The true and fair view: exploring how managers, directors and auditors engage in practice

ABSTRACT

Financial reporting regulations and codes throughout the world require directors to declare that financial statements comply with applicable accounting standards and give a “true and fair” (or equivalent) view. External auditors are then required to provide an opinion on whether those two requirements are achieved. This study provides case-based insight into how managers, audit committee members, and external auditors engage with the true and fair concept in preparing financial statements. All interviewees valued the concept, arguing that it enabled robust discussion. For managers and audit committee members, it facilitated thinking and debate about underlying commercial substance. While compliance with accounting standards was perceived to achieve a true and fair view in most circumstances, there were exceptions. In some cases, managers responded by proposing the inclusion of disclosures which went beyond the requirements of accounting standards. However, external auditors were reluctant to endorse content which did not directly align with accounting standards. Our study contributes to debates regarding both the meaning of true and fair, and its ongoing utility.

KEYWORDS:

• True and fair view
• accounting standards
• financial statements

Acknowledgements

This paper has been developed from an honours thesis. The authors gratefully acknowledge financial support provided from the accounting discipline in which that thesis was undertaken. The authors also thank the interviewees from the anonymised case study university for availing access to the interviews provided. The authors would also like to thank Professor Christopher Nobes from the Royal Holloway College, University of London, Professor Jan Mouritsen from the Copenhagen Business School, the anonymous examiners of the thesis, participants at the 2017 AFAANZ Conference, Adelaide, Australia, and participants at a university seminar in November 2017, for comments on earlier drafts of this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Hereafter, anonymously referred to as the university.

2 Other terms used for this alternative profit calculation are ‘underlying profit’ or ‘underlying basis’.

3 The Australian Securities & Investments Commission.

4 International Financial Reporting Standards. Australia has ‘adopted’ IFRS, with some minor variations mostly focused on elaboration and explanation.

5 We verified this by examining the 2014, 2015, 2016, and 2017 financial statements for those three universities. In the interests of anonymity, the names of those universities are not disclosed in this paper.