Benefits of the International Reporting Standards

Benefits of the International Reporting Standards 2. 0 Literature review 2.1 Introduction Literature abounds in polarising this subject matter the benefits of the international reporting standards. Looking back at the last quarter of the 20th century it will no longer be seen as an evolutionary period global financial market in a bit to introduce a single set of standards that will be generally acceptable in financial reporting. International reporting standards have revolutionized the domestic accounting system to a more capital oriented system (Hope et al, d Archy 2001). Lantto (2007) states that the information provided by the IFRS is more reliable and relevant. Darke and Deske (2006) highlights that the disclosure quality has increased tremendously since the adoption of the IFRS. Furthermore, Ding et al (2006) states that the adoption of the IFRS has made a great impact in bridging the differences in the use of the domestic standards among the countries. In justifying the theories, there are opinions as well as oppositions on the advantages of the international reporting standards. What becomes evident although arguably is that the movement from the domestic standard of reporting to the international standard of reporting is of great benefit to financial reporting to the shareholders, firms ,organizations and also global economy as it will place the whole countries in the same reporting field. This chapter will review this report from the historical background of the international financial reporting standards, the Implementation and enforcement then to the benefits of the adoption of this standard. 2.2 Financial Reporting. In the beginning financial reporting can hardly be called external (Alexander, Britton and Jorissen, 2003: 22) rather it was a way by which the owners were informed on their income and capital. This is because the owners and managers of the company were not separated. Until in the 1800s when they started encountering the agency problems it becomes evident to separate ownership (management) from capital supply. Then external wreporting was introduced in order to provide information outside the borders of a specific country. Hence, financial reporting emanates from internal to external reporting. Financial reporting provides information to the users for making economic decisions (Iqbal 2002). Gilmore and Wilmot (1992) states that reporting has developed over time in a bid to stress the need for investment decision making and also to attract investors into the company. Hegarty (1997) opines that the range and varieties of this reporting regime is as a result of an evolution which shows the uniqueness in the economic, cultural and legal jurisdiction. As a part of the revolutionary process financial reporting has changed over time (Crowther 2000). The change is a result of a need for a good financial reporting system that will communicate real value an d risk to the users of the reports (Damant 2000) .Hence, the quality of a financial report is dependent on the reporting standards. 2.3 Why Standards? According to (Perks 1994,p.137),Accounting standards may be seen as the professions rules, which supplement companies Act requirements that are intended to restrict directors freedom of manovoevre and to ensure that the financial statements are presented on a more comparable, consistent and standard basis. Perks (1994) reporting standards is also important in order to prevent scandals, abuses, financial collapsing in the companies and creative accounting that may jeopardize the profession. Also, Elliot and Elliot (2008) highlight some reasons for standard this includes: Comparability: Financial statements should be able to allow users make predictions on future cash flows and also evaluate managements performance. Credibility: For financial information to disclose information that will give a true and fair view, uniformity is therefore essential. Influence: To be able to stimulate a development of the conceptual framework the process at which the standards are formulated should be able to give a constructive appraisal of the policies proposed for the individual financial reporting. Discipline: A mandatory standard is necessary as it structures a regulation that will be systematic and ongoing thereby enforcing a disciple in the financial markets for all organizations listed in the stock exchange. The usefulness of a reporting standard cannot be overemphasized although there are some arguments on this. Harvey and Keer (1983) argued that information produced using financial standards could be unreliable at times and the standards might be bureaucratic and inflexible. Also, there may be adverse allocative effects . Consequently, there might be consensus-seeking and standard overload . Lets take an illustration of a of two companies; Enron and Ahold to further explain why we need standards. Enron is the seventh largest US based company falling into bankruptcy as a result of an overstated profit of $500 million and the Ahold the third largest US grocer had their earnings overstated for the past two years by $500. 2.3 How National differences affects reporting. Given that the environment differ from country to country, the types of decisions to be taken and information needed in decision making differs from one country to another. Hence, accounting system is environment specific. (Iqbal 2002). Adhikari and Tondkar (1992) reported that financial accounting reporting and disclosure standards and practices do not develop in a vacuum but reflect the particular environment in which they are developed (p. 76). The culture of a country affects its method of accounting and financial reporting. For example, Gary (1988) in his books illustrated one of the ways by which cultural differences affects countries financial reporting; a country with a high uncertainty avoidance and low individualism will tend to be more conservative in their income measurement than in a country with low certainty avoidance and high individualism. Although the measures of cultural attributes may be indistinct and not direct in financial reporting compared with the other factors that affect financial reporting.Also, the nature of accounting regulations in a country is influenced by the general system of law applicable in that country. For example Jaggi and Low (2000), notes that companies in the common laws countries tends to have a high level of disclosures than countries in a codified Roman law system. La Porta et al. (1998) argues that common countries have investors with a strong legal protection than the Roman law countries do. Moreover, the differences in the types of business organization and ownership also affect financial reporting. Elliot and Elliot (2008) further explains this stating that in a country like the UK the business structure indicates a separation of the ownership and the management while in the French business the structure differentiates the ownership from the managers.. According to Nobes and Parker (1 998, p.21):The difference in the providers of finance (creditors/insiders) versus (equity/ outsiders) is the key cause of international differences in financial reporting. Although there is an increasing scale, companies firms had to find extra capital to finance growth. (Alexander, Britton and Jorrisen 2003). Roe (2003), further argues that political differences are the major cause of the differences in corporate structures in the developed western countries. Also the accountancy profession is another determinant of the differences in financial reporting. Nobes and Parker (2006:36) emphasizes that the strength, size, and competence of the accountancy profession in a country affect the type of financial reporting that will be obtained in that country. So with these differences the financial analyst cannot be able to make a headway there is therefore a need for a uniform reporting standards. 2.4 Why the call for international reporting standards Over the years it becomes apparent for an ever increasing worldwide competition. The globalization of the markets and companies increased as a result of the cross-border securities market listings and capital raising.. Thus, there was no cross-border investments, investors therefore prefer to invest in companies whereby there will are more comfortable with their system of accounting . 2.5 Background of the International Reporting Standards. Financial reporting standards for international applicability became prevalent in the 1970s. International Accounting Standards committee (IASC) was set up in the 1973 in order to standardize the reporting differences in international investment communities. The establishment of the International Accounting Standard committee is seen as a response to the call by the accounting profession for a greater co-ordination of accounting rules among the various nations of the world (Kraayenhof 1960).The need was expressed in the international congresses of Accountants held in September, 1972 in Sydney. Chetkovich (1979, p.13) emphasizes that at each of these congresses, there was a demand for a better communications and closer cooperation among accountants on a worldwide basis; and also for greater harmonization of accounting standards. This statement led to the establishment of the IASC on June 29, 1973. The objectives of IASC are: to formulate and publish in the public interest, international standards; also to promote their acceptance and observance world-wide, and to work generally for the improvement and harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements. (IASC, 1983, Preface to Statements of International Accounting Standards, p.1). This is the first step towards the achievement of a globally recognised standard .The members of the IASC accept that adopting of international accounting standards (IAS) will improve the quality of financial statements (IASC ,1995). How far did this go or were there criticisms to this standard? IASC helped in solving the problem of uniformity although the purpose of it enactment was far from being realised. One of the weaknesses is that the standard issued by IASC has many objectives thereby making it difficult to achieve the purpose of consistency in recognition, measurement and presentation of transactions (IASB section 4). The standard is also too broad and allowed the use of several alternative accounting treatments. Atiken and Wise (1984) emphasizes that the IASC gives more attention to the multinational companies and investors in the multinational businesses more than it emphasizes on the harmonization of all spheres of the organization globally. Therefore emphasizing that IAS C was set up for the harmonization of accounting on a worldwide basis in order to improve the financial reporting and decision-making capability of multinational businesses, and investors in multinational businesses.(p.176). The second criticism to the use of IASC is that of the mandate. The statement starts with the phrase to formulate and publish in the public interest international standards†¦. (IASC). Hence they act in the interest of the public by a way of enforcing the rules which may not be favourable to the public. This absence of democratic legitimacy has been the major reason by which the IASC standards have not been enforced. Besides , this the structure and the membership composition of the IASC lacked the requirements needed for a global standard setting organization which includes the independence of its members, technical expertise and the decision making bodies representatives. McKinnon and Janelle (1983, p.33) argued that IASC has only succeeded in codifying generally accepted practice, in serving as a neutral source of standards ,and in influencing groups with the enforcement powers. Consequently, the IASC was restructured from the year 1998 to 2000 to International Accounting Standards Board (IASB). IASB is an independent London-based standard accounting body privately funded. The first IFRS was issued in the year 2003 with a membership of 19 countries but it has tremendously grown to 70 countries now with the EU mandating that all listed companies should use the IFRS in their financial reporting effective from the year 2005 (EC,2002). IASB has two member bodies the standard setting board and the member board of trustees .The IASB establishment is allied to that of the international federation of Accountants worldwide (IFAC).. The International Accounting Standards Board is committed to developing, in the public interest, a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements in addition, the IASB co-operates with the national accounting standard-setters to achieve con vergence in accounting standards around the world. (IASB, 2002, p.1). IASB has taken corrective measures in removing the accounting alternatives thereby ensuring that firms give a report that will reflect a true position and economic performance of the firm. IASB also aims at promoting global consistency in application and enforcement. It has also met the requirement that the business which operates in multiple bodies have a uniform financial statement which will be understandable in the countries whereby they operate. 