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page i
ADVANCED
FINANCIAL
ACCOUNTING
page ii
page iii
ADVANCED
FINANCIAL
ACCOUNTING
AN IFRS® STANDARDS APPROACH
page iv
Copyright © 2020, 2017, 2015, 2009 by McGraw-Hill Education. All rights reserved. No part of this publication may be reproduced or distributed
in any form or by any means, or stored in a database or retrieval system without the prior written permission of the publisher, including, but not
limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.
Citations of IFRS Standards: Copyright © IFRS® Foundation: All rights reserved. Reproduced by McGraw-Hill Education with the permission of
the IFRS Foundation. No permission granted to third parties to reproduce or distribute.
The contents of this books are intended primarily for pedagogical purposes and are based on the authors’ interpretations and opinions, after due
consideration of the requirements of the applicable IFRS® Standards and IAS® Standards. The International Accounting Standards Board (IASB),
the IFRS Foundation, the authors and the publisher do not accept responsibility for any loss caused by acting or refraining from acting in reliance
on the material in this publication, whether such loss is caused by negligence or otherwise.
All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the
authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.
1 2 3 4 5 6 7 8 9 10 SLP 22 21 20 19
Printed in Singapore
page v
THE AUTHORS
Pearl TAN Hock Neo is Associate Professor of Accounting (Education) at Singapore Management University (SMU)
where she teaches Advanced Financial Accounting at both the undergraduate and postgraduate levels. Besides
extensive experience in teaching and developing advanced accounting courses at SMU and Nanyang Technological
University (NTU) where she previously taught, she has had several years of audit experience in an international
accounting firm prior to joining academia. A Fellow Chartered Accountant of Singapore, Fellow Certified Public
Accountant of Australia and Fellow of the Association of Chartered Certified Accountants, she holds a Masters
degree from the London School of Economics and Political Science and a PhD degree from the University of
Queensland. She has also co-written reports and given feedback to the International Accounting Standards Board and
governmental and professional bodies. She has conducted several accounting seminars for major organizations and
members of professional bodies. She had served on the Advisory Board for Accounting Standards for Statutory
Boards in Singapore, the Financial Reporting Committee of the Institute of Singapore Chartered Accountants and the
Accounting Standards Committee of the then Institute of Certified Public Accountants of Singapore. She has won
teaching awards in both SMU and NTU.
LIM Chu Yeong is Associate Professor at the Singapore Institute of Technology where he teaches Advanced
Company Accounting and Corporate Reporting courses. He has taught Advanced Financial Accounting, Intermediate
Financial Accounting and Valuation courses at the undergraduate level and Financial Statement Analysis at
postgraduate level, at the Singapore Management University School of Accountancy. He has 15 years of industry
experience in treasury, financial accounting and management accounting positions primarily within the page vii
financial sector. His finance and accounting experience spans major companies including Credit Suisse,
Citibank, Shell, Standard Chartered Bank, the Government of Singapore Investment Corporation (GIC) and the
Development Bank of Singapore (DBS). His latest position prior to joining SMU was VP at Credit Suisse. He holds a
PhD from Manchester Business School, an MBA from the University of Warwick and is a CA Singapore. He has
served on the Financial Reporting Committee of the Institute of Singapore Chartered Accountants. He has published
in reputable journals including the Journal of Accounting and Public Policy.
KUAH Ee Wen is a Senior Manager with the Assurance and Professional Practice Department with Ernst & Young
LLP. A Chartered Accountant with the Institute of Singapore Chartered Accountants, Ee Wen holds a Master of
Business Administration from the University of Manchester and a Bachelor of Accountancy (Second Class Upper
Honours) from Nanyang Technological University. Ee Wen was seconded to the Accounting Standards Council
(ASC), the national standard setter of Singapore from January 2011 to 2013. As part of the ASC Secretariat, he was
one of the key lead managers spearheading the IFRS Convergence Project for Singapore. Ee Wen has also represented
Singapore at international conferences and presented at regional forums hosted by international agencies such as the
International Accounting Standards Board (IASB), Asian Oceania Regional Standards Setters Group (AOSSG)
amongst others. Currently, Ee Wen serves as a senior technical manager where he advises on both complex
accounting and auditing issues. Ee Wen’s audit experience spans across listed companies and multinational
corporations in various industries in Singapore. His clientele profile includes commodities trading, high-tech
manufacturing, real estate, logistics, and shipping companies. Ee Wen was also involved in the Initial Public Offerings
of companies in both local and cross-border listing. He has also team-led engagements in performing audits in
compliance with Sarbanes Oxley Act Section 404.
