Preview

True and Fair View

Powerful Essays
Open Document
Open Document
2496 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
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



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

You May Also Find These Documents Helpful

  • Good Essays

    Microsoft Word Document

    • 5970 Words
    • 15 Pages

    o What solutions does Leibler suggest to ensure that reporting entities do a better job at addressing the ‘true and fair’ requirement?…

    • 5970 Words
    • 15 Pages
    Good Essays
  • Satisfactory Essays

    Acc/290 Week 3

    • 286 Words
    • 2 Pages

    While some of these accounting concepts proved to be more difficult to grasp than others, it’s easy to see why they are so crucial to providing the most accurate financial statements possible. The skills gained have provided insight to what rigorous steps must take place within the accounting world in order to be…

    • 286 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    The purpose of this paper is to define accounting, and identify the four basic financial statements. The paper also explains how the different financial statements are interrelated to each other and why they are useful to managers, investors, creditors, and employees.…

    • 1007 Words
    • 5 Pages
    Better Essays
  • Good Essays

    Much success in today’s business world is tied in with numbers in the form of accounting and financial statements. Being able to understand and properly read these statements is a critical component in truly knowing a business and properly assessing its overall financial performance. Financial reporting is the issuance of written documents in the form of the financial statements by the companies to the shareholders, stakeholders and other interested parties. 'The objective of these financial statements is to provide information about the reporting entity's financial performance and position that is useful to the wide range of users for assessing the stewardship of the entity's management and for making economic decisions. 'To be 'useful,' this information must be 'represented faithfully, should be complete, prudent and free from material errors at least.' The purpose of imposing regulations on accounting practices and setting standards is to fulfil the objectives of financial statements.…

    • 862 Words
    • 3 Pages
    Good Essays
  • Good Essays

    A Financial Statement can be defined as, “Summary report that shows how a firm has used the funds entrusted to it by its stockholders (shareholders) and lenders, and what is its current financial position” (Business Dictionary, 2011). The Financial information is required for various users to make an informed Decision. “The purpose of financial information is to provide inputs for decision making” (Kimmel, Weygandt, Kieso, 2009, Para 1, p. 6). There are four different parts covered in a Financial Statement; those are Balance Sheet, Income Statement, Retained Earnings Statement, and Statement of Cash flow. The assignment will elaborate the purpose of each statement and differentiate its utility for different…

    • 749 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Qantas' Stakeholders

    • 351 Words
    • 2 Pages

    According to the Institute of Chartered Accountants in England and Wales “the objective of financial statements is to provide information about the reporting entity’s financial performance and financial position that is useful to a wide range of users for assessing the stewardship of the entity’s management and for making economic decisions”.(Institute of Chartered Accountants in England and Wales, 2002/2003, pg. 22) Furthermore, it says that this objective can usually be met by concentrating only on the information needs of present and potential investors which are the defining class of user. That is the reason why I will focus on present and potential stakeholders in the main part of this assignment.…

    • 351 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    The current set of principles that accountants use rests upon some underlying assumptions. The basic assumptions and principles presented on the next several pages are considered GAAP and apply to most financial statements. In addition to these concepts, there are other, more technical standards accountants must follow when preparing financial statements. Some of these are discussed later in this book, but other are left for more advanced study.…

    • 1303 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    Accounting is specifically “a system by which economic information is identified, recorded, summarized and reported for the use of decision makers”; however, accounting involves interpretation and analyzing of all financial information, including taxing, personal financial information and investment (Alba, Bathija, & Thonton, 2005). Accounting is defined as the language of business, in that it specifically records the financial data that is required for businesses to operate both efficiently and effectively. Modern accounting includes investigation, forecasting, analyzing, compliance, as well as record keeping and report generation (Gaylord & Ried, 2006). Accounting is said to be a service activity designed to accumulate, measure, and communicate financial information about businesses and other organizations and to provide information for making informed decisions about the business and about how to best utilize resources within the business (Albreacht, Stice, Stice, & Swain, 2008). Accounting leads to the generation of reports and documents, which include financial statements. If accounting is the language of business, then accounting financial statements are the dictionary that defines the terms and the rules of the language (Horngren, Harrison, & Oliver, 2012).…