2.6 International Accounting Standard Board (IASB) versus FASB? Norwalk agreement in the year 2002 by the Financial accounting Standard Board (FASB) and the International Accounting Standards Board was signed by both bodies after the need for a high quality, consistent and a comparable information which will be applicable to both domestic and the cross border financial reporting was recognized. Jacob and Madu (2009, p.3) the cited that both FASB and the IASB has pledged to use their best efforts in making their existing financial reporting standards fully compatible as is practicable and to coordinate their future work programmes to ensure that once achieved compatibility is maintained. This was also confirmed in their meeting in October 2005 of the two bodies reaffirming their commitments to converge US GAAP to IFRS. In a Concept Release, the SEC(2000) notes, Establishing and maintaining high quality accounting standards are critical to the US approach to regulation of capital markets, which depends on providing high quality information to facilitate informed investment decisions. (Jacob and Madu 2009).SEC released a proposal on July 13 2007, which states that US should recognize financial statements prepared using the IFRS from the foreign private issuers without reconciling them back to GAAP [2].furthermore, SEC informs all the investors that IFRS is the only set of standards with a high quality accounting standards that is more informative, useful for preparing financial reports compared with the US GAAP. This recent move to IFRS suggest that ,IFRS is the only standard that is of high quality and globally recognized and also has a potential to improve comparability of the financial statements despite of the country whereby they are domiciled. Despite all these efforts to converge to IFRS some academic literature still opines this stating that there are still material differences between the IFRS and the US GAAP. More so, the information contained in reconciliation is evident in the investment decisions made by the US investors. for example ,Culter and Neidemeyer (2009) argues that the major challenge why US did not want to adopt the IFRS is that there are differences in regulation and the manner at which these rules are been interpreted. IFRS is principal based regulatory system; which means that the rules are already set. On the other hand US GAAP is ruled based, whereby a detailed guidelines and principles is already laid out. Delliot (2007) emphasized that the principle based rules focuses more on the objective not relying more on the detailed rules. Deming (2005,p.4) gives a conclusive report pointing out that IFRS has more of a common law approach, than the US GAAP which is more of a civil law approach Furthermore, in the number of standards, IFRS has forty nine sta ndards while and nineteen interpretations and this consist of an approximate of two hundred pages (Delliot 2009) while the US GAAP has twenty thousand page (Mitra 2009).Other notable differences are seen in the financial reporting using the US GAAP and the IFRS. This will be comprehensively reviewed in the subsequent chapter. 2.7 Implementation and Enforcement of Financial Reporting Standards The credibility of a standard relies on its smooth implementation by countries that adopts it. Enforcement is a difficult concept to quantify and measure (Nobes and Parker 2006). The enforcement process differs from one country to another. Even at the international level there is still no genuine enforcement process. Moreover, some accounting bodies set standards and leaves enforcement to other bodies while others do both. For example US Securities and Exchange Commission sets laws and enforces it while IASC, Accounting Standards board (ASB) sets and develops standards and do not have the power to enforce these standards For the set rule of IFRS to be achieved an enforcement body has to be set up with powers to enforce the standards (Lamfalussy, 2001; Committee of European Securities Regulators [CESR], 2003a). Nobes and Parker (2008) states that the most determining factor for a successful adoption of this standard as a global standard is in the approach taken by the financial regulating bodies in the countries that adopts it. Giner and Rees (2005), Brown and Tarca (2005 )and Ball(2006 ) affirms that the purpose of IFRS is to provide a high quality financial reporting which can only be achieved with vigorous enforcement by the regulatory bodies (Schipper 2005 and Ball et al. 2003.The enforcement has not been easy certain factor has affected the effective enforcement of the law. Some of them vary from the cost, regulators interest and whether the businesses or accountants really need them. Watts and Zimmerman (1986), opines that the value of regulation is an empirical question, more apprehensive of ho w the regulatory authorities can value the costs and benefits of regulation. For example in the EU countries the structure and the organization that is in charge of the oversight of the requirements in the financial reporting varies among the EU countries. Also some countries do not have institutional oversight of financial reporting (FEE, 2001a, p.10).The EU regulation therefore mandates that the member states are to take appropriate measures in order to ensure compliance with IFRS. (European Commission EC], 2002, n.16). As a result of this the need for a country to produce a multiple financial statements was eliminated. Lafferty (1981) noted that no enforcement mechanism ever existed in reality. Perks (1993), expressed in his opinion that, without a legal backing it is not easy for the reporting standards to be enforced. Enforcing of the accounting standards therefore may require statutory audit, an effective sanctions and monitoring by supervisory bodies and for it to be implemen ted. Thus, there will be continuous reformations and changes in these standards. IFRS AND EU The European Parliamentary on enacted a legislation 0n 14 March 2002 requiring all companies listed in the European stock exchange to publish their financial statements with in accordance with the International financial reporting standards. There is also an endorsement mechanism which ensures that IFRS meets the needs of the EU listed countries. 2.4 International Standardization, Harmonization and Uniformity. The move towards greater harmonization of professional accounting practices has been traced back 1904 and the first accounting congress in St Louis, Missouri (Samuels and Piper, 1985, p.59, Mueller, 1979, p.7). Samuels and Piper (1985 p.59) states that international issues were not important while Mueller (1979 p.7) states that there is a need to pay attention to International harmonization. Combarros (2000), also argues that there is a need for harmonization of the accounting. Harmonization and standardization are used synonymously by some authors (Tay and Parker, 1990). While other researchers has differentiated the two. Tay and Parker (1990, p.73) defined harmonization as a movement away from total diversity of practice and standardisation is seen as a process which involves a movement towards uniformity. Saudagaran (2001:32), futher emphasized that the rationale for harmonization is that it will enhance comparability of financial statements [therefore] making it easier to use acr oss countries While other proponents is of the school of thought that harmonization will is not be practicable or truly probable. Rudhede and Wahlberg (2003) emphasizes that the lack of accounting harmonization will give difficulties to the investors in understanding the accounting principles which varies among the countries. Walton. Moreover, harmonization is a way to put processes in place to be able to reduce the obstacles inherent in international comparability. Hulle (1993, p.73) stated that the objective of harmonization is the comparability of accounts. All the efforts of the EU towards harmonization of these accounting standards have been challenging and slow. 2.4.2 Merits of international harmonization. An argument in favour of international harmonization is, efficiency in trans-border transactions. (Walton, Haller, Raffournier, 1998, p.9). Although lack of uniformity in the reporting procedures and the comparability of the accounting information is another barrier to cross border investments. This comparability of the financial postions across national bodies is seen as one of the most important reason for harmonization (Cummins 1975). This will help to reduce lack of trust and non reliance on the financial statements. With this there will be a flow of international investment in the capital market. Turner (1983 p.58) in his studies affirms that the second advantage of harmonization is to consolidate divergent information when more than one set of report is required to comply with different national laws or practices; further stating that accounting diversity is the major cause why companies spend unnecessarily cost. According to Houston and Reinstein (2001), harmonization of the a ccounting standards will reduce the cost of business, more particularly across national borders, than it will contribute towards greater efficiency of the market regulations. Not only will that harmonization reduce the costs inherent in conducting financial statements analysis and investments in international context. Another advantage of international harmonization of the accounting standards is saving of resources (Muller 1961, Spacek 1971). Further arguments is that international harmonization of the accounting standards can advance capital market efficiency(Ramanna and Sletten 2009) while Ball et al., 2000; Ball Et al 2006 envisaged that if the international market does not go along with the associated capital market institutions can be expensive. Finally, harmonization of the international accounting standards will help in improving management decisions in the multinationals. (Hauworth 1973). 2.4.3 Demerits of international harmonization International harmonization if faced with some criticisms, Some of which are economic while others are political. One of the criticisms is that it cannot carter for a wide range of national circumstances, legal systems, stages of economic development, and cultural differences (Samuel and Piper, 1985, pp 100-109). Atiken and Islam refuted this stating that the nature of the economic transactions and the methods by which they are accounted for does not vary in essence. Walton, Haller, Raffournier, (1998) argued that harmonization distorts social balances that have not been tackled over a long period of time. In the readings of Blake and Hossain (1996) International harmonization of reporting standards especially IASC is less respectful of local particularities; in regards to this context options will be seen as to be bad ,methods are termed either good or bad and costly reconciliations is likely to be imposed. Kenny and Larson (1993) further argued that large professional organizations protect their selfish interest in the standard setting process. Also the absence of a strong professional accounting body is a major obstacle to harmonization of accounting standards. 2.10 Arguments for international reporting. The essence of international reporting standards is to give a universal reporting standard that will be comprehensive and transparent thereby improving investors confidence as well as also creating market integrity. (Hope et al., 2005; dArcy, 2001). In this section we looked at the benefits of international reporting standards to the investors, firms, and also to the global economy. Gordon (2008, p. 3) cited the speech of Levitt (1997) which stating that for international reporting standards to gain acceptance three key objectives must be in place: The standards should include a core set of accounting pronouncements that constitute a comprehensive, generally accepted basis of accounting. The standards must be of high quality – they must result in comparability and transparency and they must provide for full disclosure. The standards must be rigorously interpreted and applied. Financial Reporting quality and transparency under IFRS The question has been if the accounting figures reported under this standard will give of high quality compared to those under domestic standards?. Also will IFRS show transparency in disclosure for an informed decision for investment? Barth et al., (2007) states that this is an extremely intricate question to answer as the application of any given standard has exhibited the effects of the features of the financial reporting system, its standards, as well their interpretation, enforcement and litigation. As these affects the competence of the financial prepares and users. Tarca (2004) said that international accounting standards are one way of improving transparency in financial reporting. Ashbaugh and Pincus (2001) elaborate that since the adoption of IFRS there has been improvement in the forecast accuracy by the analyst. As a result of this analysts cost of information acquisition also reduces. Cuijpers and Buijink (2005) from his sample of firms domiciled in the European Union pr ovide evidence that the analyst following has increased. Also Barth et al (2003) and Barth et al (2007) reveal that higher value relevance for firms is higher since the adoption of the IFRS as compared with the pre adoption period. IFRS therefore reduces the estimation of risk in market returns. Hence we will say that the quality of