page viii
PREFACE
With the internationalization of accounting standards and their rapid rate of change, accounting students worldwide
need to have a rigorous understanding of International Accounting Standards (IAS® Standards) and International
Financial Reporting Standards (IFRS® Standards) as well as the ability to apply the recognition, measurement and
disclosure requirements of these standards to complex transactions. The learning curve for aspiring accountants in
today’s dynamic accounting environment is steep and the challenge for accounting students is to develop expertise
with insight.
As accounting educators who have taught advanced financial accounting for several years and who have worked
in senior-level positions in auditing and corporate accounting, we understand the challenges that accounting students
face. As a result, we have, over the years, developed approaches and explanations to help accounting students learn
complex rules in a rigorous, analytical and insightful manner. In this new edition, we present the rigour of the
requirements of accounting standards as applied to complex transactions, with generous explanations and many
illustrations.
As accounting professors, we believe that students learn best when they understand the rationale for the
accounting methods or procedures used. Hence, this textbook has many generous explanations of the accounting
entries and procedures used. We also highlight the analytical relationships among complex financial statement
numbers in business combinations, foreign currency translation and accounting for taxes on income. Students may use
these analytical relationships to check or reconcile their calculations.
We have developed unique analytical procedures that help students to derive reported items in consolidated
financial statements independently of consolidated journal entries. These analytical checks are useful in page ix
more ways than one. They develop a deeper understanding of the components that are included in the
final numbers reported. They also provide an independent means of checking the results of the consolidation process.
The author team includes a co-author who is a practitioner with many years of auditing experience and who is
actively engaged in technical development and training in his firm. Our practitioner co-author brings valuable new
content and insights on complex accounting issues. The new content benefits both advanced accounting students at
undergraduate and postgraduate levels and practitioners alike. In today’s dynamic landscape, this book also serves as
a useful primer for practitioners who seek clarity of principles and processes in the application of accounting
standards to complex accounting issues.
As accounting standards become more comprehensive and economic transactions become more complex, it is
necessary for accounting professors to equip their students to deal with these issues with confidence. Inevitably,
classroom time is limited but in many senior level courses, the more complex materials in the book may be used
fruitfully by adopting professors to feature the topics as part of a project assignment. Accounting professors may ask
their students to analyze the basis of conclusions on which the requirements are built or apply the principles to real-
life cases. Examples of complex materials include reverse acquisitions, change in ownership interests in significant
influence and joint control, common control and derivatives on own equity. The text provides the critical basis for
further exploratory assignments.
We highlight below some of the special features in this text.
page x
Translation of Foreign Currency Transactions and Foreign Operations (Chapter 8)
New chapter that deals with an area that is traditionally complex and difficult to account for
Explore the rationale for such transactions
Explains the relevant consideration and the accounting treatment
The topics and the IAS and IFRS Standards covered in this text include:
page xi
Risk-Reporting Disclosures
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments
IAS 24 Related Party Disclosures
IFRS 13 Fair value measurement
Instructor Supplements
For this new edition, we have provided various supplemental materials to help instructors prepare and present the
material in this text more effectively. The Online Learning Centre (www.mheducation.asia/olc/tan4e) provides
instructors with the following teaching tools:
Instructor’s Manual
Solutions Manual
PowerPoint Presentation Slides
Test Bank
Acknowledgements
In the development of this book, we are grateful for the encouragement that we have received from the academic
communities in Singapore and the region and the professional community in Singapore. Special thanks are due to our
respective employers, Singapore Management University, Singapore Institute of Technology and Ernst & Young LLP
for the support and encouragement given to us in the writing of this book. We also record special thanks to Singapore
Management University for providing financial assistance for research assistantship at certain phases of the textbook
development. The views and opinions expressed in the book are our own and do not necessarily represent those of our
employers.
