powers of the universe Christ has
supreme authority.—He is the Head of all angelic hierarchies. He called
them into being. He endows them with vast intelligence. He designates
their rank. He controls their beneficent ministries. He fills the circle of
their bliss. To worship angels, or to seek their mediation in the affairs
of the soul, is not only gross idolatry, but an insufferable insult to the
fulness of the Deity in Christ.
III. The believer’s fulness in Christ.—“And ye are complete in Him”
(ver. 10).
1. In Christ is the inspiration of the believer’s life.—The soul finds its
true life by believing on the Son of God. “He that hath the Son hath
life” (1 John v. 12). In ourselves we are like empty vessels; but in Christ
we are filled up to the brim. As there is an original and Divine fulness
of the Godhead in Christ, so there is a derived fulness communicated
to us. Every advance in Christian experience, every aspiration after a

more exalted spiritual tone, every yearning of the soul after clearer
light, every struggle for victory over self and sin, is prompted and
accelerated by the impetuous inflow of the Divine life.
2. In Christ is the perfect ideal of the believer’s character.—Christ has
exalted human nature. He took not on Him the nature of angels, but
the seed of Abraham. He has shown what human nature can become,
and what it can do. In Him we have the illustrious pattern after which
our souls are to be fashioned and rounded off into a full-orbed
completeness. “Christ is the mirror that glasses God’s image before us,
and the Spirit is the plastic force within that transfers and photographs
that image; and so, beholding as in a glass the glory of the Lord, we are
changed into the same image from glory to glory, even as by the Spirit
of the Lord.”
3. In Christ is the interminable bliss of the believer’s future.—The
present life is a training for the future. The more it is in harmony with
the will of Christ the happier will it be. Every attempt, amid the
multiform relations of life, to do our duty in a Christly spirit, is
bringing us into closer sympathy with Christ, and preparing us for a
joyous life with Him hereafter. The apostle expressed the condition of
the highest conceivable bliss to the believer in the words, “And so shall
we ever be with the Lord” (1 Thess. iv. 17).
Lessons.—1. Christ is essentially Divine. 2. There is an ineffable fulness
of salvation in Christ. 3. All secondary mediators between God and man
are superfluous. 4. The soul is complete in Christ only as it believes in
Him.

Vers. 9, 10. A Presentation of Two Great Truths.
I. That all Christianity centres in Christ.
II. That union to Christ makes the soul independent of others.
—Dykes.
Ver. 9. The Fulness of Christ.
I. Christ is full of the power of God.
II. The love of God.
III. The grace of God.
IV. The faithfulness of God.
V. The purpose of God to punish sin.—Preacher’s Magazine.
Ver. 10. The Completing of the Soul.
I. We are made complete in Christ by inspirations.
II. We have ideas and ideals in Christ.
III. We are set in a various scheme of relations that we may have
a training in virtues equally various and be perfected in
them and by means of them.—Bushnell.
The Believer Complete in Christ.
I. Complete in Him with respect to the work which He hath
already performed.—1. His obedience and atonement were precisely
what God Himself had prescribed. 2. That He obeyed and atoned, we
have the perfect evidence of observation and testimony. He Himself
declared, “I have finished the work which Thou gavest Me to do.” “It is
finished.” To this the Father and the Spirit have expressly borne
testimony: by signs and wonders; His resurrection; His ascension; the