the IFRS in financial reporting is therefore inestimable in countries that adopt IFRS than those that use the locally recognised standards. Although we have affirmed that IFRS is associated with a high accounting quality there may be oppositions to this. Firstly, where there is an intrinsic flexibility in the principles based standards; this may present opportunities for firms to manage their earning thereby reducing the accounting quality. Also, in a bit to limit the managerial discretion which relates to the accounting alternatives will also reduce the ability of the firm to report accounting measurements that will give a reflection of what the true po sition and economic performance of the company is. Thus, accounting regime affects the quality of the information thereby affecting the cost of capital. Cost of capital and IFRS Adoption There are various propositions on the whether the adoption of IFRS reduces liquidity and lower cost of capital. Before the adoption of IFRS investors have to spend some time and effort in translating the standards in a way they can to understand. This process wastes efforts time and incurs transaction cost. The cost of capital determines how risky an investment would be. The higher the cost of capital the more risky the investment will be. According to (Coffee 2002), findings on bonding theory there is a lowered cost of capital. Deske (2006) affirms that this associated reduction in information cost is the main benefits by which IFRS is being adopted. There will be a reduced cost since the same standard will be used by all countries not regarding where the countries are domiciled. Aras and Crowther (2008) argued that the reduction in the cost of information in the adoption of IFRS and an assured consequent reduction can only benefit the countries whose legal, cultural, and economic s ystem is the same with the nations which are involved in setting IFRS, hence other countries which are not beneficial to this may incur increased cost compliance. Although, Barth (2007); Marquez-Ramos (2008) emphasized that IFRS reduces information cost of an economy as capital flows and trade becomes globalised. Improved comparability of the accounting reports: The use of IFRS eliminates the lack of comparability of financial statements. Choi et al. 1999, p. 249 states that comparability eliminate the current misunderstandings of the investors on the reliability of foreign financial statements and this removes one of the most main impediments affecting the flow of international investment. It also makes it easier for companies to compare financial results of different reporting entities from different countries. Global recognition Globalization of the business activities has increased creating a need for comparability of financial information between firms of different countries .Most of the companies are going globalized therefore the use of national accounting rules is increasingly impairing effective communication both in internal and external reporting. In a recent study by the international federation of Accountants(IFAC) most accounting leaders all over the world has agreed that adopting IFRS will be vital for economic growth in their countries. It is also significant as it will make it easier to compare human capital needs of companys subsidiaries all over the world since professionals will be more mobile. IFRS improves profit figures: The movement from the domestically recognized standards to the internationally recognized standards has resulted to a tremendous increase in the net profit figures of top most countries financial reports although the balance sheets have deteriorated. It is noted already that IFRS requires a comprehensive reporting than the domestic standards. IFRS has determined the various accounting methods by which profit figures will be derived from and reported by the firms (Aras and Crowther 2008). Impact of IFRS on financial reporting Examining financial statement implications is important because, †¦ the only direct effects †¦ are changed financial statements †¦ (Hung and Subramanyan, 2004, p.4) Pijper (2009), further examines how IFRS has affected the reporting of financing on the balance sheet. In GAAP the put option were disclosed in a footnote as an off balance sheet figure, but with the IFRS the put options which is held by minorities are now treated as a financial liabilities. Prior to the adoption of IFRS most companies were very conservative in their depreciation rates and this was affecting the business profits in that some assets will still be in use and there is no report on the expense incurred against those assets in the income statements but now the IFRS has reduced the distortions b these excessive prudent nature of depreciation rates .From the studies of (Hung and Subramanyan 2004) IFRS emphasized that fair value should be used for balance sheet valuation. Barth et al (2005) from hi s studies discovered that companies that uses IFRS experienc Benefits of the International Reporting Standards Benefits of the International Reporting Standards 2. 0 Literature review 2.1 Introduction Literature abounds in polarising this subject matter the benefits of the international reporting standards. Looking back at the last quarter of the 20th century it will no longer be seen as an evolutionary period global financial market in a bit to introduce a single set of standards that will be generally acceptable in financial reporting. International reporting standards have revolutionized the domestic accounting system to a more capital oriented system (Hope et al, d Archy 2001). Lantto (2007) states that the information provided by the IFRS is more reliable and relevant. Darke and Deske (2006) highlights that the disclosure quality has increased tremendously since the adoption of the IFRS. Furthermore, Ding et al (2006) states that the adoption of the IFRS has made a great impact in bridging the differences in the use of the domestic standards among the countries. In justifying the theories, there are opinions as well as oppositions on the advantages of the international reporting standards. What becomes evident although arguably is that the movement from the domestic standard of reporting to the international standard of reporting is of great benefit to financial reporting to the shareholders, firms ,organizations and also global economy as it will place the whole countries in the same reporting field. This chapter will review this report from the historical background of the international financial reporting standards, the Implementation and enforcement then to the benefits of the adoption of this standard. 2.2 Financial Reporting. In the beginning financial reporting can hardly be called external (Alexander, Britton and Jorissen, 2003: 22) rather it was a way by which the owners were informed on their income and capital. This is because the owners and managers of the company were not separated. Until in the 1800s when they started encountering the agency problems it becomes evident to separate ownership (management) from capital supply. Then external wreporting was introduced in order to provide information outside the borders of a specific country. Hence, financial reporting emanates from internal to external reporting. Financial reporting provides information to the users for making economic decisions (Iqbal 2002). Gilmore and Wilmot (1992) states that reporting has developed over time in a bid to stress the need for investment decision making and also to attract investors into the company. Hegarty (1997) opines that the range and varieties of this reporting regime is as a result of an evolution which shows the uniqueness in the economic, cultural and legal jurisdiction. As a part of the revolutionary process financial reporting has changed over time (Crowther 2000). The change is a result of a need for a good financial reporting system that will communicate real value an d risk to the users of the reports (Damant 2000) .Hence, the quality of a financial report is dependent on the reporting standards. 2.3 Why Standards? According to (Perks 1994,p.137),Accounting standards may be seen as the professions rules, which supplement companies Act requirements that are intended to restrict directors freedom of manovoevre and to ensure that the financial statements are presented on a more comparable, consistent and standard basis. Perks (1994) reporting standards is also important in order to prevent scandals, abuses, financial collapsing in the companies and creative accounting that may jeopardize the profession. Also, Elliot and Elliot (2008) highlight some reasons for standard this includes: Comparability: Financial statements should be able to allow users make predictions on future cash flows and also evaluate managements performance. Credibility: For financial information to disclose information that will give a true and fair view, uniformity is therefore essential. Influence: To be able to stimulate a development of the conceptual framework the process at which the standards are formulated should be able to give a constructive appraisal of the policies proposed for the individual financial reporting. Discipline: A mandatory standard is necessary as it structures a regulation that will be systematic and ongoing thereby enforcing a disciple in the financial markets for all organizations listed in the stock exchange. The usefulness of a reporting standard cannot be overemphasized although there are some arguments on this. Harvey and Keer (1983) argued that information produced using financial standards could be unreliable at times and the standards might be bureaucratic and inflexible. Also, there may be adverse allocative effects . Consequently, there might be consensus-seeking and standard overload . Lets take an illustration of a of two companies; Enron and Ahold to further explain why we need standards. Enron is the seventh largest US based company falling into bankruptcy as a result of an overstated profit of $500 million and the Ahold the third largest US grocer had their earnings overstated for the past two years by $500. 2.3 How National differences affects reporting. Given that the environment differ from country to country, the types of decisions to be taken and information needed in decision making differs from one country to another. Hence, accounting system is environment specific. (Iqbal 2002). Adhikari and Tondkar (1992) reported that financial accounting reporting and disclosure standards and practices do not develop in a vacuum but reflect the particular environment in which they are developed (p. 76). The culture of a country affects its method of accounting and financial reporting. For example, Gary (1988) in his books illustrated one of the ways by which cultural differences affects countries financial reporting; a country with a high uncertainty avoidance and low individualism will tend to be more conservative in their income measurement than in a country with low certainty avoidance and high individualism. Although the measures of cultural attributes may be indistinct and not direct in financial reporting compared with the other factors that affect financial reporting.Also, the nature of accounting regulations in a country is influenced by the general system of law applicable in that country. For example Jaggi and Low (2000), notes that companies in the common laws countries tends to have a high level of disclosures than countries in a codified Roman law system. La Porta et al. (1998) argues that common countries have investors with a strong legal protection than the Roman law countries do. Moreover, the differences in the types of business organization and ownership also affect financial reporting. Elliot and Elliot (2008) further explains this stating that in a country like the UK the business structure indicates a separation of the ownership and the management while in the French business the structure differentiates the ownership from the managers.. According to Nobes and Parker (1 998, p.21):The difference in the providers of finance (creditors/insiders) versus (equity/ outsiders) is the key cause of international differences in financial reporting. Although there is an increasing scale, companies firms had to find extra capital to finance growth. (Alexander, Britton and Jorrisen 2003). Roe (2003), further argues that political differences are the major cause of the differences in corporate structures in the developed western countries. Also the accountancy profession is another determinant of the differences in financial reporting. Nobes and Parker (2006:36) emphasizes that the strength, size, and competence of the accountancy profession in a country affect the type of financial reporting that will be obtained in that country. So with these differences the financial analyst cannot be able to make a headway there is therefore a need for a uniform reporting standards. 2.4 Why the call for international reporting standards Over the years it becomes apparent for an ever increasing worldwide competition. The globalization of the markets and companies increased as a result of the cross-border securities market listings and capital raising.. Thus, there was no cross-border investments, investors therefore prefer to invest in companies whereby there will are more comfortable with their system of accounting . 