We are truly indebted to Mr Peter LEE Lip Nyean for his valuable contributions to the first two editions of the
book. Mr LEE has retired from academia and has graciously asked for new co-authors to be engaged in the book’s on-
going efforts to renew and refresh itself. We are delighted that Mr KUAH Ee Wen has joined the team of authors. He
brings to the third and fourth edition, fresh insights and significant practical perspectives to complex problems.
We thank the IFRS Foundation for their kind permission to allow us to reproduce certain extracts of the IFRS
Standards and the IAS Standards. We are also indebted to Keppel Corporation Limited for giving us permission to
publish extracts from its financial statements.
The authors also acknowledge the constructive feedback and comments from our fellow academics and
practitioners, including Associate Professor LEE Kin Wai from Nanyang Technological University, Associate
Professor CHNG Chee Kiong and Associate Professor (Adjunct) Sardool SINGH from National University of
Singapore, Associate Professor LIM Chee Yeow from Singapore Management University, Dr Bernardine LOW from
Singapore University of Social Sciences, Ms ONG Suat Ling and Ms CHANG Huan Ngee from Ernst & Young LLP.
All errors and omissions are ours.
We are grateful for the excellent support provided by our research assistants, Cheryl TAN Hui Ching, Anabel
ONG Jingwen and ANG Li Cheng in the work related to the current edition. For past editions, we record thanks to our
research assistants PHUA Kuan Hua, Freya CHEN Birong, LOW Guang Heng, CHEW Chang Hong, CHOO Mei
Mei, FANG Dehao, HUANG Zhengjun, Leslie SEAH, Monica WAI, Eugene THIANG, LIM Hui Ying, CHAN Ying-
Jian and CHEW Wee Ling and other students who have contributed to this book but whose names are inadvertently
left out. We are grateful to many students who have given us valuable feedback of how students learn and which have
helped us to develop systematic approaches to convey complex materials more effectively. We apologize for the
inability to name our students individually but are grateful to each of them.
On a personal note, the authors are grateful for the support of their family members who had to put up with the
authors’ long hours in working on the book project.
We are deeply grateful to the management of McGraw-Hill Education (Asia), particularly Mr Joseph CHONG
(Managing Director, Asia) and Ms Patsy TAN (Business Development Manager, Singapore & page xiii
Thailand) for their continued support of this book and their firm belief that this book meets an
important need in the education of accountants. Grateful thanks are also extended to the editorial and production team
of McGraw-Hill Education (Asia), particularly Ms TEY Siam Chun, Project Manager for her professionalism,
patience and competent management of the publication of the fourth edition. The encouragement from the
management and editorial team of McGraw-Hill Education (Asia) has made the writing of a challenging book an
enjoyable and meaningful process for the authors.
BRIEF CONTENTS
1 Risk Reporting 1
2 Group Reporting I: Concepts and Context 29
3 Group Reporting II: Application of the Acquisition Method under IFRS 3 69
4 Group Reporting III: Accounting for Business Combinations and Non-Controlling Interests under
IFRS 3 in Post-Acquisition Periods 159
5 Group Reporting IV: Consolidation under IFRS 10 239
6 Group Reporting V: Equity Accounting under IAS 28 and Joint Arrangements under IFRS 11 327
7 Group Reporting VI: Complex Consolidation Issues 441
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[104] De Natura Hominis; de Salubri Victus Ratione; de Natura
Muliebri; de Morbis, ii., iii.; de Superfœtatione.
