UK regulators have issued a report emphasizing and reaffirming that the requirement that audited financial statements give a true and fair account of a company's operations remains of fundamental importance under both UK GAAP and IFRS. The Accounting Standards Board and the Auditing Practices Board also confirmed that fair presentation under IFRS is equivalent to a true and fair view. The Boards expect preparers and auditors of financial statements to always stand back and ensure that the financial accounts as a whole give a true and fair view and to be prepared, albeit in extremely rare circumstances, to consider using the true and fair override. They must also ensure that the consideration they give to these matters is evident in their deliberations and documentation. In the US, the analogous principle is that financial statements must fairly present the company's financial picture. The introduction of IFRS in the UK did not change the fundamental requirement for financial accounts to give a true and fair view. 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. 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. In these circumstances, the Boards concluded that it would be helpful to its preparers, auditors and users of financial statements if it commissioned a further legal opinion to ascertain whether the approach to true and fair taken in the Hoffmann-Arden Opinions needs to be revised. They instructed Martin Moore QC and his Opinion is now published on the FRC website. In his Opinion, Mr. Moore endorsed the analysis in the Opinions of Lord Hoffmann and Dame Arden and confirmed the centrality of the true and fair requirement to the preparation of financial statements in the UK, whether they are prepared in accordance with international or UK accounting standards. The true and fair concept remains paramount in the presentation of UK company financial statements, even though the routes by which that requirement is embedded may differ slightly. In his Opinion, Mr. Moore notes that, in relation to the gradual shift over time to more detailed accounting standards, that it does not follow that the preparation of financial statements can now be reduced to a mechanistic process of following the relevant standards without the application of objective professional judgment applied to ensure that those statements give a true and fair view, or achieve a fair presentation. Directors must consider whether, taken as a whole, the financial statements that they approve are appropriate. Similarly, auditors are required to exercise professional judgment before expressing an audit opinion. As a result, the Moore 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 Moore Opinion also states that the true and fair view is of an overarching nature. The concept is dynamic, evolving and subject to continuous rebirth. The preparation of financial statements is not a mechanical process where compliance with GAAP or IFRS will automatically ensure that those statements show a true and fair view or a fair presentation of the financial statements. Such compliance may be highly likely to produce such an outcome, but does not guarantee it. Any decision or judgment made by the preparer of financial statements is not made in a vacuum but is made against the requirement to give a true and fair view. The earlier Lord Hoffmann-Dame Arden Opinions noted that true and fair is a legal concept and the question of whether a company's financial statements comply with it can be authoritatively decided only by a court. The law uses these types of concepts, another example of which is reasonable care, and they are seldom difficult to understand, noted the Opinion, but generate controversy in their application to specific factual situations. There will always be a penumbral area where views may reasonably differ, said Lord Hoffman and Dame Arden. In his opinion in Her Majesty's Revenue & Customs v William Grant & Sons Distillers Limited, Lord Hoffmann said that, although the requirement that the initial computation must give a true and fair view involves the application of a legal standard, the courts are guided as to its content by the expert opinions of accountants as to what the best current accounting practice requires. The experts will in turn be guided by authoritative statements of accounting practice issued or adopted by the Accounting Standards Board. A 2001 opinion on true and fair obtained by the Hong Kong Society of Accountants noted that the concept is a dynamic one whose meaning remains the same over time, but whose contents could be expected to change.
Read more detail on Recent Banking and Finance Law Posts –Legal notice about the UK Regulators Emphasize Continued Relevance of True and Fair Principle under GAAP and IFRS rubric : Hukuki Net Legal News is not responsible for the privacy statements or other content from Web sites outside of the Hukuki.net site. Please refer the progenitor link to check the legal entity of this resource hereinabove.
Do you need High Quality Legal documents or forms related to UK Regulators Emphasize Continued Relevance of True and Fair Principle under GAAP and IFRS?