descent of the Spirit; conversions; the glorification of His people.
3. Into His righteousness thus perfect the believer is admitted.
II. Complete in Him with respect to the work which He is now
performing.—1. Interceding in heaven. 2. Ruling on earth, and thus
giving grace and affording protection.
III. Complete in Him with respect to the work which He is
hereafter to perform.—1. As the Resurrection. 2. As the Judge. 3. As
the Glorifier. 4. As the Consummation and Communicator of eternal
blessedness.—Stewart.
Christian Circumcision.
There were two principal errors lying at the root of the heresy that was
doing so much damage at Colossæ. One was the theological error of
substituting inferior and created angelic mediators for the Divine Head
Himself. The other was a practical error, in insisting upon ritual and
ascetic observances as the foundation of moral teaching. Thus, their
theological speculations and ethical code alike were at fault. Both
errors flowed from a common source—the false conception that evil
resides in matter, a fruitful source of many fatal heresies. Some
contended the Colossians could not be complete in Christ without
submitting to the Jewish rite of circumcision; but the apostle showed
that they were the subjects of a superior circumcision.
I. Christian circumcision is inward and spiritual.—“Ye are
circumcised with the circumcision made without hands” (ver. 11). The
hand-wrought circumcision of the Jews was simply an outward and
visible sign of an inward and spiritual grace. This is abundantly clear in
the language of the Old Testament: “No stranger uncircumcised in
heart, nor uncircumcised in flesh, shall enter into My sanctuary.” “The
Lord Thy God will circumcise thine heart, to love the Lord thy God
with all thine heart and all thy soul” (Ezek. xliv. 9; Deut. xxx. 6). The

argument of the apostle is that the Colossians had secured all the
spiritual results aimed at in the ancient rite, and that by a better
circumcision, even that made without hands, by the spiritual and
almighty power of Christ, so that it was unnecessary for them or any
other Gentiles to submit to the abrogated Hebraic ordinance. The true
circumcision is that of the heart, in the spirit, and not in the letter
(Rom. ii. 28, 29).
II. Christian circumcision is complete.—“In putting off the body of
the sins of the flesh” (ver. 11); or, as Bengel translates, putting off the
body of the sins—that is to say, the flesh. Manual circumcision,
according to the law of Moses, was the cutting away of only a small part
of the flesh. But the true spiritual circumcision consists in putting off,
renouncing, and casting away with disgust the whole body of our
corrupt nature—the entire fleshly principle. The whole bulk of sin is
fitly compared to a body, because of the weight of guilt there is in it
(Rom. vii. 24), and the soul is completely compassed by it, as it is with
our natural body (Gen. vi. 5). When the heart is circumcised, the total
mass of sin is put off, as the porter puts off his burden, the beggar his
rages, the master his false servant, and the serpent its skin. Old things
pass away; all things become new.
III. Christian circumcision is Divine.—“By the circumcision of
Christ” (ver. 11). It is wrought, without hands, by the inward, invisible
power of the Divine Spirit of Christ. It supersedes the external form of
the circumcision of the law and fulfils all its spiritual designs in a far
more perfect manner than even the spiritually-minded Jew could
adequately conceive. What can never be effected by the moral law, by
external, ascetic ceremonies, or by philosophic speculations, is
accomplished by the circumcision of Christ. The whole body of sin is
mortified, the soul is quickened and renewed, and brought into the
possession of the highest moral perfection.
IV. Christian circumcision is realised by the thorough
identification of the believer with Christ in His death and
resurrection.—“Buried with Him, wherein also ye are risen with Him”
(ver. 12). Burial implies previous death; and to secure the true

circumcision we must be spiritually identified with Christ in His death,
burial, and resurrection. It is the familiar teaching of the New
Testament that he who believes in Christ is said to die with Him, to be
buried with Him, and to rise with Him (ver. 13; Rom. vi. 11; Eph. ii. 5). A
circumcised heart, a new nature, cannot be obtained by mere human
effort, by stern resolutions, painful processes of self-mortification, or
by the most advanced and rigorous mental culture. It is secured only
by a complete, vital union and incorporation with Christ, and a
sympathetic participation with Him in all He has done and suffered.
With Christ the believer enters the grave where the vast body of sin
dies and is buried; and with Christ he emerges into a new and
heavenlier life that transforms the soul into a Diviner beauty, and fills it
with unutterable rapture and melodious praise.
V. Christian circumcision is wrought in the soul by a spiritual
baptism.—“Buried with Him in baptism, wherein also ye are risen
with Him” (ver. 12). Baptism by water, like legal circumcision, is an
outward and visible sign of an inward and spiritual grace. But it does
not appear that there is any allusion here to the ordinance of baptism.
The leading ideas and figures used in these two verses refer to spiritual
realities: the death, burial, and resurrection, the circumcision without
hands, and the putting off of the body of the flesh, are all spiritual; and
the baptism is evidently of the same character. It is by the baptism of
the Spirit—the quickening and renewing power of the Holy Ghost—
that the soul is so united to and identified with Christ that the believer
may be said to be buried and to rise with Him. It is possible to die with
Christ and to rise with Him without being baptised with water; but it is
impossible to do either without the baptism of the Holy Ghost.
Spiritual baptism is the grave of the old man and the birth of the new.
As he sinks beneath the baptismal waters, the believer buries there all
his corrupt affections and past sins; ans he emerges thence, he rises
regenerate, quickened to new hopes and a new life.
VI. Christian circumcision is received by faith.—“Through the
faith of the operation of God, who hath raised Him from the dead”
(ver. 12). Faith is not a natural production of the human heart. It is a