[105] De Flatibus; de Locis in Homine; de Arte; de Diæta; de
Insomniis; de Affectionibus; de Internis Affectionibus; de Morbis,
i.; de Septimestri Partu; de Octimestri Partu; Epidemiorum, ii., iv.,
vii.; de Humoribus; de Usu Liquidorum.
[106] Epistolæ; Thessali Legati Oratio; Oratio ad Aram;
Atheniensium Senatus-Consultum.
[107] De Genitura; de Natura Pueri; de Morbis, iv.; de
Mulierum Morbis; de Virginum Morbis; de Sterilibus.
[108] Epidemiorum, v., vii.; de Corde; de Alimento; de
Carnibus; de Septimanis; de Natura Ossium; de Glandulis; de
Medico; de Decenti habitu; Præceptiones; de Anatomia; de
Dentitione; de Exsectione Fœtus; de Visu; de Crisibus; de Diebus
Criticis; de Medicamentis Purgativis.
[109] Hippocrat. Coi Comment. etc., Theod. Zuingeri studio.
Basil, 1579.
[110] See his additions to Ackerman’s Dissertation, in his
edition of the Works of Hippocrates.
[111] § 122, tom. i., p. 172 (ed. Bekker), where see the note
of Heindorf.
[112] Galeni Opera, tom. v., pp. 2, 16; ed. Basil.
[113] Œuvres Complètes, etc., tom. i., p. 320.
[114] The argument turns principally on the meaning of the
expression, τι πότε λέγει Ἱπποκράτης τε καὶ ὁ ἀληθὴ λόγος, which
M. Littré contends signifies, “ce qu’Hippocrate et la raison
pourraient dire.” Now I must say that, to me, the words of Plato
here quoted do not warrant the interpretation which M. Littré
puts upon them; and, not satisfied with my own judgment on this
point, which happens in the present instance to be an important
one, I applied to one of the best authorities in Britain on the
minutiæ of the Greek language for his opinion, and was happy to
find that it entirely corresponded with my own. Having alluded in
the text to the prolixity of the discussion which M. Littré enters
into on this occasion, I trust that eminent scholar will not be
offended (provided these pages ever meet his eyes) if I introduce
here an anecdote of the celebrated Kuster. Having been shown a
work in which the quantity of argumentation and reflection
greatly over-balanced the amount of facts and references, he laid
it aside with the remark, “I find nothing here but reasoning: non
sic itur ad astra.”
[115] Galeni Opera, tom. v., p. 119; ed. Basil.
[116] Comment. vii.; et sect. vii., 53 et seq.
[117] See under Hippocrates in Smith’s Greek and Roman
Biographical and Mythological Dictionary.
[118] “In all paroxysms, or sharp fits of intermitting diseases,
we must take away meat, for then to give it is hurtful.”
[119] “The belly is naturally hottest in winter and the spring,
and most addicted to rest. Consequently in these seasons a
greater proportion of food is to be allowed, because the inward
heat is stronger, which is the reason that a more plentiful food is
necessary. This difference may be seen in such as are old, and in
such as are lusty and well-grown bodies.”
[120] “Those things that are or have been justly determined
by nature, ought not to be moved or altered, either by purging or
other irritating medicines; but should be left alone.”
[121] “Things evacuated and purged are not to be estimated
by the multitude and quantity, but by their fitness to be avoided
and sent forth; and must be such as are not too troublesome to
the patient to bear. Though, where it is necessary, we must
proceed in evacuating, even to swooning and fainting, if the
patient can bear it.”
[122] “Those who are grieved in any part of the body, and are
scarce sensible of their grief, have a distempered mind.”
[123] “When the upper parts of the throat or gullet are sore,
or a breaking out of small tumours does arise in the body, we
ought to look upon the excrements; for if they are choleric, the
body is also sick; but if they are like the excrements of sound
persons, the body may be nourished without danger.”
[124] “When that which ought to be evacuated is discharged
by spontaneous vomiting and diarrhœa, it is useful and easily
endured; but when otherwise, the contrary. This is equally true
with regard to every vessel,” etc.
