True and fair : the legal, academic, professional and operational perspectives

• Main Author: Tan, Geok Hua
• Other Authors: Seah Chai Lian
• Format: Final Year Project
• Language: English
• Published: 2015
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/64548
• Institution: Nanyang Technological University

The statutory quality standard for companies accounts - " true and fair ", has received considerable attention since the equivalent concept of " full and fair " first made its debut in a UK statute in 1844. Much of the controversy which arose has been due to the absence of a precise definition from the legislation as to its meaning within the context of successive Companies Acts. In view of this, much of the interpretation is left to the judgement of the interested parties - namely the auditors who give the audit opinion on the truth and fairness of a set of financial statements and the various users who make use of audited financial statements in their decision-making process. An understanding of the meaning of the concept is necessary among auditors, as it forms the basis of his decision on the type of audit opinion to give. Users of financial statements rely on the opinion of the auditor in their decision making process. It is essential for users to know the meaning of the audit opinion, which would in turn define the scope of an auditor's responsibilities , to avoid placing undue reliance on the audit report to the auditor's detriment. If an expectation gap exists between the auditors understanding on the one hand, and that of the users in the other, the consequence is that the auditor may operate in a litigious environment. This project among others, will trace the origins of the concept of " true and fair " and the evolution process through legislative developments, within the UK and us context. It is found that the legislature does not provide any definition to the concept. In view of this, the task of interpreting the concept is left to the courts. A few cases have come before the courts which questioned the meaning to be afforded to the concept. The judicial position in the UK courts however, still appears to be unsettled. Earlier cases suggest that " true and fair " should reflect the actual state of affairs, and not merely arithmetical accuracy or mere compliance with generally accepted accounting principles. There have however, been exceptions to this rule in later cases. From the us courts, we derive that mere compliance with generally accepted accounting principles is insufficient to satisfy the standard of " true and fair " Also, the cases point to the extension of the auditors' duty to monitor the financial affairs of the auditee company even after the audit opinion is given. The concept has also received considerable attention within the academic arena. This project has also included a literature review which looks at the more prominent articles within the time frame of 1965 to 1992. An interesting trend appears to be emerging from the literature, in that the more recent articles have proposed that the concept be eliminated entirely, in place of a more clearly defined framework. ( See Chapter 3 )