Divine gift and is bestowed on man by a Divine operation. Man can
believe because God has given him the power to believe. No unbeliever
can receive the baptism that effects the spiritual resurrection. The faith
specially referred to is to be fixed on the power of God as exerted and
displayed in the resurrection of Christ from the tomb. The same power
is employed in that mysterious baptismal process by which the soul
throws off its mass of moral vileness and rises into newness of life.
Faith opens every gateway of the soul, so that it gratefully welcomes
and exults in the transforming operations of the Divine energy.
Lessons.—1. All external ordinances are powerless to change the heart.
2. The true circumcision is accomplished by the baptism of the Holy
Ghost. 3. To realise the renewing power of God faith is indispensable.
Ver. 11. The True Circumcision.
I. Is not an outward rite, but an inward change.
II. Is an excision of the body of sin by our union with Christ,
who has conquered sin.
III. Is not an external observance, but a spiritual experience and
a holy life.
Ver. 12. The True Baptism—
I. Is spiritual regeneration.
II. Is being buried and raised again with Christ.
III. Is secured by an active, realising faith in the power of God.
IV. Renders circumcision and all outward rites valueless as
means of salvation.

The Transition from Death to Life.
In relation to man, the physical order is a descent from life to death,
the spiritual order an ascent from death to life. The soul of man is held
captive in the dark and dismal prison-house of sin, and the Divine law
—at once its judge and gaoler—has declared its condemnation to
death. The great Mediator offers Himself a ransom for human sin. He is
accepted. The sentence of condemnation is cancelled, and spiritual
liberty proclaimed.
I. That the natural condition of humanity is one of moral and
spiritual death.—1. Man is in a condition of spiritual insensibility.
“You, being dead in your sins” (ver. 13). The dead know not anything.
They are as unconscious as the dust in the midst of which they
slumber. The sweetest sounds or the brightest scenes appeal in vain to
the locked-up senses. This figure strikingly depicts the moral condition
of man. The soul may be keenly alive to the relations and interests of
the outer world, and at the same time dead to the grandest spiritual
realities. He is insensible to the character and claims of God, to the
sublimest truths, to the most ravishing prospects. With faculties to
appreciate all that is lovely in nature and wonderful in art, he is
insensible and unresponsive to the highest moral beauty.
2. Man is in a condition of moral corruption.—“And the uncircumcision
of your flesh” (ver. 13). Death unbinds the forces that brace up the body
in life and health and leaves it a prey to the ever-active power of
corruption. The flesh is the carnal principle—the old corrupt nature;
and its uncircumcision indicates that it has not been cut off, mortified,
or conquered. It is the loathsome, putrid fruit of a nature spiritually
dead—the outworkings of a wicked, unrenewed heart, through all the
channels of unchecked appetites and passions—moral putrescence
fattening on itself. No description of sin can surpass the revolting
spectacle of its own self-registered results.
3. Man is in a condition of condemnation.—(1) The Divine ordinances
record an indictment against the transgressor. “The handwriting of
ordinances that was against us” (ver. 14). A handwriting imports what