2.5 Background of the International Reporting Standards. Financial reporting standards for international applicability became prevalent in the 1970s. International Accounting Standards committee (IASC) was set up in the 1973 in order to standardize the reporting differences in international investment communities. The establishment of the International Accounting Standard committee is seen as a response to the call by the accounting profession for a greater co-ordination of accounting rules among the various nations of the world (Kraayenhof 1960).The need was expressed in the international congresses of Accountants held in September, 1972 in Sydney. Chetkovich (1979, p.13) emphasizes that at each of these congresses, there was a demand for a better communications and closer cooperation among accountants on a worldwide basis; and also for greater harmonization of accounting standards. This statement led to the establishment of the IASC on June 29, 1973. The objectives of IASC are: to formulate and publish in the public interest, international standards; also to promote their acceptance and observance world-wide, and to work generally for the improvement and harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements. (IASC, 1983, Preface to Statements of International Accounting Standards, p.1). This is the first step towards the achievement of a globally recognised standard .The members of the IASC accept that adopting of international accounting standards (IAS) will improve the quality of financial statements (IASC ,1995). How far did this go or were there criticisms to this standard? IASC helped in solving the problem of uniformity although the purpose of it enactment was far from being realised. One of the weaknesses is that the standard issued by IASC has many objectives thereby making it difficult to achieve the purpose of consistency in recognition, measurement and presentation of transactions (IASB section 4). The standard is also too broad and allowed the use of several alternative accounting treatments. Atiken and Wise (1984) emphasizes that the IASC gives more attention to the multinational companies and investors in the multinational businesses more than it emphasizes on the harmonization of all spheres of the organization globally. Therefore emphasizing that IAS C was set up for the harmonization of accounting on a worldwide basis in order to improve the financial reporting and decision-making capability of multinational businesses, and investors in multinational businesses.(p.176). The second criticism to the use of IASC is that of the mandate. The statement starts with the phrase to formulate and publish in the public interest international standards†¦. (IASC). Hence they act in the interest of the public by a way of enforcing the rules which may not be favourable to the public. This absence of democratic legitimacy has been the major reason by which the IASC standards have not been enforced. Besides , this the structure and the membership composition of the IASC lacked the requirements needed for a global standard setting organization which includes the independence of its members, technical expertise and the decision making bodies representatives. McKinnon and Janelle (1983, p.33) argued that IASC has only succeeded in codifying generally accepted practice, in serving as a neutral source of standards ,and in influencing groups with the enforcement powers. Consequently, the IASC was restructured from the year 1998 to 2000 to International Accounting Standards Board (IASB). IASB is an independent London-based standard accounting body privately funded. The first IFRS was issued in the year 2003 with a membership of 19 countries but it has tremendously grown to 70 countries now with the EU mandating that all listed companies should use the IFRS in their financial reporting effective from the year 2005 (EC,2002). IASB has two member bodies the standard setting board and the member board of trustees .The IASB establishment is allied to that of the international federation of Accountants worldwide (IFAC).. The International Accounting Standards Board is committed to developing, in the public interest, a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements in addition, the IASB co-operates with the national accounting standard-setters to achieve con vergence in accounting standards around the world. (IASB, 2002, p.1). IASB has taken corrective measures in removing the accounting alternatives thereby ensuring that firms give a report that will reflect a true position and economic performance of the firm. IASB also aims at promoting global consistency in application and enforcement. It has also met the requirement that the business which operates in multiple bodies have a uniform financial statement which will be understandable in the countries whereby they operate. 2.6 International Accounting Standard Board (IASB) versus FASB? Norwalk agreement in the year 2002 by the Financial accounting Standard Board (FASB) and the International Accounting Standards Board was signed by both bodies after the need for a high quality, consistent and a comparable information which will be applicable to both domestic and the cross border financial reporting was recognized. Jacob and Madu (2009, p.3) the cited that both FASB and the IASB has pledged to use their best efforts in making their existing financial reporting standards fully compatible as is practicable and to coordinate their future work programmes to ensure that once achieved compatibility is maintained. This was also confirmed in their meeting in October 2005 of the two bodies reaffirming their commitments to converge US GAAP to IFRS. In a Concept Release, the SEC(2000) notes, Establishing and maintaining high quality accounting standards are critical to the US approach to regulation of capital markets, which depends on providing high quality information to facilitate informed investment decisions. (Jacob and Madu 2009).SEC released a proposal on July 13 2007, which states that US should recognize financial statements prepared using the IFRS from the foreign private issuers without reconciling them back to GAAP [2].furthermore, SEC informs all the investors that IFRS is the only set of standards with a high quality accounting standards that is more informative, useful for preparing financial reports compared with the US GAAP. This recent move to IFRS suggest that ,IFRS is the only standard that is of high quality and globally recognized and also has a potential to improve comparability of the financial statements despite of the country whereby they are domiciled. Despite all these efforts to converge to IFRS some academic literature still opines this stating that there are still material differences between the IFRS and the US GAAP. More so, the information contained in reconciliation is evident in the investment decisions made by the US investors. for example ,Culter and Neidemeyer (2009) argues that the major challenge why US did not want to adopt the IFRS is that there are differences in regulation and the manner at which these rules are been interpreted. IFRS is principal based regulatory system; which means that the rules are already set. On the other hand US GAAP is ruled based, whereby a detailed guidelines and principles is already laid out. Delliot (2007) emphasized that the principle based rules focuses more on the objective not relying more on the detailed rules. Deming (2005,p.4) gives a conclusive report pointing out that IFRS has more of a common law approach, than the US GAAP which is more of a civil law approach Furthermore, in the number of standards, IFRS has forty nine sta ndards while and nineteen interpretations and this consist of an approximate of two hundred pages (Delliot 2009) while the US GAAP has twenty thousand page (Mitra 2009).Other notable differences are seen in the financial reporting using the US GAAP and the IFRS. This will be comprehensively reviewed in the subsequent chapter. 2.7 Implementation and Enforcement of Financial Reporting Standards The credibility of a standard relies on its smooth implementation by countries that adopts it. Enforcement is a difficult concept to quantify and measure (Nobes and Parker 2006). The enforcement process differs from one country to another. Even at the international level there is still no genuine enforcement process. Moreover, some accounting bodies set standards and leaves enforcement to other bodies while others do both. For example US Securities and Exchange Commission sets laws and enforces it while IASC, Accounting Standards board (ASB) sets and develops standards and do not have the power to enforce these standards For the set rule of IFRS to be achieved an enforcement body has to be set up with powers to enforce the standards (Lamfalussy, 2001; Committee of European Securities Regulators [CESR], 2003a). Nobes and Parker (2008) states that the most determining factor for a successful adoption of this standard as a global standard is in the approach taken by the financial regulating bodies in the countries that adopts it. Giner and Rees (2005), Brown and Tarca (2005 )and Ball(2006 ) affirms that the purpose of IFRS is to provide a high quality financial reporting which can only be achieved with vigorous enforcement by the regulatory bodies (Schipper 2005 and Ball et al. 2003.The enforcement has not been easy certain factor has affected the effective enforcement of the law. Some of them vary from the cost, regulators interest and whether the businesses or accountants really need them. Watts and Zimmerman (1986), opines that the value of regulation is an empirical question, more apprehensive of ho w the regulatory authorities can value the costs and benefits of regulation. For example in the EU countries the structure and the organization that is in charge of the oversight of the requirements in the financial reporting varies among the EU countries. Also some countries do not have institutional oversight of financial reporting (FEE, 2001a, p.10).The EU regulation therefore mandates that the member states are to take appropriate measures in order to ensure compliance with IFRS. (European Commission EC], 2002, n.16). As a result of this the need for a country to produce a multiple financial statements was eliminated. Lafferty (1981) noted that no enforcement mechanism ever existed in reality. Perks (1993), expressed in his opinion that, without a legal backing it is not easy for the reporting standards to be enforced. Enforcing of the accounting standards therefore may require statutory audit, an effective sanctions and monitoring by supervisory bodies and for it to be implemen ted. Thus, there will be continuous reformations and changes in these standards. IFRS AND EU The European Parliamentary on enacted a legislation 0n 14 March 2002 requiring all companies listed in the European stock exchange to publish their financial statements with in accordance with the International financial reporting standards. There is also an endorsement mechanism which ensures that IFRS meets the needs of the EU listed countries. 2.4 International Standardization, Harmonization and Uniformity. The move towards greater harmonization of professional accounting practices has been traced back 1904 and the first accounting congress in St Louis, Missouri (Samuels and Piper, 1985, p.59, Mueller, 1979, p.7). Samuels and Piper (1985 p.59) states that international issues were not important while Mueller (1979 p.7) states that there is a need to pay attention to International harmonization. Combarros (2000), also argues that there is a need for harmonization of the accounting. Harmonization and standardization are used synonymously by some authors (Tay and Parker, 1990). While other researchers has differentiated the two. Tay and Parker (1990, p.73) defined harmonization as a movement away from total diversity of practice and standardisation is seen as a process which involves a movement towards uniformity. Saudagaran (2001:32), futher emphasized that the rationale for harmonization is that it will enhance comparability of financial statements [therefore] making it easier to use acr oss countries While other proponents is of the school of thought that harmonization will is not be practicable or truly probable. Rudhede and Wahlberg (2003) emphasizes that the lack of accounting harmonization will give difficulties to the investors in understanding the accounting principles which varies among the countries. Walton. Moreover, harmonization is a way to put processes in place to be able to reduce the obstacles inherent in international comparability. Hulle (1993, p.73) stated that the objective of harmonization is the comparability of accounts. All the efforts of the EU towards harmonization of these accounting standards have been challenging and slow. 2.4.2 Merits of international harmonization. An argument in favour of international harmonization is, efficiency in trans-border transactions. (Walton, Haller, Raffournier, 1998, p.9). Although lack of uniformity in the reporting procedures and the comparability of the accounting information is another barrier to cross border investments. This comparability of the financial postions across national bodies is seen as one of the most important reason for harmonization (Cummins 1975). This will help to reduce lack of trust and non reliance on the financial statements. With this there will be a flow of international investment in the capital market. Turner (1983 p.58) in his studies affirms that the second advantage of harmonization is to consolidate divergent information when more than one set of report is required to comply with different national laws or practices; further stating that accounting diversity is the major cause why companies spend unnecessarily cost. According to Houston and Reinstein (2001), harmonization of the a ccounting standards will reduce the cost of business, more particularly across national borders, than it will contribute towards greater efficiency of the market regulations. Not only will that harmonization reduce the costs inherent in conducting financial statements analysis and investments in international context. Another advantage of international harmonization of the accounting standards is saving of resources (Muller 1961, Spacek 1971). Further arguments is that international harmonization of the accounting standards can advance capital market efficiency(Ramanna and Sletten 2009) while Ball et al., 2000; Ball Et al 2006 envisaged that if the international market does not go along with the associated capital market institutions can be expensive. Finally, harmonization of the international accounting standards will help in improving management decisions in the multinationals. (Hauworth 1973). 