True and Fair View
According to the auditor opinion, the Companies Act of 1985 states that auditors’ report must state whether the annual accounts give a true and fair view in accordance with the relevant reporting framework. In normal English, true means ‘in accordance with the facts’ and fair means ‘free from dishonesty or impartial.’ In accounting principle, true and fair view means that the financial statements are free from material misstatements and faithfully represent the financial performance and position of the entity.The true and fair requirement has been fundamental to accounting in the UK for many years. However, they are not intended to be a comprehensive code of rigid rule but departures from them should be disclosed and explained.
There is more than one accounting treatment for many events and transactions. It is a great puzzle to many people that companies could produce different accounting statements for one particular period of time, each of which would show a true and fair view. The answer focuses on the very small indefinite article word ‘a’. The requirement of law is for ‘a true and fair view’ but not for ‘the true and fair view’. Thus the directors do not have to find the very best true and fair view which may surprise some users of financial statements (Weetman, 2006). For example, valuing stock, sold after date at a profit, at cost gives a true and fair view. Valuing damaged stock, which can only be sold at a loss, at cost would not give a true and fair view.
On the other hand, IFRS themselves use the expression ‘present fairly’ rather than ‘true and fair’. ie: “Financial statements shall present fairly the financial position, financial performance and cash flow of an entity”.
The meaning of true and fair view is constant in law and has not changed since 1947. Nevertheless, the content of the concept is subject to change and development. In addition, new accounting standard will be drawn at progressive levels from time to time, and established
There is more than one accounting treatment for many events and transactions. It is a great puzzle to many people that companies could produce different accounting statements for one particular period of time, each of which would show a true and fair view. The answer focuses on the very small indefinite article word ‘a’. The requirement of law is for ‘a true and fair view’ but not for ‘the true and fair view’. Thus the directors do not have to find the very best true and fair view which may surprise some users of financial statements (Weetman, 2006). For example, valuing stock, sold after date at a profit, at cost gives a true and fair view. Valuing damaged stock, which can only be sold at a loss, at cost would not give a true and fair view.
On the other hand, IFRS themselves use the expression ‘present fairly’ rather than ‘true and fair’. ie: “Financial statements shall present fairly the financial position, financial performance and cash flow of an entity”.
The meaning of true and fair view is constant in law and has not changed since 1947. Nevertheless, the content of the concept is subject to change and development. In addition, new accounting standard will be drawn at progressive levels from time to time, and established