any one writes with his own hand, and is usually applied to a note of
hand, a bond, or obligation, as having the signature of the debtor or
contracting party. The primary reference in the terms used is to the
Jews, who might be said to have signed the contract when they bound
themselves, by a curse, to observe all the enactments of the law (Deut.
xxvii. 14–26). Ordinances, though referring primarily to the Mosaic
ordinances, includes all forms of positive decrees (ordinances) in
which moral or social principles are embodied or religious duties
defined. Man everywhere is under law, written or unwritten; and he is
morally obligated to obey it. That law has been universally violated,
and its ordinances and sanctions are against us. We are involved in
legal condemnation; we owe to God what we can never pay. (2) The
Divine ordinances are hostile towards the transgressor. “Which was
contrary to us” (ver. 14). We are often painfully reminded of our broken
bond, as the debtor is often distressingly reminded of his undischarged
obligation. Our peace is disturbed, our conscience troubled, our
prospects darkened. The sense of condemnation pursues us in every
part of life and haunts us with visions of terrible vengeance to come.
II. That the believer is raised into a condition of spiritual life.—
1. Spiritual life begins in the consciousness of liberty. “Having forgiven
you all trespasses” (ver. 13). Sin enthrals the soul in an intolerable
bondage and smites it with a deathly blow. There is no return to life
until liberty is bestowed. Forgiveness confers that liberty. Pardon is the
point at which spiritual life begins. The sense of liberty is the first glad
thrill in the soul of a new and nobler life. The pardon is ample; it is all-
comprehensive—having forgiven you all trespasses. Every legal barrier
is removed. All guilt is cancelled. Every stain is purged away. Every
vestige of corruption disappears. The Divine mercy triumphs in the
prompt, generous, loving, full forgiveness of sins.
2. Spiritual life implies a freedom from all condemnation.—(1) The
indictment recorded in the Divine ordinances is cancelled and
abolished. “Blotting out the handwriting of ordinances that was
against us, which was contrary to us, and took it out of the way, nailing
it to His cross” (ver. 14). Every assurance is given to the trembling

believer that his guilt is pardoned, and his condemnation removed.
The handwriting is blotted out—as it were, cross-strokes are drawn
through it; and that all suspicion it may again become legible, may be
allayed, it is added, “and took it out of the way”; it is entirely removed.
But lest, haply, it should again be found and produced, it is declared—
it is destroyed, torn, nailed to the cross, and so made utterly useless
ever to witness anything against the believer. “Now we are delivered
from the law, that being dead wherein we were held” (Rom. vii. 6). The
handwriting against us is removed and destroyed by the sacrificial
death of Christ on the cross. There we behold the cancelled sentence
torn and rent by the very nails that pierced the sacred body of the
world’s Redeemer. (2) Freedom from condemnation is effected by the
cross. “His cross.” Much as the doctrine of salvation through the
vicarious sufferings of Christ may be misunderstood and despised, it is
the only method by which pardon can be bestowed, condemnation
removed, and spiritual life imparted. “Christ hath redeemed us from
the curse of the law, being made a curse for us.”
III. That the transition of the soul from death to spiritual life is a
Divine work.—“You hath He quickened together with Him” (ver. 13).
God only can raise the dead. He who first fashioned us in His own
image, who raised from the dead Jesus, the great Shepherd of the
sheep, rescues man from the gloomy domain of spiritual death, and
inspires him with a new and holier life. It is a life of blessed union with
the Divine. Its activities are spontaneous and Godward in their
tendencies. It has the power of growth and endless development. Its
aspirations are the purest and noblest. It is intensely individual. It is
the movement of the Divine in the sphere of the human, not defacing
or destroying the human, but exalting and perfecting its worthiest
traits.
Lessons.—1. All men are dead in sin. 2. Law condemns but cannot
deliver. 3. Pardon of sin is the gateway of spiritual life. 4. Pardon is
obtained only by looking to the cross.

Ver. 13. Death and Spiritual Life.
I. Man by sin is spiritually dead and disabled from exercising
spiritual acts.
II. Man is quickened into spiritual life by virtue of the
resurrection of Christ.
III. Spiritual life is obtainable only by the pardon of sin.
Ver. 14. The Handwriting of Ordinances.
I. Describes our condemnation.
II. Must be cancelled in order to pardon.
III. Cancelled by the sufferings on the cross.
IV. Is blotted out against us when we accept the Crucified.
MAIN HOMILETICS OF VERSE 15.
The Triumph of the Cross.
The apostle has shown the worthlessness of the Jewish ceremonies and
the galling tyranny of their yoke. He has exposed the emptiness of the
philosophy that was of human fabrication, with its illusive theories
about angel mediators, its vast accretions of conflicting traditions, and
its intolerable impositions. He has declared that they are all transfixed
to the cross—torn, lacerated, illegible, cancelled—and exhibited there
as a spectacle for the perpetual consolation and assurance of the
believer. And now the apostle, rising with the grandeur of his theme,
compares the scene of the cross to the splendid triumph of a Roman
general, in which the captives taken in battle were led in gorgeous
procession through the city as substantial trophies of the victor.
I. The triumph of the cross was over the powers of evil.
—“Principalities and Powers.”