2.4.3 Demerits of international harmonization International harmonization if faced with some criticisms, Some of which are economic while others are political. One of the criticisms is that it cannot carter for a wide range of national circumstances, legal systems, stages of economic development, and cultural differences (Samuel and Piper, 1985, pp 100-109). Atiken and Islam refuted this stating that the nature of the economic transactions and the methods by which they are accounted for does not vary in essence. Walton, Haller, Raffournier, (1998) argued that harmonization distorts social balances that have not been tackled over a long period of time. In the readings of Blake and Hossain (1996) International harmonization of reporting standards especially IASC is less respectful of local particularities; in regards to this context options will be seen as to be bad ,methods are termed either good or bad and costly reconciliations is likely to be imposed. Kenny and Larson (1993) further argued that large professional organizations protect their selfish interest in the standard setting process. Also the absence of a strong professional accounting body is a major obstacle to harmonization of accounting standards. 2.10 Arguments for international reporting. The essence of international reporting standards is to give a universal reporting standard that will be comprehensive and transparent thereby improving investors confidence as well as also creating market integrity. (Hope et al., 2005; dArcy, 2001). In this section we looked at the benefits of international reporting standards to the investors, firms, and also to the global economy. Gordon (2008, p. 3) cited the speech of Levitt (1997) which stating that for international reporting standards to gain acceptance three key objectives must be in place: The standards should include a core set of accounting pronouncements that constitute a comprehensive, generally accepted basis of accounting. The standards must be of high quality – they must result in comparability and transparency and they must provide for full disclosure. The standards must be rigorously interpreted and applied. Financial Reporting quality and transparency under IFRS The question has been if the accounting figures reported under this standard will give of high quality compared to those under domestic standards?. Also will IFRS show transparency in disclosure for an informed decision for investment? Barth et al., (2007) states that this is an extremely intricate question to answer as the application of any given standard has exhibited the effects of the features of the financial reporting system, its standards, as well their interpretation, enforcement and litigation. As these affects the competence of the financial prepares and users. Tarca (2004) said that international accounting standards are one way of improving transparency in financial reporting. Ashbaugh and Pincus (2001) elaborate that since the adoption of IFRS there has been improvement in the forecast accuracy by the analyst. As a result of this analysts cost of information acquisition also reduces. Cuijpers and Buijink (2005) from his sample of firms domiciled in the European Union pr ovide evidence that the analyst following has increased. Also Barth et al (2003) and Barth et al (2007) reveal that higher value relevance for firms is higher since the adoption of the IFRS as compared with the pre adoption period. IFRS therefore reduces the estimation of risk in market returns. Hence we will say that the quality of the IFRS in financial reporting is therefore inestimable in countries that adopt IFRS than those that use the locally recognised standards. Although we have affirmed that IFRS is associated with a high accounting quality there may be oppositions to this. Firstly, where there is an intrinsic flexibility in the principles based standards; this may present opportunities for firms to manage their earning thereby reducing the accounting quality. Also, in a bit to limit the managerial discretion which relates to the accounting alternatives will also reduce the ability of the firm to report accounting measurements that will give a reflection of what the true po sition and economic performance of the company is. Thus, accounting regime affects the quality of the information thereby affecting the cost of capital. Cost of capital and IFRS Adoption There are various propositions on the whether the adoption of IFRS reduces liquidity and lower cost of capital. Before the adoption of IFRS investors have to spend some time and effort in translating the standards in a way they can to understand. This process wastes efforts time and incurs transaction cost. The cost of capital determines how risky an investment would be. The higher the cost of capital the more risky the investment will be. According to (Coffee 2002), findings on bonding theory there is a lowered cost of capital. Deske (2006) affirms that this associated reduction in information cost is the main benefits by which IFRS is being adopted. There will be a reduced cost since the same standard will be used by all countries not regarding where the countries are domiciled. Aras and Crowther (2008) argued that the reduction in the cost of information in the adoption of IFRS and an assured consequent reduction can only benefit the countries whose legal, cultural, and economic s ystem is the same with the nations which are involved in setting IFRS, hence other countries which are not beneficial to this may incur increased cost compliance. Although, Barth (2007); Marquez-Ramos (2008) emphasized that IFRS reduces information cost of an economy as capital flows and trade becomes globalised. Improved comparability of the accounting reports: The use of IFRS eliminates the lack of comparability of financial statements. Choi et al. 1999, p. 249 states that comparability eliminate the current misunderstandings of the investors on the reliability of foreign financial statements and this removes one of the most main impediments affecting the flow of international investment. It also makes it easier for companies to compare financial results of different reporting entities from different countries. Global recognition Globalization of the business activities has increased creating a need for comparability of financial information between firms of different countries .Most of the companies are going globalized therefore the use of national accounting rules is increasingly impairing effective communication both in internal and external reporting. In a recent study by the international federation of Accountants(IFAC) most accounting leaders all over the world has agreed that adopting IFRS will be vital for economic growth in their countries. It is also significant as it will make it easier to compare human capital needs of companys subsidiaries all over the world since professionals will be more mobile. IFRS improves profit figures: The movement from the domestically recognized standards to the internationally recognized standards has resulted to a tremendous increase in the net profit figures of top most countries financial reports although the balance sheets have deteriorated. It is noted already that IFRS requires a comprehensive reporting than the domestic standards. IFRS has determined the various accounting methods by which profit figures will be derived from and reported by the firms (Aras and Crowther 2008). Impact of IFRS on financial reporting Examining financial statement implications is important because, †¦ the only direct effects †¦ are changed financial statements †¦ (Hung and Subramanyan, 2004, p.4) Pijper (2009), further examines how IFRS has affected the reporting of financing on the balance sheet. In GAAP the put option were disclosed in a footnote as an off balance sheet figure, but with the IFRS the put options which is held by minorities are now treated as a financial liabilities. Prior to the adoption of IFRS most companies were very conservative in their depreciation rates and this was affecting the business profits in that some assets will still be in use and there is no report on the expense incurred against those assets in the income statements but now the IFRS has reduced the distortions b these excessive prudent nature of depreciation rates .From the studies of (Hung and Subramanyan 2004) IFRS emphasized that fair value should be used for balance sheet valuation. Barth et al (2005) from hi s studies discovered that companies that uses IFRS experienc

Innovation: What is innovation strategy Essay

According to Dictionary. com innovation strategy is a plan made by an organization to encourage advancement in technology or services, usually by investing in research and development activities. An organizations innovation strategy must align with its mission and vision statements, along with aligning with the organizations statements it must also align with outside sources strategies like suppliers and manufacturing. If the process and products strategy do not align this could quickly drive up cost and risk for the organization. There are three pillars of innovation strategy (1) research and development ideation, (2) Life cycles and product innovation strategy, (3) information/idea transference and customer feedback, using these an organization can focus on to help ensure that it is successful. Innovation: Why pick this type or product? Simple truth is a good innovation because it is a different type of product. It is natural and organic and there are many ways it comes in form from beverages to snacks. According to the website Simple Truth products are made with methods that mix cultural, biological and mechanical practices that foster the recycling of resources, promote ecological balance and help conserve biodiversity. (The kroger Co, 2013) Using Simple Truth will help households to â€Å"Go Green†. Though not everyone likes the organic products because they are more expensive, if everyone can switch to just using one organic product in their household, it will help to show that society cares for what is happening to the environment. With this type of organic product being used it helps to encourage the preserving of resources that are precious to our world. This will also help future generations to be encouraged to use these organic products so that the world can continue to grow and prosper for many more generations. Evaluation: What makes this a successful innovation? Evaluation: Will this increase the success of the company overall? The success of Simple Truth depends on a trending belief that organic foods are healthier and cleaner. While there are little arguments or studies that show organic foods being healthier or safer (Smith-Spangler et al. 2012), it is agreeable that organic foods do not use chemical fertilizers to promote plant growth, synthetic pesticides to reduce pests and diseases, synthetic herbicides to manage weeds, or antibiotics and growth hormones for animals to prevent diseases and spur growth (Mayo Clinic, 2013). Simple Truth considers the long-term effect of agricultural interventions on the agro-ecosystem and supports the growth of organic foods while establishing sustainability with our shared global resources such as soil, water, air and climate, and general biodiversity. Each day, as more people realize how organic foods support the environment, Simple Truth will reap the benefits of a changing societal view on sustainability. According to statistics collected from the Organic Trade Association (2011), 75% of U. S. families purchase organic products at one point or another. 41% of parents in 2010 reported buying more organic foods than previous years. 70% of organic buyers now look for the USDA organic certified seal. Since Simple Truth is USDA Organic-certified, the increase of overall organic purchases across the country is also a positive indicator pointing to the overall company success.

