The 'true and fair view' in financial reporting

Résumé du document

Originally, one major concept was stressed in the United Kingdom: the ‘true and fair view' in financial reporting. This concept was so popular that it even overrode the little regulation that existed then. In recent years, the increase in accounting regulation started to put in jeopardy the status of this concept. Indeed, one may think that true and fair no longer serves a useful purpose as it reflects and is defined only by the rules set. Had it not been for its symbolic role, this principle would have disappeared; still it remains very vivid in British accounting. The notion of a true and fair view has always been central in British accounting. Indeed, in 1947, following the tradition of ‘full and fair' statements in the 1844 Join stock Companies Act or ‘true and correct' requirements issued in 1900, the Companies Act stated that financial reporting should give a ‘true and fair view' of financial statements.

Extraits

[...] It is essential this should be preserved which legitimizes the use of such mythical concepts in accounting. Furthermore, the legal residual clause interpretation of the concept must not be put aside, since it is supposed to help judges cope with overly strict norms and find an answer for complex situations. The ‘true and fair view' therefore allows legal flexibility in accounting in accordance with the context. Finally, according to Hopwood, the ‘true and fair view' is not some underlying principle meant to lead accountants in their tasks. [...]

[...] As a result, the meaning of the concept of true and fair seems to be weakened by this wave of regulation as now statements prepared in accordance with standards (FRSs and SSAPs) are presumptively true and fair while those not so prepared are less likely to be approved as true and fair by the court. The rules eventually blur the idea of the ‘true and fair view' and take on its part since the concept is most usually explained by past accounting decisions. Actually, the ‘true and fair view' override seems to be of no use insofar as the respect of accounting norms already allows to reach that ideal. [...]

[...] Each vision gives the concept a different level of usefulness, and when adding the advent in regulation in recent years the debate gets more complicated. II. ‘True and fair view' versus regulation Peter Walton describes three forces in accounting: first the statutory requirements, then the accounting recommendations and standards, both linked to the concept of the ‘true and fair view'. Before 1942, only brief statutory requirements were set aiming to a true and fair view. Undefined concepts allowed personal interpretations. Consequently, professionals were very independent as the fairness of accounts relied on their professional responsibility and discretionary power. [...]

[...] In addition, the ‘true and fair view' seems blurring as it depends on circumstances, cultural contexts. This is a dynamic notion bound to change with space and time in order to be adapted to new situations. Hence, a unique ‘true and fair view' does not exist. For instance, when extended to the European Union, it can embody different meanings considering the country in which it is applied creating massive work for harmonization. The ‘true and fair view' is often interpreted in three different ways in the literature. [...]

[...] Eventually, the ‘true and fair view' principle is not dead yet inasmuch as it has managed to reach the European and international levels owing to its insertion in the IASC's Framework with IAS 1 setting a ‘fair presentation' override of very close to the ‘true and fair view' concept already found in the European Union Forth Directive. References Parker R. (2000) “Financial reporting in the United Kingdom” in Nobes C. and Parker R. Comparative International Accounting Peter Walton true and fair view in British accounting” in the European accounting review 1993 Peter Walton La comptabilité anglo-saxonne Edition la Découverte, collection Repères Martyn Trotman Comptabilité britannique Mode d'emploi Economica Walton P., Haller A. & B. [...]