ACCT20074 Contemporary Accounting Theory for True and Fair Viewt

Answer

True and Fair View

Introduction

Financial reporting is the process whereby all relevant business financial and accounting information is openly availed to the public. Members of the public are therefore should be free to scrutinize the information. At the same time, the manager is expected to have provided the true and accurate accounts and information in the availed records. Financial and accounting records are not meant for the stakeholders only. Instead, they should be accessed by anyone with a vested interest. As a result, the people who are tasked with the responsibility of preparing them must ensure that they depict a true and fair view. They must be correct and not misleading.

History of the True and Fair View

The concept of “true and fair” has been used in the United Kingdom as a law for many decades. The accounting and auditing sector, in particular, has fully embraced the term as a crucial law that must be followed by everyone in the sector. The origin of “true and fair view” can be traced to more than 100 years ago. In 1844, the United Kingdom put in place a regulation act for companies. The act required the companies to prepare balance sheets that were full and fair. The true and fair view statement soon evolved and became a device that brought sanity into the financial and accounting sector in the UK (Everingham, Kleynhans, & Posthumus, 2007). The other English-speaking nations of the world immediately started to exercise the concept. Australia which equally had adamant links with the United Kingdom introduced the concept of “true and fair view” in the operation of its companies (Karan, 2015). The Aus

 The very first authoritative statement to have been written regarding “true and fair view” was done by Lord Hoffmann in 1983, and a year later in 1984. Dame Mary Arden too wrote an authoritative statement in 1994 elaborating the meaning of the term “true and fair.” Following the publication of the statements, several changes have been made in the company law and accounting standards. Some people have also come out to openly support the views that were expressed Dame Mary Arden in 1983-1984 and Lord Hoffmann in 1993 (Opperman, 2009). Mr. Moore, for example, endorsed the statements and proposed for the introduction of “true and fair view” as a requirement during all financial statements’ preparations in the United Kingdom. The statement demands integrity from all financial auditors. The auditors have been expected to exercise professionalism in the undertaking of all financial activities. The have been some financial statements which have been prepared with individualized accounting standards. Despite the variations, “true and fair value” has applied to all the statements irrespective of their origins. The term has been converted to the law in the accounting and financial sector and therefore applies to all. The term has been found to be a very important contributor in ensuring that integrity is exercised in all financial reporting in the country (ASIC Act, 2011).

Many countries across the world have since embraced the “true and fair view” in their accounting and financial sector. Every financial sector in the world is expected to uphold integrity yet “true and far value” advocates for the observation of integrity in all the activities that are carried out concerning financial and accounting practices (Everingham, Kleynhans, & Posthumus, 2007). Many countries have today incorporated the statement of true and fair view into their legislations. In Australia for example, the Corporation Act was enacted in 2001 to ensure that “free and fair view” in financial reporting is protected by law (ASIC Act, 2011). The act has since forced all companies in the country to comply with the accounting standards that have been set by the government. Despite all these efforts, there has been a feeling from some quarters that the statement has not been accorded the prominence that it deserves. It has been claimed that the statement has not been acceptable as expected. Some people have gone a step ahead to claim that the statement should not be a topic of discussion anymore.

Historical purpose of True and fair view

The importance of true and fair view has been recognized all across the world. Many countries have listed it as one of the key responsibilities that every company director must uphold. The United Kingdom enacted the companies’ act of 2006 to protect the statement by law. The act made it possible so that those who fail to exercise true and fair values could be arrested and taken to a court of law. All accounting auditors were equally tasked with the responsibility of ensuring that all company directors fulfilled the responsibility (Riahi-Belkaoui, 2004). Some jurisdictions also had company laws that required auditors to categorically state whether financial statements presented were true and fair or not. “True and fair value” is not just a mere statement that is associated with accounting standards simply because it had been proposed by someone and then embraced by the majority. The essence of the statement is to ensure that companies can provide recognized, presentable and measurable aspects during financial reporting. The presented statements should give a true picture of the existing economic reality. As a result, it will provide a true and fair view (Everingham, Kleynhans, & Posthumus, 2007). “True and fair view” have ensured that accounting standards are attained following extensive consultations once all due processes have been followed. Reviews must always be performed to ensure that all the records meet the set criteria so that it would be embraced by all the parties concerned. The statement, “true and fair value” has ensured that directors operate within legal mandates whereby they only approve accounts that have been confirmed to true and fair. This has ensured that inappropriate judgments are avoided at all cost.

Disagreements regarding some standards have been able to happen on their own. However, the statement of true and fair has provided a link of departing from such situations. Alternative measures have been resorted to in cases whereby there has been insufficient information to explain some issues (Karan, 2015). The alternative information has provided an additional disclosure hence promoting integrity. “True and fair value” has prompted managers and auditors to embrace legally accepted policies in accounting and finance. The adoption has been carried out even if it means that the move would make the company depart from its regular standards (Riahi-Belkaoui, 2004). Failure by directors to ensure true and fair values can easily land them in jail. Such circumstances commonly arise when they are not contemplated at the time of development of the recommended standards. The true and fair view has successfully eliminated unethical practices which have been experiencing for a long time in financial reporting (Riahi-Belkaoui, 2004). Applications in finance and accounting have been designed such that they can be used by companies and organizations for their benefit. No company or organization would like to fail in its mandate. There are therefore forced by law to uphold integrity. One of the ways of ensuring that integrity is upheld the promotion of ethical values. True and fair value advocates for the same. Adoption of ethics in accounting and financial management guides company managers (ASIC Act, 2011). The managers in the process hold a true and fair view without realizing. Also “true ad fair view” has eliminated financial mismanagement practices that were commonly reported in the past. Managers have come to learn that they have to account for all their financial and accounting activities.