The Blue Sword CHAPTER NINE

She felt caught as she stared at the dark Hill-king astride his red horse, caught by the sky, by the stars winking into the new-fallen darkness, by the sand and encircling Hills; they seized her and held her down. She was a figure in some story other than her own, an embroidered shape in a Hill tapestry, a representation of something that did not exist in her Homeland. Then the crowd gave a roar and surged inward; she closed her eyes. But they were patting her ankles, her legs, her back, making her human again, with human bewilderment and human luck. She began to distinguish words in the roar: they were shouting, â€Å"Harimad-sol! Laprun minta! Minta – musti! Harimad-sol!† Tsornin and Isfahel were driven together, and they stood patiently while the crowd rose and foamed around them. Isfahel turned his head and Tsornin turned his, till their flared nostrils touched briefly in a salute. Out of the corner of her eye Harry saw Corlath blot the drop of blood at his mouth with the back of his hand. The crowd fell away from its center, breaking into smaller eddies that laughed and swung each other by arms and hands and shoulders. Sungold and Fireheart edged away from each other, their riders silent and motionless. Harry could not look at Corlath. He reached out one hand toward her, perhaps to touch her, but Tsornin sidled just one step farther and Corlath's hand dropped away. Mathin appeared on Harry's far side and touched her elbow, and Harry smiled gratefully at his familiar face. Mathin did not speak to her, but turned away, and she slid off Sungold and the two of them followed him, walking slowly, permitted their due of weariness at last. Mathin stopped where two taris were already set up, and knelt down to build a fire, companionably ignoring his two pupils; and Harry was glad to lay aside the glory of laprun-minta. The headache haze and sense of displacement began to ebb as she mechanically stripped off Sungold's saddle and rubbed him down. The smell of Mathin's cooking crept to greet her and cheer her, and remind her who she was, or who she had become. She was the Daughter of the Riders. Harry ate too much that night. She ate till her stomach hurt – Mathin had kept them on strict rations during training – but she was only half aware of what she was eating. Many of the lapruni she had faced today came to her, to touch her hand and offer what seemed a sort of fealty; they materialized at the edge of the firelight, as indistinct as they had seemed to her that afternoon: they wore red robes and blue robes and brown robes and black, for none wore a sash, and their swords hung in scabbards by their sides instead of drawn against her. And they called her Harimad-sol, and laprun-minta, and their voices were hushed and reverent. Harry ate too much because it made her feel more real. As the evening progressed other taris were set up nearby: she had noticed that Mathin was using a pot larger than the one for the two of them she had seen every night for six weeks. Soon she found they were sharing their fire and supper with Innath and Faran and Forloy and Dapsim, and others of the king's Riders. They watched without comment as the lapruni came to show themselves to the Daughter of the Riders, who kept putting more food on her plate as they appeared and vanished. Once when Harry looked up she saw Mathin handing Corlath a plate. The king slouched down, cross-legged, and began to eat. Harry would have liked to ask why the lapruni were saluting her, for it seemed beyond a simple acknowledgment of the loser to the victor, but she did not ask. Mathin had taught her patience, and she had known all her life how to be stubborn. It seemed a bit unfair to complain, she thought, as it – or as I – have turned out; but couldn't I have been told a little more beforehand? She looked into the eyes of those who sought her and called her Harimad-sol, and tried to think of them as individuals, and not as robes and tunics and fallen sashes. The lapruni all went away without her having to speak to them, for they did not seem to expect her to answer them with anything but her presence. This was both restful and unnerving. One laprun was a woman. For her Harry did have a question. â€Å"What is your name?† The girl's robe was blue, and Harry suddenly recognized her as the rider on the bay mare. â€Å"Senay,† she replied. â€Å"Where is your home?† Senay turned to face northwest. â€Å"Shpardith,† she said. â€Å"It is there,† and she pointed into the blackness. â€Å"Twelve days on a fleet horse.† Harry nodded, and the girl left to return to her own fire, and others came to speak to the laprun-minta who sat with the Riders and the king. When she looked around again she realized that there were eighteen dark figures besides herself and the king; all the Riders, from wherever they had been, had returned. And Narknon reappeared, and Harry hugged her eagerly, for she felt in need of something to hug. She offered her bits of meat, which Narknon graciously accepted, although she attempted to nose through Harry's plate herself, to make sure Harry wasn't keeping back any of the best bits for herself. Harry slept dreamlessly, her hand on the hilt of her sword; when she awoke and found this so, she stared at her hand as if it did not belong to her. She crept out of the tari and looked around. The sky was light; yet most of the taris still had bodies in them, and there were more blanket-swathed figures motionless around banked or burned-out fires. Mathin's lips moved as he rebuilt their fire. She turned to look behind her. Corlath was gone; there was only a small ripple in the sand where he had lain, or it might be only the wind. Mathin handed her a cup of malak. It was reheated from last night, and bitter. Harry shrugged into her stiff grimy surcoat, hoping there would be bathing sometime today, and thinking wistfully of the little valley behind her, and its green pool. Her split sash lay beside her, where she had stuffed it through the tari's open flap the night before. She picked it up and, after a moment's thought, wrapped it around her waist again, tucking torn edges underneath till it would stay fixed. She did not do it very well, and she thought of asking Mathin for help, but chose not to. After the wildness of the night before, this morning everyone went quietly about the business of packing up and returning, it seemed, to where they had come from. A few lingered: Harry and several of the Riders, for many of them had vanished with Corlath, and perhaps a dozen riders she did not recognize, and a few of the lapruni. She looked for Senay hopefully, but did not see her. The wind whispered over the bare land. But for the black hollows of dead fires, there was nothing to show that several hundred people had spent the last three days here. Mathin turned Windrider east, east where the City lay just beyond one of the enigmatic rockfaces before them. Tsornin fell into step beside Windrider; Viki came along behind them, still grumbling to himself; and the others, some thirty riders, strung out behind them. Harry peered over her shoulder several times, watching the procession winding behind her, till she caught Mathin's expression of restrained amusement when he glanced over at her. After that she looked only straight ahead. Narknon padded softly among them all. There was another big hunting-cat with them, a handsome spotted-mahogany male an inch or two taller than Narknon; but she scorned him. Tsornin strode out like a yearling having his first sight of the world beyond his paddock. Harry tried to keep her back straight and her legs quiet. Yesterday she had been glad of her perfectly fitted saddle, for it gave her suppleness and security; today she was glad of it because it told her where her legs were supposed to be even when they felt like blocks of wood. Her shoulder hurt, and her head felt woolly, and her right wrist was as weak as water, and she had a great purple bruise on her left calf. My horse is ignoring me, Harry thought. Or maybe he's trying to cheer me up. She had gone over him with great care the evening before, and again this morning, and applied salve to the few small scrapes he had collected. He had no suspicious swellings, no lameness, and his eyes were bright and his step buoyant. He made her feel woollier. â€Å"Are you trying to cheer me up?† she said to his mane, and he cocked a merry ear at her and strutted. They had just begun to step upward off the plain into the Hills when they rounded another abrupt shoulder of rock like the one she and Mathin had passed for her first view of the laprun fields; and here was a wide highway mounting steeply to massive gates not far away. There lay the City. They passed through the gates, borne beneath an arch two horse-lengths thick, their horses' hooves echoing hollowly. There was a cold grey smell, as if of caves, although the gates had stood for a thousand years. They walked down a broad avenue where six horsemen might walk abreast. It was stone-paved, laid out in huge flat cobbles, some grey or white or red-veined black; it had edges of earth where slender grey trees grew. Behind them were stone walkways where children played; and beyond them were stone houses and shops and stables and warehouses; stone flower-pots stood in doorways and on window ledges. The green-and-blue parrots Harry had seen in the traveling camp were perched on many shoulders, and some of them joined, gay and noisy, in the children's games. Often with a flirt of wings one would carry off the stone counter or mark a group of children was using, while the children shrieked at them, and occasionally threw pebbles at them, but only very small ones. â€Å"Is there no wood?† said Harry. â€Å"Nothing but stone?† She looked up at the roof and walls and gables mounting up the hillside behind the gates, tiers of stone, multi-colored stone, no shingles or slats or carved wooden cornices, or shutters or window frames. â€Å"There is wood here,† said Mathin, â€Å"but there is more stone.† Innath rode up on Harry's other side. â€Å"Mathin cannot see the strangeness of this place,† he said; â€Å"his village is just as stony as the City, only smaller. Where I come from we cut down trees and plane them smooth and slot them together, our houses and barns are warm and weathered, and do not last forever and haunt you with the ghosts of a thousand years.† â€Å"We use wood,† said Mathin. Innath made a dismissive gesture. â€Å"The grand receiving-rooms here have wooden paneling – you'll see some of them at the castle – and parlors, where people really live, often have wooden screens as ornaments.† â€Å"There are wooden chairs and tables and cupboards,† said Mathin. â€Å"There are more stone chairs and tables and cupboards,† said Innath. â€Å"They don't often rearrange the furniture here.† Harry looked around. She saw doors so well hung on their hinges that they were opened and closed by a child's touch, yet made of stone slabs so heavy she wondered how they had been wrestled into their places to begin with. Free-standing walls, she saw, were often as wide as the reach of her two arms; yet often too the inner wall facing on a courtyard encircled by tall houses was so fine and delicate, cut into filigree work so complex, it looked as though it must tremble in the lightest breeze; as if one might roll it up like a bolt of silk and store it on a shelf. â€Å"To be either a stonemason or a carpenter is to be respected,† Mathin said. â€Å"The best of them are greatly honored.† â€Å"Hear the horse-breaker,† said Innath. Mathin smiled. The children began calling: â€Å"The lapruni are here! And the Riders – and the laprun-minta!† â€Å"Harimad-sol,† Innath called to them, and Harry blushed. â€Å"Harimad-sol,† agreed the children; and people came out from the houses and down the narrower ways off the wide central way to look. Harry tried to look around her without catching anyone's eye, but many of the onlookers sought hers; and when one succeeded, he – or she – would touch right wrist to forehead and then hold the flat empty palm out toward her. â€Å"Harimad-sol,† she heard, and eagerly they added, â€Å"Damalur-sol.† The children danced in front of Tsornin's feet to make her look at them, and clapped their hands; and she smiled and waved shyly at them, and Tsornin was very careful with his hooves. They rode on. At first the Hills rose up behind the low buildings, but as they went farther in, the buildings grew taller and taller and seemed part of the Hills themselves; and the trees that lined the way grew larger, till the shade of them could be felt as one passed beneath. Then another gate rose up before them, the wall around it running into the flanks of the mountains as if wall and gate had been formed with the mountains at the beginning of time. They went through this gate too, and entered a wide flat courtyard of polished stone. This stone was mirror-white, and it blazed up fiercely in the morning sunlight, and Harry felt as if she had emerged from underground. She blinked. Before her stood Corlath's castle; no one had to explain to her what this huge stone edifice must be. She tipped her head back to see the sharp points of the turrets, brilliant as diamonds. It was itself a mountain, proudly peaked, seated among its brothers; its faces glittered dangerously. The shadows it threw were abrupt and absolute; one wall reflected white, another black. The central mass was taller than the Hill crests here; the road they had climbed had reached near the summit of the dark Hills, and like an island in the crater lake of an extinct volcano, the castle stood in its stone yard that shone as bright as water in the sun. Harry sighed. Men of the horse were approaching them in the swift but unhurried way she remembered from the days on the desert in the traveling camp; and she felt a sudden sharp stab of memory, as if that were a time many years past, and the present were sad and weary. She slipped down from Tsornin's back and he suffered himself to be led away when one of the brown men spoke to him gently by name and laid a hand in front of his withers. Narknon sat down neatly at Harry's feet; Harry could feel her tail twitching at her ankles. Those who had ridden with her began now to go purposefully in their own individual directions. Mathin said to her, ‘†It is here I am to leave you. Perhaps it may be permitted that we ride against each other again and you may practice your skills upon me, Daughter of the Riders.