True and Fair View
The Meaning Of ‘True and Fair’
The expression ‘true and fair’ is one of the most common expressions used in the financial industry today. It is used to describe the required standard of financial reporting but equally to justify decisions, which require a certain amount of arbitrary judgement making. It is the principle that is used in guidelines ranging from auditing and financial standards to the company law acts.
The term originated …
The aim of the financial statements is to report to the shareholders on the financial position at the year-end, and the performance of the company over the year. They are also important for tax computations, for management decisions and quotations from lending institutions. Thus, it can clearly be seen why independence and objectivity are important in the statements. Thus, some kind of measure is needed.
A true and fair view is one of the bedrock principles of preparing financial information. This can be linked back to the four basic concepts on presenting this information: going concern, accruals (matching), consistency, and prudence. As stated in Financial Accounting (Arnold, Hope, Southworth and Kirkham; 1994, p56):
…without some form of standardised accounting treatment of financial transactions, it would be very difficult for a user of accounts to compare the performance of an organisation either through time or with the performance of other organisations.
This is very similar to The Statement Of Principles for Financial Reporting (SOP, 1999) and Chapter 3, which details The Qualitative Characteristics Of Financial Information: relevance, reliable, comparability, understandable.
But how can the accountant be sure that the statements show a true and fair view, especially when there is no precise definition. There are many definitions and explanations in the Statement of Principles, but they are qualitative rather than specific measurements. Elliot & Elliot (1997, p189) offer
The expression ‘true and fair’ is one of the most common expressions used in the financial industry today. It is used to describe the required standard of financial reporting but equally to justify decisions, which require a certain amount of arbitrary judgement making. It is the principle that is used in guidelines ranging from auditing and financial standards to the company law acts.
The term originated …
The aim of the financial statements is to report to the shareholders on the financial position at the year-end, and the performance of the company over the year. They are also important for tax computations, for management decisions and quotations from lending institutions. Thus, it can clearly be seen why independence and objectivity are important in the statements. Thus, some kind of measure is needed.
A true and fair view is one of the bedrock principles of preparing financial information. This can be linked back to the four basic concepts on presenting this information: going concern, accruals (matching), consistency, and prudence. As stated in Financial Accounting (Arnold, Hope, Southworth and Kirkham; 1994, p56):
…without some form of standardised accounting treatment of financial transactions, it would be very difficult for a user of accounts to compare the performance of an organisation either through time or with the performance of other organisations.
This is very similar to The Statement Of Principles for Financial Reporting (SOP, 1999) and Chapter 3, which details The Qualitative Characteristics Of Financial Information: relevance, reliable, comparability, understandable.
But how can the accountant be sure that the statements show a true and fair view, especially when there is no precise definition. There are many definitions and explanations in the Statement of Principles, but they are qualitative rather than specific measurements. Elliot & Elliot (1997, p189) offer
References: FRS3: Reporting Financial Performance, 1992 FRS5: Reporting The Substance Of Transactions, 1994 FRS 12: Provisions, Contingent Liabilities and Contingent Assets, 1998 FRS 14: Earnings Per Share, 1998 SSAP9: Stocks & Long-Term Contracts, 1988 SSAP17: Accounting For Post Balance Sheet Events, 1980 SAS140: Engagement Letters, 1995 SAS220: Materiality And The Audit, 1995 SAS300: Accounting And Internal Control Systems And Audit Risk Assessment, 1995 - The Irish Companies Act 1986 - Chisman, Neil, “The Politics of the True and Fair View”, Accountancy, London, Volume 122, No. 1261, 1998 (Web Database) - Alexander, David, “True and fair: The European Perspective”, Accountancy, Volume 121, No - Accounting Standards Board, “Introduction To The Statement of Principles for Financial Reporting”, 1999. BOOK REFERENCES - Elliot, Barry and Elliot, Jamie; Financial Accounting & Reporting, 1997, Prentice Hall - Glautier, Mw and Underdown, B; Accounting Theory & Practice, 1994, London: Pitman - Arnold, John; Hope, Tony; Southworth, Alan; and Kirkham, Linda; Financial Accounting, 1994, Prentice Hall - Lewis, R; & Pendrill, D; Advanced Financial Accounting, 2000, Financial Times/Prentice Hall