true and fair financial statements

[waqas_naeem]

To prepare financial statements which gives <b>true and fair</b> view of business state of affairs.

1.what is meant by phrase "TRUE AND fAIR"?
2.How to determine that financial statements are true and fair?
3.who is responsible to ensure that statements are true and fair?
4.who will determine that statements are ture and fair?

[faisal_desperado]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by waqas_naeem</i>
<br />To prepare financial statements which gives <b>true and fair</b> view of business state of affairs.

1.what is meant by phrase "TRUE AND fAIR"?
2.How to determine that financial statements are true and fair?
3.who is responsible to ensure that statements are true and fair?
4.who will determine that statements are ture and fair?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Dear Waqas,
The respective responses to your queries are the followings.

1- The term “True and Fair” with regards to the financial statements implies that these statements should be presented fairly and should follow accurate and unbiased views with respect to the Financial Position, Financial Performance and Cash flow of an entity so as to avoid any possible susceptibility.

2- To ascertained whether financial statements are True and Fair, aforesaid should be complied, as provided in “1” above.

3- Primarily, this is the responsibility of the Management to ensure whether the statements are True and Fair.

4- This is the responsibility of the Auditor to determine whether Statements are true and fair, ultimately, since initially, Statements are presented to the Management / CEO for approval, however, if the accounts, in spite of having biases in presentation, are approved by the management then ultimately Auditor shall have to ensure whether the Statements are true and fair.



Best Regards,

[mhn786]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by faisal_desperado</i>
<br />[quote]<i>Originally posted by waqas_naeem</i>
<br />To prepare financial statements which gives <b>true and fair</b> view of business state of affairs.

1.what is meant by phrase "TRUE AND fAIR"?
2.How to determine that financial statements are true and fair?
3.who is responsible to ensure that statements are true and fair?
4.who will determine that statements are ture and fair?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Dear Waqas,

The respective responses to your queries are the followings.

1- The term “True and Fair” implies that Financial statements should be presented fairly in all mateiral respects and are inaccordance with the applicable IFRS & other related laws & regulations.

2- Their are certain procedures that an auditor applys to ascertained whether financial statements are True and Fair

3- Primarily, this is the responsibility of the Management to ensure whether the statements are True and Fair.

4- This is the responsibility of the Auditor to determine whether Statements are true and fair,


Best Regards,

MHN

[Odyssee]

The following excerpts from ACCA Study Text for Paper P7, 'Advanced Audit & Assurance', published by Kaplan, might be of help to further clarify the meaning of True and Fair.

<b>The meaning of True and Fair</b>

True and Fair has never been defined as a concept by the courts and yet it appears in legislation, financial reporting standards, and auditing standards throughout the world.

Possible definitions

Auditors should attempt to ensure that the financial statements that are subject of the audit present clearly and equitably the financial state of affairs of the enterprise. This suggests that in order to achieve the statutory true and fair view, it is necessary not only
<ul><li>to present certain information impartially, but also </li><li>that this data is shown in such a way that it is clearly understood by the user </li></ul>

<b>'Truth'</b> in accounting terms can be taken to mean not factually incorrect.

The word <b>'Fair'</b> can have the following meanings
<ul><li>clear, distinct, and plain, and </li><li>impartial/unbiased, just and equitable. </li></ul>

Both can be considered relevant when <b>fair</b> is used in an accounting context.

Truth in accounting is quite different from scientific truth because
<ul><li>accounting does not deal with that type of truth that has a fixed and unchanging quality </li><li>costs and revenues for any accounting period that is less than the full life of each venture involved cannot be determined with precision </li><li>in accounting, only cash draws closer to the concept of scientific truth, but since the value of cash changes with time, it lacks total correspondence with the precision of scientific truth. </li></ul>

The following quotations represent authoritative views on the meaning of true and fair view although they predate the era of IFRS and ISAs.
<ul><li>"A true and fair view implies that all statutory and other information is not only available but is presented in a form in which it can be properly and readily appreciated."(Sir Russell Kettle- former president of ICAEW in the 1950s) </li><li>"A true and fair view implies appropriate classification and grouping of items..(and) consistent application of generally accepted accounting principles." (The Institute of Chartered Accountants in Australia- Recommendations on Accounting Principles 1964.) </li><li>"the meaning attached to (the words true and fair) has been built up over the years by standards of presentation specifically required by the Act; established accounting techniques; case law decisions; the natural desire of responsible directors of companies and auditors to ensure that the facts and figures that are presented to the public properly reflect the position, and last but not least common sense." (Sir Henry Benson, 1962. Senior partner, Coopers and Lybrand, now part of PwC.) </li> <li>"For an auditor to say that a financial statement is true and fair it must be
(a)Relevant to the business transactions, etc. it purports to describe.
(b)Objective, being free from any bias..and being based on unprejudiced and verifiable evidence that is capable of supporting it."(Lee- academic)</li> <li>"...true and fair has become a term of art. It is generally understood to mean a presentation of accounts drawn up according to accepted accounting principles using accurate figures as far as possible and reasonable estimates otherwise, and arranging them so as to show within the limits of current accounting practice as objective a picture as possible free from wilful bias, distortion, manipulation, or concealment of material facts." (Lee)</li></ul>

<b>So why is it a problem?</b>
FS represent a summarized version of what may be quite complex events. Consider
<ul><li>global companies like Coca cola, Nike or Microsoft with subsidiaries worldwide, and items such as brands and partly developed software that need to be valued </li><li>modern complex financial instruments </li><li>the impact of inflation and currency fluctutations </li><li>different accounting policies may be equally acceptable but produce different results</li></ul>

e.g At one time in UK, supermarket chains Sainsbury and Tesco used different accounting policies for dealing with the interest payable on borrowings used to finance the cost of constructing new stores.
<ul><li>One company treated the borrowings as finance for the business as a whole and expensed the interest charge directly. </li><li>The other company regarded the interest on borrowings as a part of the cost of developing the site and opening the store. As a result the interest was capitalized as part of the cost of the store and then amortized over the store's expected useful life.</li></ul>
Both treatments can be argued as giving a true and fair view.