† He smiled. â€Å"We will meet again at the king's table, here in the City.† Harry looked up toward the castle when Mathin left her, feeling a little forlorn; and it was Corlath himself who walked to meet her. She swallowed rather hard, and blessed the sunburn that would prevent her fierce blush from showing as clearly as it would on an Outlander's pale skin. â€Å"We meet again, Harimad-sol,† Corlath said. There was a tiny scab at one corner of his mouth; he looked down at her with a cold dignity, she thought; he is the master of this place, and what am I? Even Daughter of the Riders could not comfort her as Corlath stood before her with his castle shining savagely behind him. But then he spoiled the effect – or perhaps the effect was all in Harry's eyes to begin with – by saying, â€Å"So that's where the thrice-blasted cat disappeared to. I should have guessed it.† He did not look very majestic while glaring at a cat; so Harry said crossly, â€Å"I wish I knew what was going on.† Corlath looked at her thoughtfully, and Narknon, with customary feline charm, stood up and went to twine herself around Corlath's legs. Corlath's face softened and he rubbed her ears. Harry could hear her purr; she could almost feel it through the soles of her boots on the white stone. Narknon was a champion purrer. â€Å"And don't tell me that no one knows what is going on and that it is for the gods to decide, either.† Corlath's face wavered and then broke into a smile, although whether at Harry or the big cat, Harry didn't know. â€Å"Very well,† he said. â€Å"I won't. I will tell you that you are the First of the laprun trials, laprun-minta, which you already know, and as such the most important of the lapruni, the untried.† Corlath's hand lay motionless on Narknon's head. â€Å"The army marches, to do what it can, in less than a fortnight's time. You and the best of the lapruni will ride with us.† Narknon bumped Corlath's hand violently and the fingers stirred and began scratching again. In a lighter tone Corlath continued, â€Å"In other years that the laprun trials are held, there is a week's celebration at their end, and a great many songs are sung, and lies about one's own prowess told, and all the minta of past years claim that their year was the best, and much wine and beer is drunk, and it is all very cheerful. This year we have not the time, and many of those who would be part of it are far away, and those who are here are busy, and the work they do is melancholy.† He paused as if hoping she would say something, or at least raise her eyes from Narknon's sleepy face and look at him; but when she did finally look up, he immediately squinted up at the sky. â€Å"But tonight there will be a feast in your honor. You are not the least of those who have been laprun Firsts. There are many who will come tonight merely to look at you.† Harry stopped smiling at the cat. â€Å"Oh,† she said. â€Å"Come. I will show you where you will stay till we leave the City.† She followed him across the smooth courtyard and around one wing of the castle; as they rounded the tip, set back from the edge and guarded by the castle's great bulk was a wall that at first seemed low; but it was fully ten feet high as they approached. It curved back on itself as if it protected something within that was very precious. In the wall was a door, the height of a tall man. Corlath opened it, and looked around for her. She stepped in first, Narknon crowding at her heels, with the odd feeling that he was watching her anxiously for her reaction. It was very beautiful. Here the courtyard was not stone, but green grass, and a stream ran through it from one end to the other, with a fountain at the center, and a stone horse reared in the midst of the falling spray. On either side of the stream was a path of paving-stones, grey and blue, that went all the way around the fountain. There were curved stone seats on either side of the fountain, with the stream running between them. Beyond all this was what Harry thought of instantly as a palace, for all its diminutive size; it was no bigger than the gateman's cottage on her father's – now Richard's – estate, back Home. But this cottage had slender peaked towers at each of its five corners, and a cupola at the center of the slanting roof, with a delicate fence surrounding it. But for the cupola, it was only one story high, and the windows were tall and thin. The walls and roof were a mosaic of thousands of small flat blue stones, with colors from aquamarine to turquoise to sapphire, but Harry had no idea what these stones might be, for they were opaque, and yet they gleamed like mother of pearl. She sighed, and then to her horror she felt her eyes filling with tears; so she ran forward. It seemed as though even her leather riding-boots made no sound on the stone here, and she plunged her hands into the water of the fountain, and put her face under the spray. The coldness of it quieted her, and the drops danced around her. Narknon climbed up on one of the benches and lay down. Corlath followed them through the door in the wall and then went on to the little mosaic palace. There was no door in the arched entrance. Harry stepped slowly inside. Here the stream had slipped around behind and entered by some back way, for in the center of the front room was another fountain, and the stream ran in under the rear wall; but here the stone horse stood on all four legs and bowed his head to drink from the pool at his feet. There were tapestries on the walls, and rugs and cushions on the floor, and one low table, and that was all. Corlath opened the stone door beside the place where the stream came under the wall. She looked in. The stream entered over a tiny falls of three stone steps under the far wall, to run under the near wall and out to the fountain in the front room. The water tinkled as it fell. The floor of this room was thick with carpets, and against the wall opposite the stream was the long bolster-like object she had learned to recognize in the traveling camp as the Hill idea of a bed, although she had entertained higher hopes of the furnishings of the City. There were pillow-sized cushions at one end, and body-sized rugs folded up at the other end. She went back into the bigger room and looked around again. There was another door between two long blue-and-green tapestries. She walked over to it and opened it, wondering if she would find a dragon breathing fire from a heap of diamonds, or merely a bottomless chasm lined with blue stones, but instead it was only a bit more of the grassy courtyard, and a few steps away was a door in the wall surrounding this magic place into what she thought vaguely must be the castle itself. She closed the door and turned back; Corlath was dangling his fingers in the pool just in front of the horse's stone nose. He looked as if he were thinking very hard about something. Harry leaned back against the door behind her and stared at him, wondering what he was looking at, and waited for him to remember her. He looked up finally, and met her eyes. She didn't think she flinched. â€Å"Do you like it?† he said. She nodded, not quite sure of her voice. â€Å"It has been a long time since this place sheltered anyone,† he said; she wanted to ask how it came to be here at all, who had built it so lovingly and why; but she didn't. Corlath left her there. He walked out past the fountain of the rearing horse, and at the door where they had first entered he paused and turned back toward her. She had followed him from the small jeweled cottage, and stood next to the low bench where Narknon lay at her ease. But he said nothing, and turned away again, and closed the door behind him. She went to the little back room with the bolster and took off her surcoat. Her hands met her torn sash; her fingers curled around it and then she pulled it off in her two hands and tossed the pieces away from her. They fluttered to the floor. She lay down by degrees, leaving the lower half of her left leg h anging over the edge of the bolster, where the bruise need not come in contact with anything, and carefully arranged her sore shoulder. A young woman woke her, but she was dressed as the men of the household were dressed, in a long sashless white robe, and had the same mark they did on her forehead. â€Å"The banquet will begin soon,† said the girl, and bowed; and Harry nodded and sat up stiffly, and yawned, and contemplated her bruises, which seemed to be spreading. She unfolded herself, and weaved to her feet. She put on her blue robe but left the sash lying, and followed the girl out of the mosaic palace and through the castle door into an antechamber. She looked to the left and saw a room with tables, high tables, and real chairs: not chairs like the ones she had known at Home, but still chairs, with legs and backs, and some with armrests. The girl guided her to the right and into an immense bathroom, with the bath itself sunk into the floor, the size of a millpond, and s teaming. The girl helped her out of her clothes, and Harry sat for a moment at the edge of the lake and dabbled her tired feet in it. Her attendant hissed with sympathy over the bruises. Once she was fairly in and wet all over, two more young women appeared, and one of them presented her with a cake of white soap. The third young woman unbound her wet hair – now that it was wet, it smelled terribly of horse – and started rubbing shampoo into it. The shampoo smelled like flowers. She thought, I bet Corlath's shampoo doesn't smell like flowers. She would rather have climbed out of her own clothes – in spite of the aches and pains – and washed her own hair. The young woman who had given her the soap washed her back with a scratchy sponge, and Harry repressed the urge to giggle; she hadn't had anyone wash her back for her since she was five years old. She was clean at last and wrapped in towels, and sat quite patiently while the young woman who had washed her hair now tried to work the tangles out of it. It was long and thick and hadn't been combed properly smooth for weeks. Better her than me, Harry thought cheerfully; there are advantages to servants, perhaps; and this girl is very gentle †¦ Harry caught herself dozing. I'm going to be less than a success at my own banquet if I can't even stay awake, she thought. I suppose the last six weeks are all catching up with me now, and Mathin's grey dust. She tumbled off her stool at last, the towels removed, and a heavy white shift dropped over her head. They put velvet slippers on her feet and a red robe around her shoulders, and twisted a gold cord around her hair but let it hang down behind her so she had to flick the end of it aside when she sat down. At Home, one never wore one's hair loose when one was no longer a child; at night it was braided, during the day it was tied up. Harry shook her hair; it felt funny. These last weeks she had tied and pinned it fiercely under her helmet, where it couldn't get caught in anything, like the branch of a tree, or Mathin's sword, or under her own saddle. The young woman who had awakened her had rubbed salve into her shoulder and leg before they dressed her, and Harry found that she could move more freely, and the weight of the robe didn't bow her down, nor the sleek surface of the shift rub her like sandpaper. The three girls ushered her across the anteroom to the room with the chairs, and they all three bowed, and looked shyly at her with smiles hovering in their eyes, so she grinned at them and flapped the edges of her clean scarlet robe at them, and they smiled happily and left. Harry sat down tentatively in one of the queer crook-legged chairs, and leaned back luxuriously. Rugs and cushions and stools can be very comfortable, but they are inevitably backless, and it was apparently not done to lean against a tent wall; no one else did it, at least, so she hadn't tried. The shift billowed around her as she shrugged farther into the chair: No sash, she thought. There was a long hall she could see through an open door; and after a few minutes Mathin appeared through another door at the far end of it and came toward her. In his hand was a bit of maroon cloth; and when he came through the door, the air that swept in with him smelled of flowers. Harry smiled. â€Å"Well met, Daughter of the Riders,† said Mathin, and unrolled what he had in his hand. It was her old sash, washed clean. The smile left Harry's face, and when Mathin held the sash out to her, still in its two pieces, as if he would tuck it around her waist, she backed up a step. He stopped, surprised, and looked at her face, white under the tan. â€Å"I think,† he said slowly, â€Å"that you do not understand.† He held his arms out to his sides, and the hand indicated a line on his own dark green sash. â€Å"Look here.† Harry looked and saw a similar tear, but carefully mended, with tiny exact stitches of yellow thread. â€Å"All the Riders wear them so. Many of us won the slash at the hand of the king after being First at the laprun trials – as I did, many years ago. It was Corlath's father gave me this cut. Two or three of us have won them at other times. Any one lucky enough to have a sash cut off by a sol or sola will wear the mended sash ever after.