1. The existence of evil is a painful fact.—We meet with it everywhere
and in everything. It mars the beauty of external creation and loads it
with a burden of unutterable woe. It flings its shadow over the
brightest sky, transforms the music of life into a doleful monotone, and
translates the softest zephyrs into sighs. It impregnates man’s moral
nature, deflects the purest principles, shatters the noblest powers,
arrests the loftiest aspirations and drags the soul down to the lowest
hell.
2. Evil is embodied in invisible and potent personalities.—They are here
called principalities because of their excellency, their deep penetration,
vast knowledge, and exalted station. They are called powers because of
their ability, the mighty influence they can wield, and the terrible
havoc they can work. Their dominion extends over the whole realm of
sin. They exist in vast numbers (2 Pet. iv. 2; Jude 6), but they are
inspired and guided by one great master-spirit—the prince of the
power of the air. They are animated and bound together by one spirit—
a spirit of bitter hatred and savage hostility towards God, and of
contemptuous scorn for His authority. They are eager to obey the
slightest behest of their malignant leader.
“He spake: and to confirm his words outflew
Millions of flaming swords, drawn from the thighs,
Of mighty cherubim: the sudden blaze
Far round illumined hell: highly they raged
Against the Highest, and fierce with grasped arms
Clashed on their sounding shields the din of war,
Hurling defiance towards the vault of heaven.”
These hosts of evil spirits are the great foes of man with which he has
incessantly to contend (Eph. vi. 12). The struggle would be hopeless
had not Christ defeated them.
II. The triumph of the cross was achieved after severe conflict.
—“Having spoiled.”

1. The conflict was continuous.—It was fought from the earliest period
between Satan and man, and the day was lost. The woeful issues of that
conquest are with us to-day. The battle has been raging ever since. The
enmity existing between the serpent and the seed of the woman is still
active. The symbols and foreshadowings of the great strife appeared on
many occasions during the Mosaic period. But when Christ assumed
our humanity and stepped upon the field as the great Captain of our
salvation, the conflict reached its climax.
2. The conflict was fierce.—Hosts of demons swarmed around the
solitary Warrior, and with incredible fury sought to gain a victory over
the human nature he had assumed. Again and again, they rushed to
the attack; but each fresh assault ended with a new defeat. In the
wilderness He was tempted by Satan; but the arch-tempter was
compelled to retire, baffled and conquered. Through the voice of His
chief disciple the temptation was renewed, and He was urged to
decline His appointed sufferings and death (Matt. xvi. 23). But Satan
was again foiled.
3. The conflict was deadly.—Then came the final hour—the great crisis
when the power of darkness made itself felt, when the prince of this
world threw his last fatal shaft and asserted his tyranny (Luke xxii. 53;
John xii. 30). The closing act in the conflict began with the agony of
Gethsemane; it ended with the cross of Calvary. The Son of God expires
on the accursed tree. But, lo! strange reversal of all human conflicts—
the moment of apparent defeat is the moment of victory! By dying
Christ has conquered death and wrested from the enemy his most
potent weapon of terror. The principalities and powers of evil, that
clung around the humanity of Christ like a fatal Nessus tunic, were
spoiled—torn off and cast aside for ever. Evil assailed the great
Redeemer from without, but never penetrated Him as it does
humanity. In the act of dying the crucified One stripped off and flung
to the ground the great potentates of evil never more to be in the
ascendant.
III. The triumph of the cross was signal and complete.—1. It was
signal. “He made a show of them openly.” The overthrow of the

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