[125] “They in whom the greatest vigor of the disease is
immediately perceived, are to be immediately sparingly supplied
with food; but from those in whom it occurs later, the food must
at that time, or a little earlier, be abstracted. Previously, however,
we must nourish more freely, that the sick may be supported.”
[126] “Whilst the crisis is forming, and when it is complete,
nothing ought to be moved or to be introduced, whether by
purgatives or other irritants; but all should be left at rest.”
[127] “They who are accustomed to daily labor, although even
weak or old, endure it more easily than the robust or young, who
are even accustomed to it.”
[128] “In regard to the seasons, if the winter has been dry
and cold, and the spring moist and warm, in summer acute
fevers, ophthalmias, and dysenteries must necessarily occur,
chiefly, however, among females and men of pituitous
temperament.”
[129] Tom. v., p. 399; ed, Basil.
[130] “The state of the air being, upon the whole, dry, with a
south wind, which was just contrary to what happened the year
before, when the north chiefly prevailed; there were but few
inflammatory fevers, and these were of a mild disposition, very
few being attended with hemorrhages, and much fewer, if any,
with death.” (p. 4.)
“They affected children, young persons, and those who were
arrived at years of maturity, and especially those who used much
exercise, yet but few women.” (Ibid.)
“Before the summer, and even during that season, nay, in
winter likewise, there were many who had been disposed to a
phthisis who were now afflicted with that disease,” etc. (Ibid.)
“The extremities were generally very cold, there was seldom
any heat in them.” (p 3.)
[131] Præfat. Gloss.
[132] Comment. in Libr. de Fract.
[133] In Lib. Prognos. Comment.
[134] Tom. v., p. 89; ed. Basil.
[135] Comment. in Lib. de Fract.
[136] Deipnos, ii., 7.
[137] De Propr. Lib., in III. Epid., Comm. ii., Præf.
[138] Bibl. Med., p. 1, 29, 59.
[139] The inhabitants of Asiatic Ionia, and the islands
adjoining, were all colonists from Attica. (See in particular
Thucyd., i., 12; and also Herodot. viii., 44; and Heraclides, de
Politiis.) Dr. Coray supposes that Hippocrates represents himself
as being a European, in consequence of his having composed this
treatise in Europe, at a distance from his native country. But there
is no necessity for this supposition, as Hippocrates, being of
Grecian descent, would naturally enough consider himself a
European, since the great body of the Greeks were Europeans.
Coray mentions a striking instance of Haller’s incapacity to form a
correct judgment on the works of Hippocrates, from want of a
proper acquaintance with the Greek language.—Discours
Préliminaire, etc., p. lvi.
[140] De Placit. Hippocr., et Platon. ix.; de Diff. Resp., iii., 7.
[141] Ap. Foës., p. 197.
[142] Galeni Opera, tom. v., p. 652; ed. Basil.
[143] Opera, tom. v., p, 578; ed. Basil.
[144] Ibid., p. 170.
[145] In Prædict. i., Comm. i., 4.
[146] V. Galen, in Exeges. in vocibus ἐκλούσθω, σφάκερος,
etc.
[147] Præfat. Gloss. Hippocrat.
[148] Gynæc., tom. i., P. I., p. 13.
[149] In vita Hippocrat.
[150] Ad Nepotian. de vita Cleric., Ep. ii., p. 13, tom. i.; ed.
Paris, 1643.
[151] Orat. Funebr., in Cæsarium Fratrem.
[152] Sub voce Hippocrates.
[153] Epist. ad C. Jal. Callistum.
[154] Thesmophor., l. 240.
[155] De Legg. iv., l. vi., p. 134; ed. Tauchnitz.
[156] Tom. ii., p. xlviii.; Add. et Corrig.
[157] Tom. v., p. 526; ed. Basil, etc. Elsewhere he quotes it as
being undoubtedly genuine.—De Placit. Hippoc. etc., ix., 1.
[158] Hist. Med., p. 283.
[159] See Polybius, as quoted by Littré, l., c.; also section iii.
of the Preliminary Discourse.