The incorporation of the statement has emphasized on the moral virtues. It also emphasized on actions that attract disciplinary actions when carried out during the day. Trust and transparency have been promoted since the introduction of true and fair view. Many managers have come to learn that benefits of transparency are enjoyed by all the people who are related to the company in one way or another. True and fair view promotes confidence from people, shareholders, suppliers and customers (Opperman, 2009). It is, therefore, the most basic aspect that must be embraced by all the parties that are involved in financial and accounting reporting. Financial managers have been able to furnish customers, stakeholders and business partners with financial data that can be easily understood by all the people who are concerned about the performance of such companies or organizations (Everingham, Kleynhans, & Posthumus, 2007). Accounting principles have been consistently applied, amounting to true and fair judgment.

Extent to which the Australian regulatory environment for financial reporting supports the TFV.

The Australian government introduced the concept of “Free and fair view” in its legislation back in 1890. The introduction was done following the corporation law amendment of 1890. The law has since been supported by the accounting standards in the nation (ASIC Act, 2011). In 2001, the Australian legislators once again passed the Corporation Act. The act was put into action to ensure that all accounting standards in the country are in compliance with true and fair values. The Corporation Act has been subdivided into seven sections. The first section of the Corporation Act discuss the legal views of accounting regarding True and fair view. The section two of the Act discus true and fair view of an Australian law that must be observed by all companies that undertake their operations in the nation (Karan, 2015).

 Section six of the law gives justifications that can be used in determining whether accounting standards of any company are in compliance with “true and fair view” or not. The Corporation Act has provided a legal view to TFV. The result has led to the conservation among managers when it comes to financial reporting. The statutory audit has been introduced. Some people in Australia have been reluctant in accepting the principles of conservation (Karan, 2015). To satisfy the ego of that group of people and uphold integrity in the accounting sector at the same time, the Australian government has permitted optimism and innovation in financial and accounting reporting (Karan, 2015). The move has promoted liberal accounting while at the same time upholding the principles of “true and fair view.” Since “true and fair view” upholds societal principles the Australian government has been a step ahead in ensuring that the concept is applied in all accounting work in the nation. Every democratic government would like to promote ethical values within its society. It is for that reason that the Australian government has enacted laws that would promote and uphold good ethics and integrity among its people (ASIC Act, 2011).

The Corporation Act of 2001 has clearly assigned responsibilities to varies personalities in companies to ensure that “true and fair view” is exercised without fail. Company directors have been assigned the duty of ensuring that there are care and diligence in their areas of jurisdiction (Everingham, Kleynhans, & Posthumus, 2007). It is a requirement for all managers to be fully involved in the operations within the companies. The director must oversee all the activities of all the people who have been assigned responsibilities in the company. The director must also keep copies of all financial and accounting records of the company. He/she is therefore in a position to request for further auditing of the records to ensure that they are free and fair. Australian laws give power to company managers to take action against employees who are promoting unethical practices in companies. Managers and directors are therefore empowered in their work. They can ensure that all financial and accounting records are accurately completed. They must ensure that all the accounting policies are implemented according to the Corporation Act of 2001 (Karan, 2015).

Accounting standards in Australia have been recognized worldwide given the high quality that has been upheld in the sector. The government has recognized the respect that the country has been accorded in other parts of the world. To continue the good trend that has earned the sector such a good name, the Australian government has offered support to the industry. The government has fully backed all legislation laws that have been directed towards ensuring that “true and fair views” is exercised in all accounting and financial reporting (ASIC Act, 2011).

Conclusion

Promotion of ethical values and integrity is a practice that is encouraged in all societies of the world. The main objective of “true and fair views” is the promotion of sanity in the financial sector. The true and fair view has eliminated the creation of false sense that some parties have created in the financial and accounting sector. It has also brought an end to a moral cloak which has protected the activities of corporate opportunists. It is for the reason that some governments have incorporated the statement into their laws through enacting of acts of parliament. More than 100 years have passed since the concept was first introduced and exercised. The many years that have passed since the concept was first introduced is evident that “true and fair view” is an exquisite principle. It may be argued that TFV could be misleading because of some opposition that it has faced in some quarters, but that is not the case.

Misleading accounting malpractices have been a thing of the past in countries that have fully embraced the concept. It can, therefore, be concluded that the people who have been on the front line in the fight against “true and fair view” concept do not deserve to work in the financial sector. Such people are likely to promote dishonesty and unethical values. It is therefore so that “true and fair view” be embraced in all financial and accounting records. Other countries should follow in the footsteps of the United Kingdom and Australia by enacting laws that would support and protect the concept.

References

ASIC Act. (2011). Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations. Sydney: CCH Australia Limited.

Everingham, G. K., Kleynhans, J. E., & Posthumus, L. C. (2007). Principles of Generally Accepted Accounting Practice. Juta and Company Ltd.

Karan, R. (2015). Irreconcilable Legal and Accounting Views of ‘A True and Fair View’:. Journal of Law and Financial Mangement, 44-50.

Opperman. (2009). Accounting Standards. Juta and Company Ltd.

Riahi-Belkaoui, A. (2004). Accounting Theory. Cengage Learning EMEA.