    • 1445 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    The conceptual framework was established by the Financial Accounting Standards Board (FASB) and is used to help define the boundaries of accounting. It gives definitions of key terms and establishes consistent standards by which fundamental issues are defined. This makes it easier to facilitate discussion and leads to greater efficiency in making accounting judgments. The framework plays a major role in supporting the development of accounting standards used for neutral information, which is then used to make informed investment decisions, benefiting the public. The goal is to reduce the influence of personal biases and to give a fair judgment or ruling. This unbiased information can be used knowing that the best intentions of the public were being considered. This in turn should result in higher credibility and allow a more-informed judgment to be made. Another role of the framework is to provide an overall standard that can be discussed and debated and give appropriate guidelines so a scenario can be discussed adequately with appropriate pros and cons. This creates an atmosphere where a scenario can be clearly defined and a decision can be reached on the specific purpose of the intended rules and desired results (Foster, 2001).…

    • 1333 Words
    • 6 Pages
    Powerful Essays
  • Best Essays

    It can be argued that non-objective financial reporting is a result of two core issues: interpretation of accounting standards by preparers; and the conscious and unconscious bias of preparers and report users. The circumstances that cause bias to arise are examined in this section of the…

    • 2939 Words
    • 12 Pages
    Best Essays
  • Powerful Essays

    U.S. Securities & Exchange Commission, SEC . (2008). Office of the Chief Accountant and FASB Staff Clarifications on Fair Value Accounting, Press Release, No. 2008-234. Retrieved from http://www.sec.gov/news/press/2008/2008-234.htm…

    • 5361 Words
    • 22 Pages
    Powerful Essays
  • Powerful Essays

    Accounting Scandals 3

    • 10869 Words
    • 44 Pages

    Brennan N, McGrath M (2003). Financial Statement Fraud: Incidents, Methods and Motives, Working paper, University College Dublin…

    • 10869 Words
    • 44 Pages
    Powerful Essays
  • Better Essays

    Fair Value Accounting

    • 2109 Words
    • 9 Pages

    Casabona, P. 2007. The impact of accounting profession’s movement toward fair value reporting in financial statements: An interview with Theresa Ahlstrom, Long Island Office managing Partner, KPMG LLP. Review of Business 27(4):6-9.…

    • 2109 Words
    • 9 Pages
    Better Essays
  • Good Essays

    * Good and useful information should have the essential characteristics of understandability, comparability, relevance and reliability in order to play its role effectively. Accounting standards serve to promote the understandability , comparability, relevance and reliability of financial reports.…

    • 470 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    Conceptual Framework

    • 1923 Words
    • 8 Pages

    This topic forms most of Section A (and has an influence on Section B) of the syllabus for Paper F7, Financial Reporting. A conceptual framework is important to the understanding of the many principles and concepts that underpin International Financial Reporting Standards (IFRS) and is an often-neglected part of candidates’ studies. Questions from these areas regularly appear in Paper F7 exams – usually as Question 4 – and I often comment in my examiner’s report that they are the least well-answered question in the exam paper; the questions also have a high incidence of candidates not attempting them at all. This article is intended to illustrate the relevance and importance of this topic. What is a conceptual framework? In a broad sense a conceptual framework can be seen as an attempt to define the nature and purpose of accounting. A conceptual framework must consider the theoretical and conceptual issues surrounding financial reporting and form a coherent and consistent foundation that will underpin the development of accounting standards. It is not surprising that early writings on this subject were mainly from academics. Conceptual frameworks can apply to many disciplines, but when specifically related to financial reporting, a conceptual framework can be seen as a statement of generally accepted accounting principles (GAAP) that form a frame of reference for the evaluation of existing practices and the development of new ones. As the purpose of financial reporting is to provide useful information as a basis for economic decision making, a conceptual framework will form a theoretical basis for determining how transactions should be measured (historical value or current value) and reported – ie how they are presented or communicated to users. Some accountants have questioned whether a conceptual framework is necessary in…

    • 1923 Words
    • 8 Pages
    Powerful Essays