† Harry, faintly in the back of her mind, heard Beth saying: â€Å"They come in those long robes they always wear – over their faces too, so you can't see if they're smiling or frowning; and some of them with those funny patched sashes around their waists.† Mathin said: â€Å"I will teach you to mend yours; you must do it yourself, as you clean your own sword and pay your own homage.† He looked at her slyly and added: â€Å"All those sashes you lopped off their owners you may be sure will be saved and mended; and the cuts will be bragged of, given by the damalur-sol whose prowess was first seen when she was First at the laprun trials.† Harry suffered Mathin to put the maroon sash around her waist again. He did not tuck it together, as she had, so that the slash did not show; instead it went in front, proudly – Harry gritted her teeth – and was fixed by a long golden pin. Then she silently followed him down the corridor. There were pillars reaching up three stories to meet the arched ceilings; the floors were laid out in great squares, two strides' length, but within each black-and-white border were scenes drawn in tiny mosaic tiles. Harry tried to look at them as she walked over them, and saw a great many horses, and some swords, and some sunrises and sunsets over Hills and deserts. She had her eyes so busily on the floor that when Mathin stopped she ran into him. They stood under one of the three-story arches the pillars made, but on either side of them the spaces between the tall columns were filled in, and tapestries hung on these walls, and they stood in the doorway to an immense room. It too was three stories high, and a chandelier was let down from the ceiling on a chain that seemed hundreds of feet long. Mathin and she went down six steps, across a dozen strides of floor, and up nine steps to a vast square dais; around three sides of the square was a white-laid table. At the one edge of this dais where there was no table were three more steps up to a long rectangular table on a smaller dais; and around this table sat Corlath and seventeen Riders. There were two empty seats at Corlath's right. Chairs, Harry thought happily. Chairs seem quite commonplace in the City, even if they don't understand beds. They sat, and the men and women of the household brought food, and they ate. Harry cast a sharp eye over those bearing the dishes; it seemed that those of the household here in the City were about equally divided, men and women. Harry turned impulsively to Mathin and said, quietly so that Corlath would not hear, â€Å"Why were there no women of the household with us in the traveling camp?† Mathin smiled at his leg of fowl. â€Å"Because there were so few women riding with us.† Corlath said, â€Å"There will be some to go with us in ten days' time, if you wish it; for even an army on its way to war needs some tending.† Harry said stiffly, â€Å"If this wish of mine is not a foolish one, it would please me to see women of the household come with us.† Corlath nodded gravely; and Harry thought of that first banquet she had attended, still dizzy and frightened from her ride across the desert, bumping on Corlath's saddlebow. She was still dizzy and frightened, she thought sadly, and touched the gold pin in her sash; it was cold to her fingers.. There was talk over the food of the laprun trials just past and of how so-and-so's son had ridden well or poorly; all the Riders had been watching the trials with an attention made more acute by the nearness of the Northerners. Mathin mentioned that a young woman named Senay had done well; a place should be offered to her when the army was ready to march. The kysin had ranked her high, and so she was still in the City, hoping for such a summons. â€Å"Where is her home?† Corlath asked. Mathin frowned, trying to remember. â€Å"Shpardith,† Harry said. â€Å"Shpardith?† Mathin said, surprised. â€Å"She must be old Nandam's daughter. He always said she'd grow into a soldier. Good for her.† â€Å"Mathin's growing into a billitu, do you think?† said Innath, and a ripple of laughter went around the table. Harry turned to look at Mathin, and thought he was looking even more stolid than usual. â€Å"I choose only the best,† said Mathin firmly, and everyone laughed again. A billitu is a lady-lover. Harry smiled involuntarily. No one mentioned the brilliant performance of the youngster on the big chestnut Tsornin who had had the luck to carry off the honors, and Harry began to relax as the meal progressed, although, she thought, staring into her goblet, the wine was probably helping. All was cleared away at last, and then came a pause so measured and expectant that Harry knew before she saw the man bearing the leather sack that they would bring out the Water of Seeing. This time she could understand when the Riders spoke of what they saw: war was in almost everyone's eyes, war with the Northerners, who were led by someone who was more than a man, whose sword flickered with a light that was the color of madness, and terror filled the heart of anyone who rode against him. Faran laughed shortly and without mirth and said that what he saw was no use to anybody; Hantil saw his own folk riding grimly toward the City bearing a message he did not know. Hantil came from a village in the mountains that were the northern border of Damar. â€Å"I do not like it,† said Hantil; â€Å"I have never seen my father look so stern.† Innath sighed over his Sight. â€Å"I see the Lake of Dreams,† he said, â€Å"as if it is early spring, for the trees are in bud. The Riders ride along its edge, but our number is only fifteen.† Mathin tipped a swallow of the Water into his mouth, and stared into the distance; and it was as though he were turned to stone, a statue in the stone City; but his face broke into a sweat, and the drops rolled from his forehead. Then he moved, became human again, but the sweat still ran. His voice was rough when he spoke: â€Å"I am on fire. I know no more.† As soon as Harry's hands closed around the neck of the flask, a picture swam before her; in the brown leather of the bag, among the fine tooling, there was another image placed there by no leather worker. She saw Tsornin standing on the desert, and his rider carried a white flag, or a bit of white cloth tied to the end of a stick. â€Å"What do you see?† asked Corlath gently, and she told him. She could not see the rider's face, for there was a white cloth pulled over nose and chin; but she shivered at the thought of seeing her own face so eerily: and worse yet, what if it were not her face? Tsornin broke into a canter and then a gallop, and Harry saw what he approached: the eastern gate of the General Mundy. Then the picture faded, and she was looking at the curiously tooled leather of the Water bag again. She raised it to her lips. Something like an explosion occurred in her head as she tasted the Water. She shuddered with the shock. Her right arm was numb to the shoulder, and it was her left hand's grasp on the neck of the bag that prevented her from dropping it. Then she felt another shock like the first, and realized that Tsornin was between her legs, and he screamed with rage and fear. The sky seemed to be black, and there were shouts and shrieks all around her, and they echoed as in a high-walled valley. One more of those shocks and she would be out of the saddle. She felt it poised to fall on her – and her vision cleared, and there was the table again. She looked at her right hand; it was still there. She looked up. â€Å"I don't – I don't know exactly what I saw. I think I was in a battle and – I seemed to be losing.† She smiled weakly. Her right arm was still not working properly, and Corlath lifted the bag out of her left hand. He took a sip in his turn; and Harry, watching, saw his eyes change color till they were as yellow as they had been the first time she had seen him in the Residency's courtyard. Then he closed them, and she saw the muscles in his face and neck and the backs of his hands tense till she thought they would burst through the skin; and then it was all over, and he opened his eyes, and they were brown. They moved to meet hers, and she thought she saw something of his vision still lingering there, and it was something like her own. â€Å"I have seen our enemy's face,† Corlath said calmly. â€Å"It is not pretty.† Then the man came to carry the Water away, and the wine was brought back, and the shadows were chased away for a little. The Riders began looking expectantly toward Corlath, but this was a happier expectancy than that which had predicted the Meeldtar, and Harry caught the eagerness herself, though she knew not what it was for, and looked around for clues. They had eaten their meal alone in the vast hall, and their few voices ran up into the ceiling like live things with wills of their own. But after the Water bag had been taken away, people had begun to appear around the small dais where the king and his Riders sat; they entered from all directions and settled on cushions or chairs. Some of them mounted the lower dais and sat around the great table that surrounded the Riders. More of the folk of the household appeared, some bearing trays and some low tables, and set out more food, or passed it among the increasing audience. There was a murmur of talk, low but excited. Harry rubbed her fingers up and down the length of the gold pin in her sash till it was no longer cold. One of the men brought Corlath his sword, and he stood up and slung the belt of it around him. Harry wondered sourly how many years it took to learn to sling oneself into a sword as easily as yawn; and then wondered if she wanted to spend so many years that way. Or if she would have the choice. She had not liked waking up to find herself clutching her sword hilt as a child might clutch a favorite toy. Perhaps it was as well to have to think of shoulder and waist, belt and buckle. Another man came in, carrying another sword. Corlath took this one too, and held the scabbard in his left hand, letting the belt dangle; and he pulled it free and waved it, gleaming, under the light of the candles in the great chandelier. There was a blue stone set in its hilt, and it glared defiantly in the light. This was a shorter lighter sword than Corlath's, but the suppleness of it, and the way it hung, waiting, in the air, gave it a look of infinite age, and sentience, as if it looked out at those who looked at it. â€Å"This is Gonturan,† said Corlath, and a murmur of assent and of recognition went around the hall; the Riders were silent. â€Å"She is the greatest treasure of my family. For a few years in his youth each son has carried her; but she was not meant for a man's hands, and legend has it that she will betray the man who dares bear her after his twentieth year. This is the Lady Aerin's sword; and it has been many a long year since there has been a woman to carry it.† Harry was staring at the blade, and barely heard Corlath's words; she was watching a flame-haired woman riding in a forest that seemed to grow against the flat of the shining sword; in her hand was another sword, and the hilt sparkled blue. All the other Riders were standing up, and Corlath reached down and seized her wrist. â€Å"Stand up, disi,† he said. â€Å"I'm about to make you a Rider.† She stood, dazed. A disi was a silly child. There was another who rode with the woman who carried the Blue Sword; he rode a few paces behind her. â€Å"A Rider?† Harry said. â€Å"A Rider,† Corlath replied firmly. She dragged her eyes away from the winking sword edge and looked at him. Another man of the household set a small flat pot of yellow salve at Corlath's right hand. The king dipped the fingers of that hand in it, then drew them to smear the ointment across his palm. He had shifted Gonturan to his left hand; now he seized the blade near the tip with his right, and gave it a quick twist. â€Å"Damn,† he said, as the blood welled between his fingers and dripped to the floor. He picked up a napkin and squeezed it. â€Å"Take my sword, Harimad-sol,† he said, â€Å"and do the same – but not so enthusiastically. I think, though, that Katuchim has not the sense of humor that Gonturan does, so do not fear him.† She dipped her fingers in the salve, and touched them gently to her palm; reached out and, as awkwardly as if she had never learned one lesson from Mathin, dragged Corlath's sword from its scabbard. It was so long she had to brace the hilt against the table to get a reasonable angle on the edge. She closed her fingers around it, thought about something else, and felt the skin of her palm just part. She opened her hand, and three drops of blood only sprang from the thinnest of red lines across her skin. â€Å"Well done!† said Mathin over her shoulder, and the Riders cheered; and the whole hall picked it up, shouting. Corlath grinned down at her, and she could not help smiling back. â€Å"There have been more graceful kings and Riders since the world began, but we'll do,† said Corlath to her, quietly, below the roar around them. â€Å"Take your sword, and mind you treat her well. You will have Aerin's shade to answer to, else.† Harry's fingers closed round the blue hilt and she knew at once that she would handle this sword very well indeed – or it would handle her. For a moment she found herself wishing that she had been carrying Gonturan the day of the trials, and at this a slow sly smile spread across her face. She raised her eyes to Corlath's face – he had taken his own sword back and sheathed it, and one of the Riders was tying the napkin around the wounded hand and saying something sardonic; but Corlath only laughed, and turned back to watch her. Such was the slow sly smile he offered her in return that she rather thought he knew just what she was thinking. â€Å"Damalur-sol!† the people cried. â€Å"Damalur-sol!†