The Financial Reporting Council (FRC) has published a statement reconfirming that the presentation of a true and fair view remains a ‘fundamental requirement in financial reporting’ under both International Financial Reporting Standards (IFRS) and UK GAAP to stop companies publishing misleading accounts.
The regulator said it had released the update on ‘true and fair’ following developments in UK GAAP and the now finalised European audit legislation, as well as the feedback from legal advice on the issue obtained by the FRC and the Department for Business, Innovation and Skills (BIS) in October 2013.
The FRC’s statement makes clear that the true and fair requirement is of fundamental importance in IFRS and UK GAAP, whether embodied in the new standards FRS 100 – 103, or the standards they replace.
The accounting regulator said that in the vast majority of cases a true and fair view will be achieved by compliance with accounting standards and by additional disclosure to fully explain an issue. However, it says that where compliance with an accounting standard would result in accounts being so misleading that they would conflict with the objectives of financial statements, the standard should be overridden. The FRC says it will continue to discharge its responsibilities in relation to the monitoring and enforcement of reporting on that basis.
In the document, the FRC says it expects expects preparers, those charged with governance and auditors to ensure that the accounts as a whole do give a true and fair view; to provide additional disclosures when compliance with an accounting standard is insufficient to present a true and fair view; to use the true and fair override where compliance with the standards does not result in the presentation of a true and fair view; and to include relevant deliberations in supporting documentation.
The FRC also wants to see improvements in IFRS reporting and in particular in the International Accounting Standards Board's (IASB) Conceptual Framework, to ensure that the objective of providing information that specifically helps investors assess the stewardship of the company’s assets; and the importance of exercising prudence, meaning the exercise of caution, in reporting.
Stephen Haddrill, chief executive of the FRC said: ‘The requirement to present a true and fair view in financial statements is enshrined in EU and UK law. This statement confirms the fundamental importance of this concept to UK GAAP and IFRS.’
The FRC’s statement is here: https://frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Policy/True-and-Fair-June-2014.pdf