[160] Saturnal., vii., 6.
[161] Hist. Animal., iii., 3.
[162] In Boerhaav., Meth. Stud. Med.
[163] De Placit. Hippocrat. et Plat., vi., 3; et Opera, tom. v., p.
22; ed. Basil.
[164] De Nat. Facult., tom. i., p. 87.
[165] Opera, tom. v., p. 329; ed. Basil.
[166] See English translation of Paulus Ægineta, Book I., p.
549.
[167] See Galen, tom. v., p. 2.
[168] See further, under No. 1.
[169] Opera, tom. v., pp. 17, 29.
[170] See Paulus Ægineta, I., 50.
[171] I., 3.
[172] Sect. ii., near the beginning.
[173] Comment. in III. Epidem.
[174] Ad Hippocrat. de Aëre, Aquis, Locis, § 65.
[175] De Vulneribus superciliis allatis. Lips., 1741.
[176] Lehre von den Augen-krankheiten. Wien, 1813.
[177] In VI. Aphor., 3, Comm. vi.; Meth. Med., iv., 6.
[178] Hist. Med., i., 3, 4, 60. His language is particularly
strong: “Maximè genuinus ab omnibus judicatur.”
[179] In his Commentary on this work.
[180] Book iv., 44. See the authorities quoted in the
Commentary on this chapter in the English edition. Schulze
properly remarks, that the composition which he recommends as
an application to certain sores resembles the Ægyptiacum of
modern times.—Hist. Med., i., 3, 4, 63.
[181] Comment in Lib. de Nat. Human.
[182] They are as follows: “Continuari cum libello de
hæmorrhoidis manifeste spurio, ideoque ipsum esse spurium,
Galenus jam notat in Gloss., s. v. πήρινα et στρυβλήν.” Now, as
stated above, Galen does not say a word against the authenticity
of these works.
[183] Comment i., in Hipp. Prognost. The quotation prefixed
to this work in the editions of Vander-linden and Frobenius, in
which Galen is stated to have held this work not to be genuine, is
admitted by Littré to be of no authority.
[184] Morb. Diuturn., i., 4.
[185] See Menage in Diogen. Laert., p. 241.
[186] See § 66, tom. vii., p. 359: ed. Bekker.
[187] See all these authorities as quoted by Ackerman.
[188] Hist. de la Méd., i., iii., 4.
[189] It may appear a singular idea that the earth is
supported on air, and yet it was very generally held by the
learned men of antiquity. The poet Lucan thus alludes to this
doctrine:
None seem to have felt the force of this great truth so much
as the Persian despots themselves, or to have estimated the
effects of civil liberty higher than they did. The younger Cyrus,
before the battle of Cynaxa, addresses his Grecian soldiers in the
following memorable words: Ὦ ἄνδρες Ἕλληνες, οὐκ ἀνθρώπων
ἀπορῶν βαρβάρων συμμάχους ἡμᾶς ἄγω, ἀλλὰ νομίζων ἀμείνονας
καὶ κρείττους πολλπῶν βαρβάρων ὑμᾶς εἶναι διὰ τοῦτο
προσέλαβον ὅπως οὖν ἔσεσθε ἄνδρες ἄξιοι τῆς ἐλευθερίας, ἧς
κέκτησθε, καὶ ὑπὲρ ἧς ὑμᾶς ἐγὼ εὐδαιμονίζω· εὖ γὰρ ἴστε, ὅτι τὴν
ἐλευθερίαν ἑλοίμην ἂν ἀντὶ ὧν ἔχω πάντων καὶ ἄλλων
πολλαπλασίων.—Anab., i., 7. Such being the established opinions
of the intelligent portion of mankind in the days of Hippocrates,
the sentiment here expressed would then be regarded as a self-
evident truth. Plato, indeed, modifies this opinion in so far when
he holds despotism to be the consequence and not the cause of
servility.—De Repub., viii.
[433] The name Sauromatæ or Sarmatæ was applied by the
ancient geographers to certain inhabitants of that vast and, to