‘True, Fair View Still Important in GAAP, IFRS’
The true and fair view remains of fundamental importance in both UK GAAP and IFRS, said the Accounting Standards Board (ASB) and Auditing Practices Board (APB) of the Financial Reporting Council (FRC).
A paper published today for preparers and auditors explains the continuing primacy of the true and fair requirement and its relevance to preparers, those charged with governance and auditors.
In a May 2008 statement on the other hand, the FRC noted that the “‘true and fair’ concept has been a part of English law and central to accounting and auditing practice in the UK for many decades.
“There has been no statutory definition of ‘true and fair’. The most authoritative statements as to the meaning of ‘true and fair’ have been legal opinions written by Lord Hoffmann and Dame Mary Arden in 1983 and 1984 and by Dame Mary Arden in 1993,” the statement said.
“Since those Opinions were written, there have been some significant changes in accounting standards and company law which have led some to question whether the views expressed in those Opinions remain applicable,” the FRC said.
In these circumstances, the FRC deemed it conducive for its preparers, auditors and users of financial statements to commission a further legal opinion to ascertain whether the approach to ‘true and fair’ taken in the opinions needs revision.
“Directors must consider whether, taken in the round, the financial statements that they approve are appropriate,” according to the statement.
“Similarly, auditors are required to exercise professional judgment before expressing an audit opinion. As a result, the Opinion confirms that it will not be sufficient for either directors or auditors to reach such conclusions solely because the financial statements were prepared in accordance with applicable accounting standards.”
The FRC said it believed this opinion is an important confirmation of a key contributor to the integrity of financial reporting in the UK.
Commenting, ASB Chairman Roger Marshall said: “The concept of true and fair has underpinned UK GAAP for many years.
“Concerns have been raised about the relationship of true and fair to IFRS in some quarters, not least in evidence to the recent House of Lords Economic Affairs Committee inquiry into audit market concentration. The purpose of our paper today is to remind both preparers and auditors that the true and fair requirement remains of fundamental importance in both UK GAAP and IFRS.”